State Street Will Become the World’s #1
Provider of Asset Servicing1
Brings Together Two Premier Businesses with
Significant Scale to Drive Benefits for Clients and
Shareholders
Earnings Accretion Expected in Year
12
State Street Increases Pre-Tax Margin
Medium-Term Financial Target
State Street Corporation (NYSE: STT) and Brown Brothers Harriman
& Co. (BBH) today announced that they have entered into a
definitive agreement for State Street to acquire BBH’s Investor
Services business, including its custody, accounting, fund
administration, global markets and technology services, for $3.5
billion in cash. Following the transaction, BBH will continue to
independently own and operate its separate Private Banking and
Investment Management businesses. The parties are targeting
year-end 2021 to complete the acquisition, subject to regulatory
approvals and customary closing conditions.
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BBH Investor Services is a global asset servicer with a track
record of exceptional client service and deep expertise in
cross-border, alternatives, ETFs, and other high-growth asset
classes. As of June 30, 2021, BBH Investor Services had $5.4
trillion in Assets Under Custody (AUC), adding to State Street’s
$31.9 trillion in AUC.3
The acquisition is expected to advance State Street’s strategy
as an enterprise outsource solutions provider by creating the
number one asset servicer globally,1 strengthening competitive
positioning, expanding geographic coverage and enhancing client
experience.
“The Investment Servicing industry enjoys strong fundamentals as
worldwide growth in financial assets drives industry revenues. This
combination with BBH Investor Services helps us consolidate our
position as the industry innovator and leader,” said Ron O'Hanley,
Chairman and Chief Executive Officer of State Street Corporation.
“We are enhancing our leadership position across a range of
services, augmenting our position in a number of key markets,
growing relationships with many of the leading global asset
managers and owners, and increasing our capabilities and scale.
Additionally, BBH Investor Services brings us strong talent,
including industry leading service excellence and quality
execution.”
“We made this decision after careful consideration of the
current and future landscape of the global securities servicing
industry, including how best to support and innovate for the
growing breadth and complexity of our clients’ servicing
requirements,” said Bill Tyree, managing partner of BBH. “State
Street is the ideal partner – a firm that shares our core values of
unmatched client service, integrity, trust, and a long-term
commitment to sustainability.”
Upon closing of the transaction, BBH Investor Services employees
will move to State Street. The senior management team will
transition to State Street in executive leadership roles, and Seán
Páircéir, currently partner and Global Head of Investor Services at
BBH, will join State Street’s Management Committee.
Transaction Details
The acquisition creates meaningful shareholder value by
increasing State Street’s earnings growth potential and its pre-tax
margin medium-term target. As a result of the anticipated earnings
growth from this transaction, State Street is now targeting an
increased pre-tax margin of 31%.4
Post close, the transaction provides the potential for
significant benefits for State Street shareholders from estimated
fully-phased in expense synergies5 of $260 million in year 3 as a
result of efficiencies in operational systems and infrastructure,
as well as overhead consolidation. Additionally, State Street has
identified an estimated $35 million of EBIT from known balance
sheet actions and $40 million of EBIT from estimated net revenue
synergies5 in Investment Servicing and Global Markets in year
3.
State Street expects the transaction will be primarily financed
through the issuance of common equity, the suspension of common
share repurchases before resuming during 2Q22, and cash on hand.
The acquisition is expected to be accretive to earnings per share
in year 1.2
Propels State Street’s Core Strategy
Leveraging the best technology and capabilities from each
company will enhance State Street’s current set of product
solutions for new and existing clients. BBH Investor Services
brings innovative data connectivity tools to the broad marketplace
that will be additive to State Street’s product suite and provides
a toolset that represents an important enhancement to its service
offering. BBH Investor Services’ Infomediary® platform, which
facilitates data transmission and integration among buy-side and
sell-side systems, will also support the State Street AlphaSM
platform and facilitate integration of clients onto the platform
while mitigating future development cost. Adding BBH Investor
Services’ list of premier clients to State Street will also expand
the base of potential users of State Street Alpha.
