Bank of America Corp. announced Tuesday that it has appointed State Street Corp. to supply investment operations services to its entire fund unit, Columbia Management Group.
State Street will provide custody, fund accounting, and financial reporting for $224 billion of Columbia Management's assets, including the Columbia, Nations, Acorn, and Galaxy funds and other managed assets.
Christopher L. Wilson, Columbia Management's head of mutual funds, said State Street and Boston Financial, a joint venture of State Street and DST Systems, would supply investment services for all B of A funds. Five firms had provided these services, he said.
Creating a single platform to handle client services, Mr. Wilson said, would yield "substantial" savings for shareholders.
"This is a very big move, but it is a move that creates significant value for our fund shareholders," Mr. Wilson said. "We believe when we take our collective fund business rather than just components we are able to creates economies of scale in the marketplace."
Boston Financial will handle all record keeping and transaction processing, he said, and State Street will be the custodian for $224 billion of assets and provide fund accounting services.
Mr. Wilson said the move has no connection with the company's $515 million settlement with the Securities and Exchange Commission regarding alleged fund trading violations by Bank of America and the former FleetBoston Financial Corp. As part of the settlement, the Charlotte banking company was forced to quit the clearing business. Mr. Wilson said the arrangement announced Tuesday deals with fund record keeping, not clearing.
Jay Hooley, an executive vice president and head of investor services at State Street, said it has served the Columbia Funds for four years and continued to do so even after Bank of America's $49 billion purchase of Fleet last year. In this time State Street has supported 50 Columbia fund mergers, 190 accounting conversions, and 127 custody conversions.
Mr. Hooley said the $224 billion deal is among the largest custodial transactions ever.
"I have been around the U.S. mutual fund business for 20 years and don't remember a bigger mandate being awarded in such a fully integrated way," he said.
State Street, with $9.5 trillion of assets under custody at Dec. 31 and $1.4 trillion under management, is the leading provider of fund accounting in the United States. It serves more than 40% of the fund industry.
The custodial deal is the latest in a series of moves by Bank of America to streamline its mutual fund arm. It has consolidated 16 mutual funds and liquidated two others as part of its integration of the assets acquired in the Fleet deal. Columbia now has $330 billion of assets under management, including $201 billion of mutual fund assets in 114 retail, open-end portfolios.
In September Bank of America decided to move its wealth and investment management businesses to Boston, Fleet's headquarters before the merger. It moved 100 senior wealth management executives to the city.
The company had said it planned no major hiring in Boston. The operations hub there now will include more than 450 jobs. These include 100 new jobs - 40 in fund accounting and custody at State Street and about 60 in transfer agency services at Boston Financial - dedicated to Bank of America's operations.
Columbia's Mr. Wilson said it would take advantage of the hub and its cost savings to develop new assets. "We believe that our performance is very, very strong and, once we have completed this consolidation, the organic growth should yield increased sales and more assets under management."
