Nestled within the details of the surprise $3.5 billion mega deal between State Street and Brown Brothers Harriman last September was an expected completion date – end of 2021. The ambition seemed inconsequential at the time, and few raised any questions when this was subsequently pushed out to Q1 2022. But then the date became Q2, and in April, the bank’s CEO said the deal was delayed until at least Q3.
With a flurry of global macro events and a left-field rumour of State Street mulling a bid for Credit Suisse (more about that madness later), the updates on BBH have become less frequent and the delayed purchase has somewhat slipped off the agenda.
Well, this Friday, I believe we’re going to find out exactly is going on with the deal as Ron O’Hanley delivers State Street’s quarterly earnings. With the Credit Suisse speculation more of a media issue than concerning State Street’s top brass, the BBH deal will be top of the agenda after the financials are discussed.
Here’s what we know so far and why there are some serious questions over the future of the deal.
Speaking in April, O’Hanley said: “While many required approvals have been obtained, some required regulatory approvals, most notably approval to the relevant federal banking agencies, remain outstanding.
“We are evaluating potential modifications of the transaction that are intended to facilitate resolution of the bank regulatory review. We are working towards concluding regulatory reviews during the third quarter.”
Firstly, it is unclear – and has not been clarified – exactly what “potential modifications of the transaction” might refer to. This is not a complex business with multiple arms where certain units can be spun off to appease anti-trust concerns, State Street is buying the asset servicing operations of BBH and everything within it.
“We’re in a fair amount of dialogue and working the kind of the restructuring we referred to earlier is explicitly aimed at trying to accelerate this; we view speed as of the essence here. But there’s a fair amount of uncertainty,” added O’Hanley in April.
With a lengthy and complex transition ahead post-completion, this delay – caused by “relevant federal banking agencies” – will be a source of great frustration for State Street and the ambitious O’Hanley, who seems intent on elevating the Boston-headquartered custodian to new heights through M&A.
The employees of BBH are also likely to be waiting eagerly for updates, while we’ve seen a number jump ship in recent months – something largely to be expected with such a transaction looming.
Now, I’m not here to speculate on what could be going on behind the scenes as this sounds like a deep and convoluted regulatory issue with one particular actor – and I have heard nothing to suggest the deal is in jeopardy. However, I do believe that the topic will be unavoidable this Friday during the earnings call, and if there isn’t clarity in O’Hanley’s answers on the subject, then analysts will push the topic during the Q&A. As you can see from the comments above, when he has discussed the deal, the State Street chief has been transparent and bluntly honest about progress.
The whole Credit Suisse saga – which was sparked by a story from Inside Paradeplatz in June – diverted attention away from the BBH deal for a while. Part of State Street’s rebuttal to the gossip was around its focus being on the BBH deal. In fact, in a recent public presentation, one of the bank’s top executives noted that it was because of the pending acquisition and people, clients and employees asking about the Credit Suisse speculation that State Street was forced to issue a statement putting the rumours to bed.
“There’s no basis for the article, it was somewhere between foolish and fact-less,” said one of its top executives.
For a deal that was set to complete in three-to-four months, we’re now approaching the year anniversary of when the news first emerged. So we await Friday’s earnings call and an update from O’Hanley. You would imagine that a lot has happened in the last three months when it comes to progress, so we should be hearing one way or another about the status of the acquisition.