France’s Credit Agricole and Spain’s Santander plan to combine their custody and asset servicing operations, in a deal that could point the way for European banks to achieve scale without the complexity of a full merger.
The new business will have around $3.8 trillion (£2.9 trillion) of assets under custody, closing the gap on European leaders and providing scope for savings and cost reductions.
Banks’ custodian services departments look after assets for clients in return for fees. But it is often a low margin business and growing competition is making scale more important.
Credit Agricole will own 69.5 percent of the merged unit, which will keep the brand name of Agricole’s existing asset management arm – Caceis. Santander will hold 30.5 percent.
Santander’s ‘S3’ Securities Services arm in Spain and Latin America will also be combined with Caceis.
Low profitability among European banks has sparked calls from officials at the European Central Bank and investors for cross-border consolidation, but regulatory issues and political opposition to foreign takeovers have stymied deals so far.
Joint ventures in areas such as fund management can thus provide an easier option, allowing banks to benefit from scale by collaborating on business lines without having to go into any full-blown takeovers.
Credit Suisse advised Santander on the deal, while Morgan Stanley worked with Credit Agricole, and one source involved in the deal said he expected similar collaboration deals between European banks in areas where they could make cost savings.
The new entity will have about 3,340 billion euros ($3.8 trillion) in assets under custody and about 1,833 billion euros in assets under administration.
That will make the new unit one of the largest European custody players behind BNP Paribas, HSBC and SocGen, while also creating a stronger competitor to U.S. leaders such as State Street and BNY Mellon.
Credit Agricole shares were up 0.8 percent in early trading, while Santander’s were steady.
“I welcome any consolidation in the European banking sector,” said Clairinvest fund manager Ion-Marc Valahu, who owns a position in the European banking index.
“We use Caceis for our funds and it makes sense for CA to take over the custody and asset-servicing operations from Santander. In addition, Credit Agricole is increasing its foot print in Spain and Latin America,” added Valahu.
Santander said it would see a capital gain of around 700 million euros from the deal.
“S3 and CACEIS are highly complementary businesses, and by working together we can create a custody and asset servicing platform that leverages our collective scale and global presence, and offers clients a comprehensive service that can support their ambitions and help them to prosper,” said Santander Chairman Ana Botin.
The tie-up comes amid other potential European bank deals.
Germany’s Commerzbank and Deutsche Bank are in merger talks, while Italy’s Unicredit has also said it could explore a deal with Commerzbank. A German magazine said ING had also approached Commerzbank.