State Street has officially confirmed today that it was in exclusive negotiations with Deutsche Bank to buy parts of its custody business. No details were given, but the parts in which the Boston-based custodian is known to be interested are the American and UK custody clients (inherited from Bankers Trust) and the European fund administration operations in Dublin and Edinburgh. The major surprise which observers anticipate is the willingness of Deutsche to sweeten the deal by including its Depotbank fund servicing operations in Continental Europe.
The Continental European and Asian custody networks are thought to have attracted no interest, and will be retained by Deutsche. The deal should cost State Street up to USD 1.5 billion (less than the USD 2 billion the German bank was seeking) and add assets worth around USD 2 trilllion – enough to make State Street the biggest custodian bank in the world. It is unclear whether State Street is interested in the indexed management businesses owned by Deutsche.
Separately, Deutsche Bank confirmed the exclusive negotiations. It said the business units included in the proposed sale were Global Custody, Global Fund Services, Global Securities Lending, Global Performance Measurement (including The WM Company and InterSec) and the Benefit Payments businesses. In addition, domestic custody and securities clearing in the United States and the United Kingdom are included. Domestic custody in Continental Europe, Asia and Latin America are excluded from the transaction.
Deutsche added that the discussions are expected to be finalised in the fourth quarter 2002. A further announcement regarding the Global Securities Services business will be made once definitive agreements have been signed.
Deutsche Bank is conducting a separate review of its Passive Asset Management business and is making good progress in this respect. These divestment projects are further steps in the implementation of Deutsche Bank’s strategy to focus on core businesses.