Staking a claim for leadership among asset custodians, Bank of New York Co. said Tuesday that it would acquire the global custody business of Royal Bank of Scotland PLC.
The deal, which Royal Bank valued at about $700 million, would vault Bank of New York over Chase Manhattan Corp. as the world's largest provider of securities processing and investor services and greatly expand its presence in Europe.
The Royal Bank unit, RBS Trust Bank Ltd., has over $640 billion of assets under administration and is the largest provider of pension fund services in the United Kingdom.
It would boost Bank of New York's assets under administration to $5.9 trillion, including $1.84 trillion of non-U.S. assets.
"This was one of those once-in-a-lifetime opportunities," said Thomas J. Perna, a Bank of New York senior executive vice president and head of global investor services.
As a more American-style mutual fund industry emerges in Europe, several U.S. banks are looking to the Continent as the next frontier for their custody businesses, which can include fund accounting and record keeping services; trustee and depositary services; and back-office processing.
Bank of New York's largest rivals in the business are Chase Manhattan, with $5.2 trillion of assets under administration, including $1.9 trillion of non-U.S. assets; and State Street Corp. in Boston, with $4.8 trillion of custody assets, including $362 billion non-U.S.
"The three of them are all jockeying for position," said Bradley Ball, an analyst at Credit Suisse First Boston.
Bank of New York has been aggressively building its non-U.S. custody business through acquisition, with a deal last year for the portfolio of London-based Coutts & Co. and one in 1996 for the portfolio of J.P. Morgan & Co.
Chase Manhattan has also expanded through acquisition, with a 1998 deal for the custody assets of Morgan Stanley Dean Witter & Co. In recent interviews, State Street executives said they preferred to build internally.
Mr. Perna said he expects 1999 "to see more acquisitions of global custody than in any single year in the past," including purchases by Bank of New York.
Mr. Perna said the Royal Bank business would boost Bank of New York's market share in three key customer segments: pensions, fund managers, and insurance companies.
The business also brings Bank of New York additional capabilities to service European retail investment funds, including acting as an outsourcer for fund managers that do not want to invest in their own back-office support, Mr. Perna said.
Analysts said Royal Bank's commanding lead among pension service providers in the United Kingdom would give Bank of New York access to an attractive client list to which it can cross-sell other bank products. Royal Bank's pension fund clients represent over half the Financial Times Stock Exchange index of 100 companies.
"Bank of New York expects to export those capabilities to the rest of Europe," said David Hilder, an analyst at Morgan Stanley Dean Witter & Co. "They have a strong track record" of cross selling.
The deal, which is scheduled to close in the third quarter pending regulatory approval, calls for Bank of New York to pay a premium to net assets of about $325 million plus another $325 million over a period of three years.
The acquisition also includes about $50 million for a 30% equity stake in RBSI Security Services Ltd., a Royal Bank processing unit on the island of Jersey.
"Following a strategic review, we concluded that Trust Bank would be better positioned as a subsidiary of a bank for whom the provision of administration services to investors, issuers, and intermediaries is a core business," said Sir George Mathewson, group chief executive of Royal Bank, in a statement.
RBS Trust operates out of London and has offices in Dublin, Edinburgh, and Luxembourg and 1,900 employees. Bank of New York has 1,200 global custody employees in London and Brussels. Mr. Perna said some jobs would be eliminated through hiring freezes and attrition.