State Street To Buy Intesa Unit For $2.5B

State Street Corp., a leading U.S. fund manager and administrator, agreed Tuesday to pay €1.75 billion ($2.5 billion) for the securities services units of Intesa Sanpaolo SpA.
The Italian bank is selling assets to strengthen its capital ratios, having on Sept. 29 decided to bypass state bailout funding. It said its core Tier 1 ratio will rise 37 basis points as a result of the transaction, and it will book a gross gain of €740 million.
Boston-based State Street aims to derive 50% of its revenue from outside the U.S., compared with 35% in 2008. Earlier this month it announced a deal to buy Jersey, Channel Islands-based Mourant International Finance Administration. "Today's acquisition represents a significant milestone in State Street's strategy to become a truly global provider," outgoing State Street CEO Ronald Logue said in a statement.
The Intesa operations changing hands are based in Italy and Luxembourg and cover securities with a market value of €350 billion. The operations have annual revenue of around €300 million and generate net income of €120 million, Intesa said. It noted that €1.28 billion of the price corresponds to the assets' goodwill value.
State Street has $17.9 trillion in assets under custody and administration and $1.7 trillion under management.
It expects to finance the acquisition through available capital and support the acquired balance sheet with about €560 million of additional capital at closing.
If the deal closes, as expected, in the second quarter of 2010, State Street projects it will incur €80 million of pretax merger and integration costs over five years and will achieve €60 million of savings over the same period. Depending on the timing of the closing, the purchase should be modestly accretive to operating earnings in the fiscal year ending 2010 excluding one-time costs, it added. State Street said its Tier 1 capital ratio should be 15.6% upon closing.
The deal builds on the Milan-based investment servicing business State Street established in 2003 with the acquisition of the global securities services business of Deutsche Bank AG.
Logue will retire in March and be replaced by Joseph Hooley, who is president and chief operating officer.
In the statement Hooley said the Intesa purchase will "provide State Street with access to a new customer base to which we can cross-sell additional products and services and will give us additional traction in the insurance market.
"Additionally, it will build on our leadership position in the high-growth areas of fund accounting and offshore fund servicing. Lastly, this acquisition will provide us with a long-term servicing relationship with one of Europe's premier fund managers," he added.
Rothschild and Banca IMI are advising Intesa, while McKinsey & Co. is providing consultancy services. The bank's law firm is Pedersoli e Associati.
Intesa, whose CEO is Corrado Passera, is Italy's second-largest bank behind UniCredit SpA. It has a market value of €38.4 billion, compared with UniCredit's €38.7 billion.
Intesa's shares were little changed on Tuesday.