Wachovia sells trust business to U.S. Bancorp for $720m
CHARLOTTE, N.C. -- U.S. Bancorp, the sixth-biggest US bank, agreed to buy Wachovia Corp.'s corporate and institutional trust units for $720 million to increase fee-based revenue and add offices in Middle Atlantic and Southeastern states.
U.S. Bank NA, a unit of U.S. Bancorp, will add 15,800 trust clients and $980 billion in combined corporate and institutional trust assets under management, the Minneapolis-based company said. Wachovia, based in Charlotte, can receive up to $80 million more in pretax proceeds within a year, based on how much business U.S. Bancorp retains.
Jerry Grundhofer, U.S. Bancorp's chief executive, has been expanding the bank's fee-based businesses as a narrowing in the gap between short- and long-term interest rates squeezed profits from lending. The combination may also help the bank compete against rivals such as JPMorgan Chase & Co. and Bank of New York Co. for corporate trust clients.
''The bigger companies in this space are driving prices down to a level where it's profitable for them, and it requires a major investment for smaller companies to compete," said Richard Bove, an analyst in Pinellas Park, Fla., for New York-based research firm Punk Ziegel & Co. ''U.S. Bancorp is the 800-pound gorilla, and they just keep getting stronger."
Wachovia said its corporate trust business, which acts as a trustee for corporate and municipal bondholders, is the fifth-largest in the United States. The combination also gives U.S. Bancorp the nation's 10th-biggest custodian of financial transactions and the ninth-largest processor of mutual-fund transactions.
U.S. Bank is getting 22 Wachovia offices in Florida, North Carolina, Pennsylvania, and 12 other states.
Wachovia, the number four US bank, said the sale will result in an after-tax gain of $185 million to $200 million in the fourth quarter, when it's expected to close. The transaction will be ''relatively neutral" to 2006 earnings.
''We've been a middle-market player in terms of the rankings, and there's been a flow to the top three players, who have continued to bulk up," Wachovia spokesman Jim Griffin said. ''As we looked at where we wanted to take our capital-management group, we really wanted to focus on our brokerage, Evergreen asset management and retirement services."
