State Street has agreed to pay $3.5 billion in cash to acquire the investor services arm of Brown Brothers Harriman, a move that would increase State Street’s presence in the behind-the-scenes operation of ETFs.
In a statement Monday morning, the third largest issuer of U.S. ETFs said it hopes to close the deal by the end of the year, pending regulatory approvals. BBH will retain control of its private bank and investment management arms.
Custodian banks hold securities on behalf of fund issuers for safekeeping and are a key mechanic for the operation of an ETF. If consummated, the deal would make State Street the world’s largest asset servicer.
State Street currently holds $31.9 trillion in assets under custody, including more than $15 billion in collective funds. The deal would increase its custodian assets by $5.4 trillion in total.
The announcement is likely to complicate any ongoing discussions State Street may be having over a sale or merger of its asset management division. Bloomberg reported in December that the company was exploring multiple options to expand the $1 trillion business as it lags behind Vanguard’s $1.9 trillion and BlackRock’s nearly $2.4 trillion ETF businesses.