The Bank of New York expects to take its share of the corporate trust market to number one by acquiring JPMorgan Chase's corporate trust business, in a combination projected to total $8 trillion of debt issues. And, according to Karen Peetz, executive vice president and head of corporate trust at BNY, the purchase will sharply boost BNY's client base, particularly within the CDO sector, where the bank will press towards a near-term goal of 60% market share.
JPMorgan's CDO and international trustee services were the key businesses BNY was after, Peetz said. JPMorgan's share of the CDO market, at 45%, is about 20 times that of BNY's. In addition, JP Morgan holds a 32% market share of Europe, the Middle East and Africa combined. BNY's revenue from its CDO trustee business is expected to account for 20% of the bank's total post-acquisition, Peetz said.
"Fifteen years ago [JP Morgan] got their first CDO, and they've been building since then. They had first-mover advantage," she said.
Per an asset swap agreement announced last week, JPMorgan will acquire BNY's consumer, small business and middle-market banking businesses in exchange for its corporate trust business, plus a $150 million cash payment. The BNY businesses are valued at $2.3 billion, while the JPMorgan businesses are valued at $2.15 billion, according to JPMorgan. The deal is expected to close by the fourth quarter.
BNY President Gerald Hassell said during a conference call the bank will continue to grow its corporate trust business - this acquisition will be the company's 47th since 1994 - to tap into the sector's growth potential, profit margins and positive future prospects. The bank also aims to increase its global presence in the capital markets, by graduating from "very traditional commercial bank to a broad-based global financial services company," Hassel said.
"The international markets are moving from traditional bank financing to the use of capital markets as a source of capital," he added. "The JPMorgan transaction brings with it 15 new overseas offices and will significantly increase our global presence, allowing us to better capture growth in these international markets."
While BNY will obtain the trustee and paying agent for CDO, ABS and MBS, municipal, corporate debt, loan agency services and document management, JPMorgan will keep its ADR, escrow and commercial paper businesses. Hassell said BNY, whose bank branches had been suffering from declining business, liked the stability associated with corporate trust business revenue. JPMorgan's Chief Financial Officer Mike Cavanagh said in a conference call that the corporate trust unit's margins were "a little bit lower than (50%)." Cavanagh would not disclose when the company would begin referring corporate trust business to BNY.
The deal will give JPMorgan 338 bank branches within the New York City tri-state region, along with nearly $15 billion in deposits. BNY has faced an increasingly difficult task of drumming up business in the area, which has been devoured by larger, national banks. BNY will retain its private banking unit.
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