New York has not vanished BNY Mellon Acquires PNC Administration Unit

New York

Bank of New York Mellon said Tuesday it was buying an administration business from PNC Financial Services, vaulting the bank into the top ranks of hedge fund administrative firms.

BNY Mellon is buying PNC Global Investment Servicing for $2.3 billion, the bank said in a statement. The deal includes the purchase of $1.6 billion in stock and repayment of PNC Global debt.

BNY expects to raise between $700 million and $800 million as part of the deal. The transaction is expected to close in the third quarter of the year.

The deal will add $855 billion in assets under administration to BNY’s coffers.

The acquisition will secure BNY in one of the top slots among the largest administrators for hedge funds and funds-of-funds. According to the Q2 2009 HFN Fund of Funds Administrator Survey, BNY had about $199 billion in hedge fund firms’ assets under administration, while PNC had about $77 billion as of June 30.

The new combination would leave only Citco Fund Services and State Street Alternative Investment Solutions in the same size category as BNY when it came to providing services to hedge funds.

New York Times (blog) Is PNC Deal a Winner for Bank of New York?

New York

Bank of New York Mellon is growing, but at a price, Breakingviews says. The the giant trust bank agreed Tuesday to buy the back-office operations of PNC Financial Services for $2.3 billion. That works out to 23 times annualized fourth-quarter 2009 earnings of the unit. That is a heady multiple for only a marginal increase in market share, the publication says.

PNC’s shareholders seem to be getting the better end of the transaction, Breakingviews argues. The sale of the unit, PNC Global Investment Servicing, raises PNC’s capital and is helping it repay $7.6 billion in bailout money.

As a result of the deal, PNC’s Tier 1 capital ratio rises to 6.7 percent, from 6 percent. PNC said Tuesday that it would also sell $3 billion in new stock and pay back its bailout funds, but it would have had to raise more without the BNY Mellon deal.

The advantages for B.N.Y. Mellon shareholders look less certain, according to Breakingviews. The bank says the acquisition complements multiple business lines. But Robert P. Kelly, the chief executive, seems to be spending too much cash for just a 4 percent gain in assets, the publication argues. PNC’s back-office business results have been uneven. And even using last quarter’s earnings as the basis for analysis — the unit’s strongest quarter in 2009 — B.N.Y. Mellon is paying a big multiple, Breakingviews suggests.

The purchaser believes that it can squeeze out $120 million a year in costs. Taxed and capitalized, those savings are worth about $720 million today. Take that off the purchase price, and B.N.Y.

Mellon is still paying $1.6 billion for the PNC unit — a price-to-earnings ratio of 16 times, which still looks like a full price, according to Breakingviews. It’s the same multiple that Northern Trust, a leading rival, trades on; BNY Mellon’s own shares trade at just 12 times this year’s estimated earnings.

To sell the deal to shareholders, management is talking about $200 million to $300 million of extra revenue based on integrating the unit into B.N.Y. Mellon. The company delivered on revenue promises in its acquisition of Mellon. But such cross-selling opportunities can be elusive, and B.N.Y. Mellon acknowledges that they could take three to four years to transpire.

If Mr. Kelly and his crew can produce such revenue benefits, both sides may be able to call the deal a success. But for now, Breakingviews says, PNC holders have more to cheer.

Go to Article from Breakingviews via The New York Times »

Disappointing New York news: Bank of New York to Buy PNC Unit for $2.3 Billion

New York

Bank of New York Mellon said Tuesday that it would buy the global investment servicing unit of the PNC Financial Services Group for $2.31 billion in cash, bolstering its back-end offerings for fund managers and financial advisers.

The deal is likely to help PNC pay back some of the billions in government bailout money it still holds.

It will also bolster Bank of New York’s services for big institutional clients and brokers, adding $855 billion in assets under administration and giving it a bigger presence in alternative fund assets and in Europe.

“This acquisition significantly strengthens our service offering and market share with asset managers and financial advisers, while delivering attractive returns to our shareholders,” Robert P. Kelly, Bank of New York’s chief executive, said in a statement. “We expect the transaction to accelerate our growth, deliver economies of scale and strengthen our leadership position for asset servicing and Pershing.”

One of the stronger firms to emerge from the financial crisis, Bank of New York serves mostly corporations as a custodian of assets.

Bank of New York said the acquisition price includes the purchase of about $1.57 billion of stock and the repayment of PNC intercompany debt. Bank of New York also plans to sell about $800 million in new shares to help pay for the deal.

The global investment servicing unit, based in Wilmington, Del., has about 4,500 employees. Its chief executive, Stephen M. Wynne, will remain with the business, reporting to Bank of New York’s co-heads of asset servicing, Tim Kearney and Jim Palermo.

Go to Bank of New York Press Release »