State Street May Buy Bank of Ireland Investment Unit
State Street Corp. (STT), the world’s second-biggest money manager for institutions, is in talks to purchase Bank of Ireland’s asset-management business, according to three people familiar with the matter.
No agreement has been reached for the unit, which controlled 25 billion euros ($31.8 billion) of assets as of April 16, and a sale may take months, said two of the people.
Scott Powers, chief executive officer of the Boston-based company’s money-management unit, State Street Global Advisors, said in an interview published Aug. 3 that the indexing specialist is looking for acquisitions to expand actively managed investments and cut reliance on passive funds. BIAM is primarily an active manager, while State Street is the second-biggest U.S. provider of index funds after BlackRock Inc.
“For a company like State Street that wants to get more integrated in the active asset-management business, a smaller manager could be the foundation for building a much larger product over a five-to-10-year period,” Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said in a telephone interview.
The European Commission ordered the sale of the unit as a condition of approving a government bailout of Bank of Ireland. (BKIR) BIAM assets have fallen from 57.5 billion euros in 2004, when it was Ireland’s largest investment manager.
Macquarie Group Ltd. (MQG), the Sydney-based firm that had been negotiating to take over the Dublin-based unit known as BIAM, dropped out, according to two of the people, who asked not to be named because the negotiations are private. Bank of Ireland (BKIR) fell 0.5 percent to 76 cents as 8:20 a.m. in Dublin trading, giving the company a market value of 3.9 billion euros.
Less than 5 percent of the $1.78 trillion that State Street Global Advisors handles for clients is held in traditional, actively managed stock and bond investments.
Active investing, which can bring in higher fees, relies on fund managers to select securities based on their own research or mathematical models. Passive investing seeks to track the returns of broad markets or industries by following an index.
Carolyn Cichon, a State Street spokeswoman, declined to comment, as did Dan Loughrey, a Bank of Ireland spokesman, and Karen Smith, a London-based spokeswoman for Macquarie.
Invesco Ltd. (IVZ) in June completed its acquisition of New York-based Morgan Stanley (MS)’s retail funds business. Invesco, based in Atlanta, paid $1.37 billion and added $123.1 billion in mostly active assets.
At a price-to-assets ratio of that deal, BIAM would be worth about $354 million.
Bank of Ireland’s operating profit from asset-management services fell 15 percent in the first half from a year earlier to 17 million euros. Asset-management fees declined 12 percent to 46 million euros.
“It’s positive to see a foreign player showing interest for Bank of Ireland’s assets, though BIAM is not the contributor to group profits that it once was,” said Ciaran Callaghan, analyst with Dublin-based NCB Stockbrokers, who has a ‘buy’ rating on the stock.
State Street employs about 2,000 in Ireland, according to the company’s website. In March it opened a facility in Dublin that will eventually house 1,100 employees, working mostly in asset servicing.
A deal would mark the firm’s first asset-management acquisition since it bought the passive equity business of Gartmore Investment Management Plc in 2001. The company made two European acquisitions in the past year in the asset-custody business.
It purchased Mourant International Finance Administration in the U.K.’s Channel Islands in April and the securities-servicing unit of Italy’s Intesa Sanpaolo SpA (ISP) in May.
State Street is the second-biggest institutional money manager behind BlackRock. It is the third-largest custody bank, safeguarding $14 trillion in assets as of June 30, trailing Bank of New York Mellon Corp. (BK) and JPMorgan Chase & Co. (JPM) in New York.
Custody banks keep records, track performance and provide securities lending services for institutional investors including mutual funds, pension funds and hedge funds. The company’s money-management unit operates mutual funds and investment accounts for institutions and wealthy individuals.