Bank of New York Mellon (NYSE: BK) is buying the PNC Financial’s (NYSE:PNC) Global Investment Services business for about US$2.3 billion. The deal will be beneficial to both parties as it will grow Bank of New York Mellon’s core business and provide PNC with cash to repay government's bailout money which it still holds.
It will also strengthen Bank of New York's services for big institutional clients and brokers, adding US$855 billion in assets under administration and giving it a bigger presence in alternative fund assets and in Europe According to Robert P. Kelly, Bank of New York's chief executive "This acquisition significantly strengthens our service offering and market share with asset managers and financial advisors, while delivering attractive returns to our shareholders,"
Being one of the stronger firms to emerge from the financial crisis Bank of New York serves mostly corporations as a custodian of assets. The acquisition price includes the purchase of US$1.57 billion of stock and the repayment of PNC intercompany debt. Bank of New York also plans to sell about US$800 million in new shares to help pay for the deal. The all cash transaction is expected to be completed by the third quarter this year.
This deal will create the number-two provider of services like fund accounting, administration & transfer services to fund managers around the world.
For PNC, the development is a part of the bigger plans to sell equity investments to repay Troubled Assets Relief Program (TARP) loans. In addition to the sale of Global Investment Services to Bank of New York Mellon, PNC is planning a US$3 billion common stock offering. The proposed repayment of federal funds is likely to result in a changed capital structure for PNC. The company plans to raise US$1.5 billion to US$2 billion through a senior note offering. The proceeds on the debt side will be helpful in providing the necessary liquidity during the loan repayment transaction.
PNC, third largest bank in Greater Baltimore area, owes US$7.6 billion to the US Treasury. The federal government decided to invest the amount at the height of the financial crisis in late 2008. PNC is one of the biggest US banks still to repay the bailout funds.
