State Street has signed an acquisition agreement with Intesa Sanpaolo, one of Italy’s premier banking groups, to acquire its securities services business, ISPSS, for approximately EUR1.28bn (USD1.87bn) in cash at closing.
State Street expects to support the acquired ISPSS balance sheet with approximately EUR560m (USD800m) of additional capital at the closing.
ISPSS is a provider of securities services in the Italian market and has a significant presence in the Luxembourg market.
State Street would acquire the global custody, depository banking, correspondent banking and fund administration portions of the ISPSS business.
In addition, assuming the cash balances in the business are consistent with levels at 30 June 2009, State Street expects to acquire approximately EUR11bn (USD16bn) in cash deposits at closing.
Revenue in 2009 for the ISPSS businesses that would be acquired by State Street is expected to be approximately EUR293m (USD427m). The agreement also includes a long-term investment servicing arrangement with Intesa Sanpaolo to service all of its investment management affiliates, including Eurizon Capital, the largest fund manager in Italy with approximately EUR135bn (USD197bn) in assets under management as of 30 September 2009.
“Today’s acquisition represents a significant milestone in State Street’s strategy to become a truly global provider,” says Ronald E. Logue (pictured), chairman and chief executive of State Street. “With the addition of Intesa Sanpaolo’s securities services business, we will enhance our ability to provide high-value services to institutional investors around the world and generate long-term value for our shareholders and our employees.”
State Street expects to finance the acquisition through available capital. The closing is anticipated to occur during the second quarter of 2010, subject to regulatory approvals and satisfaction of other closing conditions.
State Street expects its capital ratios would remain strong after closing. Based on IBES earnings estimates and assuming there are no material factors impacting capital other than earnings for 2010, following closing of the transaction in the second quarter of 2010, State Street’s total capital ratio is estimated to be approximately 16.8 per cent, tier 1 capital ratio is estimated to be approximately 15.6 per cent, tier 1 leverage ratio is expected to be approximately 7.4 per cent, and tangible common equity ratio is estimated to be approximately 5.5 per cent.
Assuming a second quarter 2010 closing, State Street expects to incur approximately EUR80m (USD120m) in pre-tax merger and integration costs over five years, primarily occurring in the first three years, and to achieve approximately EUR60m (USD90m) in cost savings over five years, primarily from technology and operations. With a closing during the second quarter of 2010, the acquisition is estimated to be modestly accretive to State Street’s operating earnings in fiscal year 2010, excluding merger and integration costs and depending on the closing date of the acquisition.
