State Street (STT) agreed to buy Brown Brothers Harriman’s investor services business for $3.5 billion in cash, the financial-services giants said.
Brown Brothers, New York, will continue to independently own and operate its private banking and investment management businesses.
The companies expect to close the acquisition this year, subject to conditions including regulatory clearances.
Shares of Boston-based State Street recently traded at $90.19, down 2.9%.
As of June 30, BBH Investor Services had $5.4 trillion in assets under custody, adding to State Street’s $31.9 trillion.
“The acquisition is expected to advance State Street’s strategy as an enterprise outsource solutions provider,” State Street said.
BBH Investor Services’ senior management team will go to State Street, with Seán Páircéir, global head of investor services at BBH, joining State Street’s management committee.
Morningstar analyst Rajiv Bhatia puts fair value at $77 for State Street.
“State Street is just a hair below BNY Mellon (BK) as the largest custodian by assets,” he wrote June 29.
“Although State Street is a market leader, its asset manager and asset owner clients are sophisticated on the pricing of its custody and ancillary services.
“In addition, as asset managers consolidate and face industrywide fee pressure, they are increasingly seeking operating expense savings.”
Further, “We expect State Street’s net interest income to continue to be pressured as low interest rates and a relatively flat yield curve weigh on the firm. Given these pressures, we expect State Street to continue to focus on managing expenses,” Bhatia said.