State Street to buy Brown Brothers unit for $3.5 billion

State Street Corp. agreed to buy Brown Brothers Harriman & Co.’s investor services business for $3.5 billion in cash, adding an operation that safeguards about $5.4 trillion in assets. 

The deal includes the unit’s custody, accounting, fund administration, global markets and technology services businesses, the companies said Tuesday in a statement. 

State Street is one of the world’s top custody banks, holding customer assets for safekeeping, and overseeing other clearing and settlement functions for institutions. State Street said it’s now targeting a pretax margin of 31% because of expected earnings growth from the acquisition. 

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The deal will give State Street greater global reach and increase its mountain of assets under custody in a business where scale is vital.

State Street and the BBH unit had combined assets under custody of about $37.3 trillion as of June 30. That compares with $45 trillion in assets under custody and administration that global heavyweight Bank of New York Mellon Corp. oversaw at the end of June.

“The investment servicing industry enjoys strong fundamentals as worldwide growth in financial assets drives industry revenues,” Ron O’Hanley, State Street’s chairman and chief executive, said in the statement. “BBH Investor Services brings us strong talent, including industry-leading service excellence and quality execution.”

After the acquisition is completed, Sean Pairceir, BBH’s global head of investor services, will join State Street’s management committee, according to the statement.

The transaction is expected to be completed at the end of this year.

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State Street also touted the greater international scale it will get from the combination in a presentation to investors. The deal will nearly double the company's revenue in Latin America, and bulk up Cayman offshore fund expertise for Japanese investors, State Street said in the presentation. 

The acquisition follows State Street’s purchase of Charles River Systems, an investment data and analytics company that it bought for $2.6 billion in 2018.