The combined company will be called Bank of New York Mellon Corporation and will be headed by Mellon’s current CEO, Robert Kelly.
Based in New York, the new group will combine the two banks’ total $16,600bn in assets under custody and $8000bn in assets under trusteeship. Its asset management business will be among the top 10 players worldwide with $1100bn in assets under management.
The record-keeping of the securities positions of large institutional investors may sound as mundane a business as it is profitable, however, its increasingly commoditised nature requires scale to sustain profits.
There has already been a swathe of banking M&A activity in the US in the past few years, including JPMorgan Chase with BankOne, and Bank of America taking over the MBNA credit card business and FleetBoston. Whether the Bank of New York/Mellon deal will lead to further activity in the securities and asset servicing businesses or the asset management business remains to be seen.
The deal has been warmly welcomed in the industry, with confidence expressed in the strong management team and some hope that prices will be lowered, although the likely reduction in operating costs may prove enough motivation for the creation of Bank of New York Mellon Corporation.
Analysts have been waiting for this deal for some time. The two institutions seemed a good fit in 1998, when Bank of New York attempted a takeover of the rival financial institution. The deal was turned down by then Mellon chairman Frank Cahouet, who reportedly lacked confidence in the offer, although it came at the price of $24bn.
Analysts do not just see scale opportunities in the deal. Some also look favourably on the positive influence that Mellon can have on Bank of New York’s organisation and the momentum that the Pittsburgh-based institution will bring to the new group.
Plans for the new group involve capitalising on the emerging markets’ evolution and growth in hedge funds. However, as a consequence of the acquisition, Mellon will sell its HBV Alternative Strategies hedge fund business to Mickey Harley, HBV’s chief executive. HBV will be renamed Fursa Alternative Strategies and will focus more on activist strategies.
Nasdaq bids for LSE
Nasdaq Stock Markets has launched its latest bid for the London Stock Exchange. The US exchange priced its offer at £2.7bn – 1243 pence per share – and lowered the total stake it wishes to own of Europe’s biggest stock market to 50%. Nasdaq already owns 28.75% of the LSE.
US investment bank Goldman Sachs has created a hedge fund replication tool that allows investors to invest in hedge funds for much lower fees. The Absolute Return Tracker uses an algorithm that aggregates hedge funds data, which can be replicated and potentially generate hedge fund performance at a fraction of the cost.
Royal Bank of Scotland is among the most recent banks to close its foreign exchange proprietary trading desks, which use the bank’s own money to trade in a range of different assets. Other banks closing such desks include Dresdner Kleinwort and Commerzbank.
Brazilian Banco Itaú has acquired two private banking subsidiaries of Bank of America through its Portugal-based investment bank arm, Banco Itaú Europa, for $155m. The two subsidiaries, BankBoston Trust based in Nassau and BankBoston International based in Miami, have total assets of $3.66bn with a total of 5500 clients, mainly based in Latin America. The deal is in line with Itaú’s plans to expand its private banking business.
South Africa’s Nedbank and Dutch ABN AMRO have formed an investment banking alliance to give South African clients access to international markets. The partnership will offer, among others, investment grade and high-yield corporate bonds, syndicated loans, offshore corporate leverage and acquisition finance. The venture will also benefit ABN AMRO’s clients, giving them greater access to the South African market. The deal follows the joint venture earlier this year between Standard Bank, South Africa’s largest bank by Tier 1 capital, and Credit Suisse, which strengthened Standard Bank’s international investment banking offering.
Vietnam listing
Vietnam’s largest private commercial bank, Asia Commercial Bank, has listed on the Hanoi stock exchange. Vietnam’s stock market is expected to grow steadily in the coming years as communist authorities sell down their stakes in large state-owned companies and private companies seek capital for growth.
The People’s Bank of China has received applications from foreign banks to incorporate locally and offer retail banking services in the Chinese currency. Citigroup and HSBC are among the list of applicants, which also includes Standard Chartered Bank, Bank of East Asia, Hang Seng Bank, Mizuho Corporate Bank, DBS Bank and ABN AMRO. Until now, foreign banks represented in China were mostly limited to handling foreign currency business.
India’s second largest bank by Tier 1 capital, ICICI, has announced it will merge with a local unlisted bank, Sangli Bank, for a consideration between Rs230m and Rs300m ($5.1m-$6.7m). ICICI sees Sangli Bank as an integral part of its rural strategy.
Halyk Bank, Kazakhstan’s second largest bank by Tier 1 capital, has announced its plans to raise $501m with an initial public offering on the London Stock Exchange. The stock is being sold by Almex, Halyk Bank’s majority shareholder, which is controlled by the family of Nursultan Nazarbayev, the president of Kazakhstan.
The Commonwealth Bank of Australia has reportedly expressed interest in acquiring a 65%-70% stake in Bank Arta Niaga Kencana, an Indonesian mid-sized bank with an asset base of Rp1190bn ($130m). The Commonwealth Bank already has a presence in the Indonesian market with PT Bank Commonwealth. ANZ Bank, another Australian player, is also interested in expanding its presence in the longer term in Indonesia, where it has stakes in PT Bank Pan Indonesia and PT ANZ Panin Bank.
ICBC buys Halim stake
Industrial and Commercial Bank of China has acquired more than 50% of Indonesia’s Bank Halim in an effort to diversify its assets and revenue streams and to become a regional player. Bank Halim’s assets totalled Rp520.48bn ($57m) at the end of June, according to data from Bank Indonesia, the country’s central bank. Bank Indonesia has also announced that Bank of India will buy a stake in PT Bank Swadesi in the first quarter of this year. Bank Indonesia has been promoting banking sector consolidation and the raising of corporate governance to international standards.
The Indonesian government has announced that it plans to sell a 30% stake in state-owned PT Bank Negara Indonesia this year. The proceeds, which could total Rp5500bn ($606m), will reportedly be used to help cover the country’s budget deficit this year and to strengthen the bank’s working capital.
DIFX links with Euroclear
Brussels-based Euroclear Bank, the settlement and related securities services house, has announced that it will settle cross-border securities transactions for the Dubai International Financial Exchange (DIFX). Under the agreement, exchange members will be able to settle cross-border securities transactions with Euroclear Bank’s clients. Euroclear will be the first foreign central securities depository to provide access to the DIFX market.
UK independent investment bank Rothschild is one of the latest banks to be granted a licence to operate in the Dubai International Financial Centre. Rothschild is aiming to advise regional investors on cross-border mergers and acquisitions. The bank, owned by a German family, believes that its discreet nature will appeal to regional clients, where money is usually family-owned. Other banks that have set up this year in the Dubai centre are HSBC, Goldman Sachs, Fortis and UBS.
Belgian-French bank Dexia’s asset management unit has opened a branch in Bahrain, which will cover Lebanon, Jordan, Egypt and the countries of the Gulf Co-operation Council (Saudi Arabia, Bahrain, the United Arab Emirates, Kuwait, Oman and Qatar). Dexia plans to develop its regional presence through the office.
