UniCredit SpA and Banco Santander SA reached an agreement to merge their asset-management businesses in a transaction valuing the combined entity at about 5.4 billion euros ($5.8 billion).

The accord will create a holding company, that will control combined operations of UniCredit's Pioneer, excluding its U.S. activities, and Santander Asset Management, and will own Pioneer's U.S. business. The two lenders will each hold one third of the new combined business, while U.S. buyout firms Warburg Pincus and General Atlantic will own the rest. UniCredit and the funds will own Pioneer's U.S. business.

Santander and UniCredit are focusing on key lending activities as regulators urge lenders to build larger buffers of capital to withstand potential shocks. The two U.S. buyout firms already own half of Santander's asset-management division.

"This is a positive deal for both banks as the combined entity will enter in the top 10 European asset managers by size, allowing them to develop synergies, cut costs and improve capital," said Karim Bertoni, who helps manage 6 billion euros for the Swiss-based firm Bellevue Asset Management AG. "The only risk is that key people may leave in the uncertainty period following the transaction."

The new entity will manage about 400 billion euros, putting it among the 30 biggest world's asset managers, according to Bloomberg data. The ranking is led by BlackRock Inc with about $4.8 trillion of assets.

Santander sold half of its asset-management division, which oversees about 173 billion euros, to New York-based Warburg Pincus and General Atlantic in 2013.

UniCredit Chief Executive Officer Federico Ghizzoni is curbing risk, cutting expenses and shedding assets as part of a five-year plan targeting higher income and capital. The transaction will boost the lender's capital by 25 basis points. The deal includes a 1.1 billion-euro cash payment to UniCredit fromSantander and the funds, the Wall Street Journal reported, citing a person with knowledge of the details.

Santander Chairman Ana Botin is seeking to boost profitability by focusing on its commercial banking business in the bank's 10 main markets as she looks to be stricter in the way the bank allocates capital to its activities. The Spanish lender also agreed to sell last year half of its custodial businesses in Spain, Mexico and Brazil.

Juan Alcaraz, current CEO of Santander Asset Management, will be the CEO of the combined unit, and Giordano Lombardo, current CEO and chief investment officer of Pioneer Investments, will be the global CIO of the new company.

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