The addition of BBH Investor Services will further State
Street's strategic goal of expanding and deepening its presence in
key non-US markets, including developed markets such as Japan,
Luxembourg, and Ireland, as well as Latin America, which State
Street has targeted for growth.
Client Focused Organization with Deep Expertise
The transaction will also add additional depth to State Street’s
expertise in relationship management, client service, operations
and technology that can be integrated across all of State Street’s
global client segments.
“One of the most attractive elements for us is BBH Investor
Services’ first-rate talent and team of professionals with client
service excellence, which strengthens our value proposition and is
completely aligned with our focus and vision of being our clients’
enterprise outsourcer and essential partner,” added O’Hanley.
“We found in State Street a partner who shares our singular
focus on delivering exceptional client outcomes, without
exception,” said Páircéir, head of BBH Investor Services. “We are
committed to adopting best practices from both organizations to
create an unmatched offering for the world’s most sophisticated
asset managers and financial institutions.”
Goldman Sachs & Co. LLC served as financial advisor and
Davis Polk & Wardwell LLP served as legal advisor to State
Street in connection with the transaction. Lazard served as
financial advisor and Sullivan & Cromwell LLP served as legal
advisor to BBH in connection with the transaction.
Conference Call
A conference call to discuss the proposed acquisition will be
held at 8:00 a.m. ET today, on Tuesday, September 7, 2021. The call
will be open to the public. A webcast of the conference call will
be accessible on State Street’s Investor Relations website,
http://investors.statestreet.com, and by telephone at (866)
211-3118 or (647) 689-6605 (Conference ID# 9389324). A replay of
the conference call will be available for approximately two weeks
following the conference call on State Street’s Investor Relations
website, http://investors.statestreet.com, and by telephone at
(800) 585-8367 or (416) 621-4642 (Conference ID# 9389324).
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's
leading providers of financial services to institutional investors
including investment servicing, investment management and
investment research and trading. With $42.6 trillion in assets
under custody and/or administration and $3.9 trillion* in assets
under management as of June 30, 2021, State Street operates
globally in more than 100 geographic markets and employs
approximately 39,000 worldwide. For more information, visit State
Street's website at www.statestreet.com.
*Assets under management as of June 30, 2021 includes
approximately $64 billion of assets with respect to SPDR® products
for which State Street Global Advisors Funds Distributors, LLC
(SSGA FD) acts solely as the marketing agent. SSGA FD and State
Street Global Advisors are affiliated.
About Brown Brothers Harriman
BBH is a privately-held, global financial services firm founded
in 1818 and headquartered in New York City. It counts among its
clients institutions, privately-held companies, families and
wealthy individuals which it serves through its three business
lines: Investor Services, Investment Management and Private
Banking. The firm is known for its advanced technology, exceptional
client service and selectivity.
BBH’s Investor Services business provides cross-border custody,
accounting, administration, execution and technology services to
many of the world’s leading asset managers and financial
institutions. BBH’s Investment Management and Private Banking
businesses manage public and private securities portfolios, advise
banking clients on strategic direction, provide debt financing and
banking services and offer trust and estate services.
BBH, including BBH Investor Services, operates in over 90
markets worldwide from 17 offices. BBH employs approximately 6,000
professionals. For more information, please visit www.bbh.com.
Endnotes
- World’s #1 provider of asset servicing based on AUC. Source:
Global Custodian, State Street, and BBH Investor Services internal
analysis as of quarter-end 2Q21 excluding central securities
depositories. AUC for BBH and certain peers based on internal
analysis. State Street as reported based on Global Custodian. Also
see endnote 3.
- Expected earnings per share (EPS) accretion does not reflect
estimated acquisition and restructuring costs. This is a non-GAAP
presentation. See the slide presentation available on State
Street's Investor Relations website and included in the
presentation materials referenced above under "Conference Call" for
a description of State Street's use of non-GAAP measures and
related information. Non-GAAP financial measures should be
considered in addition to, not as a substitute for or superior to,
financial measures determined in conformity with GAAP.
