In one of the cash-management industry's largest deals ever the Bank of America Corp, the No. 2 U.S. bank, has agreed to sell its $87 billion money-market fund business to BlackRock Inc.
Since the global financial crisis big banks have faced pressure to simplify their businesses. This transaction marks the largest in a series of deals reshuffling the cash-management industry before costly regulatory reforms take effect in 2016.
This deal is expected to left the global cash management business of BlackRock $372 billion from about $285 billion, according to the New York-based company even though the details of the transaction were not disclosed.
BlackRock is already the world's largest money manager with $4.5 trillion in assets and its primary business deals with the management of mutual funds, exchange-traded funds, private equity pools and has other investment products.
"Combining our business together with the Bank of America assets and distribution puts us in a unique competitive position," said Tom Callahan, co-head of global cash management at BlackRock, in an interview.
"It's a challenge managing cash in a low interest-rate environment, so we have to be highly efficient," he added.
Merrill is the major distributor of BlackRock products to individual investors and institutions and it was acquired by the Bank of America some time back. BlackRock's heft is partly the result of similar acquisitions, including Merrill Lynch's investment management business in 2006.
"This transaction is consistent with Bank of America’s ongoing efforts to simplify its business, in this instance, by outsourcing certain product manufacturing functions to an industry leader," said Bank of America spokeswoman Susan McCabe. The bank will focus on distributing money market funds from BlackRock and other third-party providers, she added.
The money market funds’ profitability has been hemmed in by U.S. interest rates hovering near zero. These companies create profit by investing in relatively low-risk corporate and government debt that can be paid back within days or weeks thus making quick profits.
According to Crane Data, an industry research service, the number of providers in the money funds industry has come down to 67 this year from 75 providers last year due to a constant spree of mergers and acquisitions.
The deal, which is expected to close down sometime next year, would propel BlackRock to number two position in the funds industry behind Fidelity Investments, according to Peter Crane of the research service and would leave behind other companies and banks like JPMorgan Chase & Co.
More than $30 billion in revenue has been lost by the $2.7 trillion industry since 2009, according to trade group Investment Company Institute. This was after the government forced slashing of fees to prevent investors from losing money in an era of rock-bottom interest rates.
A dwindling supply of the lowest-risk debt the funds are expected to face increasingly stiff competition. Last year Securities and Exchange Commission brought in a set of reforms that requires money-market funds that serve institutional investors let their asset values stray from the typical $1 per share unless the funds invest primarily in government securities.
(Source:www.reuters.com)
Since the global financial crisis big banks have faced pressure to simplify their businesses. This transaction marks the largest in a series of deals reshuffling the cash-management industry before costly regulatory reforms take effect in 2016.
This deal is expected to left the global cash management business of BlackRock $372 billion from about $285 billion, according to the New York-based company even though the details of the transaction were not disclosed.
BlackRock is already the world's largest money manager with $4.5 trillion in assets and its primary business deals with the management of mutual funds, exchange-traded funds, private equity pools and has other investment products.
"Combining our business together with the Bank of America assets and distribution puts us in a unique competitive position," said Tom Callahan, co-head of global cash management at BlackRock, in an interview.
"It's a challenge managing cash in a low interest-rate environment, so we have to be highly efficient," he added.
Merrill is the major distributor of BlackRock products to individual investors and institutions and it was acquired by the Bank of America some time back. BlackRock's heft is partly the result of similar acquisitions, including Merrill Lynch's investment management business in 2006.
"This transaction is consistent with Bank of America’s ongoing efforts to simplify its business, in this instance, by outsourcing certain product manufacturing functions to an industry leader," said Bank of America spokeswoman Susan McCabe. The bank will focus on distributing money market funds from BlackRock and other third-party providers, she added.
The money market funds’ profitability has been hemmed in by U.S. interest rates hovering near zero. These companies create profit by investing in relatively low-risk corporate and government debt that can be paid back within days or weeks thus making quick profits.
According to Crane Data, an industry research service, the number of providers in the money funds industry has come down to 67 this year from 75 providers last year due to a constant spree of mergers and acquisitions.
The deal, which is expected to close down sometime next year, would propel BlackRock to number two position in the funds industry behind Fidelity Investments, according to Peter Crane of the research service and would leave behind other companies and banks like JPMorgan Chase & Co.
More than $30 billion in revenue has been lost by the $2.7 trillion industry since 2009, according to trade group Investment Company Institute. This was after the government forced slashing of fees to prevent investors from losing money in an era of rock-bottom interest rates.
A dwindling supply of the lowest-risk debt the funds are expected to face increasingly stiff competition. Last year Securities and Exchange Commission brought in a set of reforms that requires money-market funds that serve institutional investors let their asset values stray from the typical $1 per share unless the funds invest primarily in government securities.
(Source:www.reuters.com)
