Wells Fargo & Co. says it is selling its institutional custody operation to Bank of New York Co. because it doesn't have enough scale in the business to compete.
The deal is expected to close before the end of the year. Wells sold its corporate trust business to the New York bank last winter.
"This is not a surprise on either side of the transaction," said Carole Berger, an analyst at Salomon Brothers. "Wells has no scale in the business, which makes it very hard for them to be profitable, whereas Bank of New York is one of the true scale players in the business."
The banks would not disclose terms of the deal, but analysts estimated Bank of New York would likely pay around $25 million to $30 million for Wells' $75 billion-asset custody business.
Bank of New York, which has $58 billion of total assets, has been one of the most active acquirers of such businesses in recent years, capitalizing on the recognition that profits come only to those with size. Revenue is typically about 3 basis points on assets, meaning that a large asset base is crucial, analysts said.
Bank of New York has such scope, controlling $3 trillion of assets under custody, according to the bank. Other big competitors in the trust business include State Street Corp., Mellon Bank Corp., Chase Manhattan Corp., and Northern Trust Corp.
For $105 billion-asset Wells Fargo, based here, most of what it agreed to sell last week came from its acquisition of First Interstate Bancorp last year, analysts said.
"They don't like the business, and like a lot of other smaller guys in the business, they are trying to get whatever they can by selling," said Ms. Berger.
David Hilder, an analyst at Morgan Stanley & Co., estimated the deal would be 2 cents accretive to earnings for Bank of New York. In March, Bank of New York completed its acquisition of Wells' corporate trust business, consisting of 5,000 bond trusteeships with $85 billion of outstanding securities.
Bank of New York provides custody and corporate trust services in 12 western states through its subsidiary, BNY Western Trust Co.