- As of June 30, 2021, Assets Under Custody and/or Administration
(AUC/A) for State Street was $42.6 trillion.
- Medium-term financial targets to be met by the end of 2023 or
on a run-rate basis for FY2024. Pre-tax margin target assumes the
closing of the announced acquisition of BBH Investor Services on
December 31, 2021 (which closing is subject to regulatory approvals
and customary closing conditions).
- Gross cost synergies represent the reduction in pre-tax
expenses achieved in a given year relative to 2020. Cost synergies
are on an EBIT basis and do not reflect acquisition and
restructuring costs. Revenue synergies primarily represent
opportunities to provide access to State Street’s broader range of
FX products and platforms, expand share of wallet with clients and
to redirect cash and deposits onto State Street’s balance sheet.
Revenue synergies are on an EBIT basis and are net of associated
incremental operating costs.
FORWARD-LOOKING STATEMENTS
This News Release (and the conference call referenced herein)
contains forward-looking statements within the meaning of United
States securities laws, including statements about State Street’s
planned acquisition of BBH’s Investor Services business and related
business, financial, capital, staffing and operational effects and
considerations.
Forward-looking statements are often, but not always, identified
by such forward-looking terminology as “will” “expect,” “target,”
“estimate,” “potential,” “plan,” “can,” “outlook,” “guidance,”
“priority,” “objective,” “intend,” “forecast,” “believe,”
“anticipate,” “seek,” “may,” “trend,” “strategy” and “goal,” or
similar statements or variations of such terms. These statements
are not guarantees of future performance, are inherently uncertain,
are based on current assumptions that are difficult to predict and
involve a number of risks and uncertainties. Therefore, actual
outcomes and results may differ materially from what is expressed
in those statements, and those statements should not be relied upon
as representing our expectations or beliefs as of any time
subsequent to the time this News Release is first issued.
Important factors that may affect future results and outcomes
include, but are not limited to:
- The possibility that some or all of the anticipated business,
financial, capital, staffing, operational or other benefits or
synergies of the acquisition will not be realized when expected or
at all, including as a result of the impact of, additional costs or
unanticipated negative synergies associated with, or problems
arising from, the integration of BBH’s Investor Services business
(including challenges in transitioning clients, systems, technology
or personnel), as a result of regulatory or operational challenges
we may experience, as a result of disruptions from the transaction
harming relationships with our clients, employees or regulators, or
as a result of the strength of the economy and competitive factors
in the areas where we and BBH’s Investor Services business do
business;
- The failure to obtain necessary regulatory approvals (and the
risk that such approvals may result in the imposition of conditions
that could adversely affect us or the expected benefits of the
transaction, perhaps materially), to satisfy any of the other
conditions to the acquisition or to arrange financing consistent
with our expectations or at all, in each case, on a timely basis or
at all; and, if delayed, the resulting effects, including in
magnitude and timing of the expected financial benefits of the
acquisition of BBH's Investor Services business, of a delayed
closing of the acquisition (which expected financial effects are
presented and determined assuming a closing date of December 31,
2021);
- The occurrence of any event, change or other circumstances that
could give rise to the termination of the definitive purchase
agreement in respect of the acquisition;
- Potential adverse reactions or changes to client, regulatory,
business or employee relationships, including those resulting from
the announcement or completion of the acquisition;
- Demand for the products and services of State Street and of
BBH’s Investor Services business;
- We are subject to intense competition, which could negatively
affect our profitability;
- We are subject to significant pricing pressure and variability
in our financial results and our AUC/A and AUM;
- Our development and completion of new products and services,
including State Street Alpha, may involve costs and dependencies
and expose us to increased risk;
- Our business may be negatively affected by our failure to
update and maintain our technology infrastructure;
- The COVID-19 pandemic continues to create significant risks and
uncertainties for our business;
- Acquisitions, strategic alliances, joint ventures and
divestitures, and the integration, retention and development of the
benefits of our acquisitions, pose risks for our business;
- The integration of BBH Investor Services may be more difficult,
costly or time consuming than expected, and the anticipated
benefits and cost synergies may not be fully realized;
- Competition for qualified members of our workforce is intense,
and we may not be able to attract and retain the highly skilled
