BlackRock makes waves in the industry with $87 billion deal
The $87 billion purchase of a money-market fund business from Bank of America Corp. is one of the largest deals ever as it builds scale in an industry grappling with new regulations.
The deal will involve merging Bank of America money funds and separate accounts into BlackRock’s offerings, stated the New York- based asset manager, with the deal bringing BlackRock’s cash-management business to about $372 billion in assets.
“The large compliance cost across the whole industry makes the cost of business substantially higher,” said Tom Callahan, co- head of global cash management at BlackRock. “It favours scale players.”
BlackRock is expanding the business as it contends with interest rates that have remained near historic lows in the wake of the 2008 financial crisis, according to Bloomberg News. Managers are restructuring money- market funds to comply with U.S. Securities and Exchange Commission rules that force institutional prime funds to adopt a floating share price.
Banks are also dealing with Basel III requirements, which make it more expensive to hold big cash deposits.
For Bank of America, being a smaller player in money market funds made little sense when its clients could be given access to third-party products. The Charlotte, North Carolina-based firm sold most of its stock and bond mutual fund business in 2010 to Ameriprise Financial Inc. for about $1 billion. Ameriprise gained $189 billion in assets in the deal.
“The transaction is consistent with Bank of America’s ongoing efforts to simplify our business, in this instance by outsourcing certain product manufacturing functions to an industry leader,” said Susan McCabe, a Bank of America spokeswoman in a prepared statement to the press. “Rather than manufacture liquidity solutions in-house, the bank will focus on delivering best-in- class liquidity products solely from third-party providers.”
The deal will involve merging Bank of America money funds and separate accounts into BlackRock’s offerings, stated the New York- based asset manager, with the deal bringing BlackRock’s cash-management business to about $372 billion in assets.
“The large compliance cost across the whole industry makes the cost of business substantially higher,” said Tom Callahan, co- head of global cash management at BlackRock. “It favours scale players.”
BlackRock is expanding the business as it contends with interest rates that have remained near historic lows in the wake of the 2008 financial crisis, according to Bloomberg News. Managers are restructuring money- market funds to comply with U.S. Securities and Exchange Commission rules that force institutional prime funds to adopt a floating share price.
Banks are also dealing with Basel III requirements, which make it more expensive to hold big cash deposits.
For Bank of America, being a smaller player in money market funds made little sense when its clients could be given access to third-party products. The Charlotte, North Carolina-based firm sold most of its stock and bond mutual fund business in 2010 to Ameriprise Financial Inc. for about $1 billion. Ameriprise gained $189 billion in assets in the deal.
“The transaction is consistent with Bank of America’s ongoing efforts to simplify our business, in this instance by outsourcing certain product manufacturing functions to an industry leader,” said Susan McCabe, a Bank of America spokeswoman in a prepared statement to the press. “Rather than manufacture liquidity solutions in-house, the bank will focus on delivering best-in- class liquidity products solely from third-party providers.”
