U.S. Bancorp is acquiring SunTrust Banks Inc.'s municipal and corporate trust business to continue the expansion of its corporate trust business in the Southeast.
The deal, announced Tuesday, is expected to close this year. U.S. Bancorp did not say how much it would pay, but it said its corporate trust services would add assets of $123 billion under administration and about 4,700 new client issuances.
After the acquisition, the Minneapolis company's corporate trust division would have $2.5 trillion of assets under administration, 716,000 bondholders, and more than 92,000 client issuances.
The acquisition would boost U.S. Bancorp's operations in Atlanta, Miami, Nashville, and Richmond, Va., and give it a new location in Orlando. The deal was announced seven months after it acquired Wachovia Corp.'s corporate trust unit.
"We just have not had as strong a physical presence here, so with this acquisition right after the Wachovia acquisition, it really does solidly put us in the southeastern United States," Diane Thormodsgard, the president of U.S. Bancorp's corporate trust and institutional trust and custody services, said in an interview Tuesday.
SunTrust is on a campaign to jettison noncore operations.
David Eidson, an executive vice president in institutional investment management at the Atlanta company, said in an interview Tuesday that the decision to divest the trust business "was more about evaluating where we want to put our resources and was purely a business-mix management decision on our part."
SunTrust plans to retain "more value-added" corporate agency services, including custody, escrow, and short-term cash management services, Mr. Eidson said. "Our fastest growing area in corporate trust has been our agency services, and specifically our escrow services, and we will continue to grow that very aggressively."
U.S. Bancorp and Bank of New York Co. have been spearheading a recent wave of consolidation.
In April, Bank of New York said it would swap its retail and middle-market banking business for JPMorgan Chase & Co.'s corporate trust business and $150 million in cash. That swap, expected to close this quarter, would widen Bank of New York's lead in the trust business, where JPMorgan Chase is No. 2.
U.S. Bancorp claims the lead in municipal debt and asset-backed and mortgage-backed securities. Bank of New York says that it would be the largest in municipal debt and asset-backed securities after the swap with JPMorgan Chase.
However, U.S. Bancorp was the top trust bank in both the dollar amount and the number of issues handled in the first half. (See chart below.)
Buying the Wachovia unit lifted U.S. Bancorp's assets under administration by 32%, to $1.71 trillion. In addition to expanding its trust business in corporate, municipal, and asset- and mortgage-backed securities, the acquisition gave U.S. Bancorp 22 more offices, mostly in the Southeast and Middle Atlantic.
Observers say that U.S. Bancorp and Bank of New York become stronger as they get bigger in the trust business, because scale increases efficiency and gives them added expertise.
"To the extent that they continue to build up scale in some of these fee-based businesses, such as the fiduciary businesses, I would view it as a positive," Scott Siefers, an analyst at Sandler O'Neill & Partners LP, said Tuesday.
Ms. Thormodsgard said, "The size really does give you strength, because of the cost structure you are able to maintain and the expertise you're able to maintain in your people."
People in a bigger operation know about more deals, which increases their value to clients and the business, she said. "In a smaller shop it's harder to do that, because you just don't see everything."