people we need to support our business;
- We could be adversely affected by geopolitical, economic and
market conditions;
- We have significant International operations, and disruptions
in European and Asian economies could have an adverse effect on our
consolidated results of operations or financial condition;
- Our investment securities portfolio, consolidated financial
condition and consolidated results of operations could be adversely
affected by changes in the financial markets;
- Our business activities expose us to interest rate risk;
- We assume significant credit risk to counterparties, who may
also have substantial financial dependencies with other financial
institutions, and these credit exposures and concentrations could
expose us to financial loss;
- Our fee revenue represents a significant portion of our
consolidated revenue and is subject to decline based on, among
other factors, the investment activities of our clients;
- If we are unable to effectively manage our capital and
liquidity, our consolidated financial condition, capital ratios,
results of operations and business prospects could be adversely
affected;
- We may need to raise additional capital or debt in the future,
which may not be available to us or may only be available on
unfavorable terms;
- If we experience a downgrade in our credit ratings, or an
actual or perceived reduction in our financial strength, our
borrowing and capital costs, liquidity and reputation could be
adversely affected;
- Our business and capital-related activities, including common
share repurchases, may be adversely affected by capital and
liquidity standards required as a result of capital stress
testing;
- We face extensive and changing government regulation in the
jurisdictions in which we operate, which may increase our costs and
compliance risks;
- We are subject to enhanced external oversight as a result of
the resolution of prior regulatory or governmental matters;
- Our businesses may be adversely affected by government
enforcement and litigation;
- Any misappropriation of the confidential information we possess
could have an adverse impact on our business and could subject us
to regulatory actions, litigation and other adverse effects;
- Our calculations of risk exposures, total RWA and capital
ratios depend on data inputs, formulae, models, correlations and
assumptions that are subject to change, which could materially
impact our risk exposures, our total RWA and our capital ratios
from period to period;
- Changes in accounting standards may adversely affect our
consolidated financial statements;
- Changes in tax laws, rules or regulations, challenges to our
tax positions and changes in the composition of our pre-tax
earnings may increase our effective tax rate;
- The transition away from LIBOR may result in additional costs
and increased risk exposure;
- Our control environment may be inadequate, fail or be
circumvented, and operational risks could adversely affect our
consolidated results of operations;
- Cost shifting to non-U.S. jurisdictions and outsourcing may
expose us to increased operational risk and reputational harm and
may not result in expected cost savings;
- If we, or the third parties with which we do business,
experience failures, attacks or unauthorized access to our or their
respective information technology systems or facilities, or
disruptions to our continuous operations, this could result in
significant costs, reputational damage and limits on our business
activities;
- Long-term contracts expose us to pricing and performance
risk;
- Our businesses may be negatively affected by adverse publicity
or other reputational harm;
- We may not be able to protect our intellectual property;
- The quantitative models we use to manage our business may
contain errors that could result in material harm;
- Our reputation and business prospects may be damaged if our
clients incur substantial losses or are restricted in redeeming
their interests in investment pools that we sponsor or manage;
- The impacts of climate change could adversely affect our
business operations;
- We may incur losses as a result of unforeseen events including
terrorist attacks, natural disasters, the emergence of a new
pandemic or acts of embezzlement.
Other important factors that could cause actual results to
differ materially from those indicated by any forward-looking
statements are set forth in our 2020 Annual Report on Form 10-K and
our subsequent SEC filings. We encourage investors to read these
filings, particularly the sections on risk factors, for additional
information with respect to any forward-looking statements and
prior to making any investment decision. The forward-looking
statements contained in this News Release (and the conference call
referenced herein) should not by relied on as representing our
expectations or beliefs as of any time subsequent to the time this
News Release is first issued, and we do not undertake efforts to
revise those forward-looking statements to reflect events after
that time.
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Ilene Fiszel Bieler +1 617-664-3477
Carolyn Cichon +1 617-664-8672
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