U.S. Bancorp bolstered its status as one of the nation's major ABS and MBS trustees last week when it announced the acquisition of Wachovia Corp.'s corporate trust and institutional custody businesses. With this purchase, U.S. Bancorp will become the second largest ABS and MBS trustee, in terms of par amount of securities and number of issues, behind Deutsche Bank Trust Co. Americas. The deal, executed through its U.S. Bank subsidiary, will give the Minneapolis-based trustee administration of $180 billion worth of ABS and MBS spread over 317 issues.
U.S. Bancorp said it will buy the Wachovia unit for an initial payment of $720 million with an additional back-end payment of up to $80 million depending on business retention throughout the course of the deal. Assuming U.S. Bancorp is able to retain the entire book of business bought from Wachovia, it will hand over the full $80 million. The deal is expected to close in December, and the conversion of client accounts should be completed by September 2006.
Diane Thormodsgard, president of corporate trust, institutional trust and custody for U.S. Bancorp, said she does not expect much customer attrition as a result of the deal. "We lose very little business," she said. According to information provided by U.S. Bancorp, the company boasted a customer retention rate of 99.5% on its acquisition of State Street Corporate Trust.
Chairman and CEO Jerry Grundhofer said the deal is "consistent with U.S. Bancorp's acquisition strategy of purchasing fee-based niche businesses," according to a release. Thormodsgard declined to say what other companies or businesses U.S. Bancorp could be interested in buying, but echoed Grundhofer's statement that the company's strategy was being furthered by the acquisition.
Wachovia's corporate trust, institutional custody, document custody and structured finance trust service units are part of its capital management group, which, according to group President David Carroll, is shedding the units in an attempt to focus on its retail brokerage, asset management and retirement businesses. Wachovia spokesman Jim Griffin said the company has no plans to sell or spin out any of these units, and will keep its securities lending business, a part of its corporate trust unit, because it believes it can grow the unit.
The deal will give U.S. Bancorp a total of 80,300 client issuances and administration of $1.71 trillion in assets. The deal will also push U.S. Bancorp to the top of the municipal debt servicer rankings, with 1,196 issues and $54 billion par worth of securities. On the corporate debt side, U.S. Bancorp will become number three with 181 issues and $43 billion par. The ongoing annual revenue generation of the business is expected to be approximately $175 million.
Other major ABS trustees include Deutsche with $220 billion spread over 343 issues, Bank of New York, which will likely be bumped to third place, with $174 billion over 258 issues, JPMorgan Trustee Company with trusteeship of $157 billion and 251 issues, and Wells Fargo Bank corporate trust services with $144 billion and 241 issues. U.S. Bancorp has been sixth among ABS and MBS trustees, with $108 billion.
Among trustees, the leaders in terms of global assets under custody are JPMorgan with $10.2 trillion, BoNY with $9.8 trillion, State Street Corp. with $9.5 billion, Citibank, N.A. with $7.9 trillion and Mellon Financial Corp. with $3.3 billion. The deal would put U.S. Bancorp at number nine on the list with $940 billion, one notch above Wachovia, according to data from U.S. Bancorp.
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