State Street to buy Intesa San Paolo Securities Services

State Street has bought Intesa Sanpaolo Securities Services for approximately EUR1.28 billion, the bank announced this morning.

The global custody, depository banking, correspondent banking and fund administration offerings of the Italian bank, which has operations in Italy and Luxembourg, will get around EUR560 million of additional support from State Street.

Assuming the cash balances in the business are consistent with levels at 30th June 2009, State Street expects to acquire approximately EUR11 billion (USd16 billion) in cash deposits at closing through available capital.

ISPSS businesses have been estimated at EUR293 million. The agreement also includes a long-term investment servicing arrangement with ISP to service all of its investment management affiliates, including Eurizon Capital, the largest fund manager in Italy with approximately EUR135 billion in assets under management as of 30th September 2009.

“Today’s acquisition represents a significant milestone in State Street’s strategy to become a truly global provider,” said Ronald E. Logue, chairman and CEO 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.”

The closing is expected during the second quarter of 2010, subject to regulatory approvals and satisfaction of other closing conditions.

The acquisition adds to State Street's aim of generating 50% of its revenue from outside the United States. Total State Street revenue derived from non-US operations was 35% for 2008 and, adjusted for the proposed acquisition, would be 38%.

“This transaction is consistent with our long-term strategic plan to increase State Street’s scale and presence in high-growth markets outside of the United States,” said Jay Hooley, president and chief operating officer of State Street.  “It will also provide State Street with access to a new customer base to which we can cross-sell additional products and services and will give us additional traction in the insurance market.  Additionally, it will build on our leadership position in the high-growth areas of fund accounting and offshore fund servicing.  Lastly, this acquisition will provide us with a long-term servicing relationship with one of Europe’s premier fund managers.”

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%, tier 1 capital ratio is estimated to be approximately 15.6%, tier 1 leverage ratio is expected to be approximately 7.4%, and tangible common equity ratio is estimated to be approximately 5.5%.  For more information related to estimated capital ratios, see the “Additional Information Concerning Capital Ratios” section of this press release.

Assuming a second quarter 2010 closing, State Street expects to incur approximately EUR80 million in pre-tax merger and integration costs over five years, primarily occurring in the first three years, and to achieve approximately EUR60 million 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.

In the first half of 2009, ISPSS had approximately EUR343 billion of average assets under custody, and approximately EUR141 billion of average assets under depository bank services.  ISPSS’ Luxembourg business, which is a leader in offshore fund servicing, accounted for approximately 20% of ISPSS’ 2008 revenues.