State Street and Brown Brothers Harriman have mutually agreed to terminate a $3.5bn proposed acquisition deal for BBH’s investor services arm.

After considering modifications to the deal based on regulatory feedback, State Street said it expected to face further delays and would still not be able to resolve all necessary approvals.

The proposed modified transaction was “increasingly complex”, “presented additional operational risk” and would mean “potential limits to the amount of deal synergies”, the US bank noted.

State Street concluded it was no longer worth investing time and resources into completing the deal while BBH agreed on the basis it did not think State Street would be able to obtain the necessary regulatory approvals.

Neither party will be obliged to pay a penalty for terminating the purchase agreement.

In an earnings call last month, the bank said its acquisition and restructuring costs increased 8% between Q2 and Q3, “reflecting costs associated with the proposed acquisition of BBH Investor Services”.

It added the deal appeared “increasingly uncertain” as regulators continued to review modifications the bank had made such as lowering the agreed purchase price, changes to the BBH operating model, legal entity structure and regulatory approvals required.

State Street also said the environment for financial services mergers and acquisitions was “challenging” and not made easier by “prolonged” regulatory review processes for deals by global systemically important banks (G-SIB). 

Ron O’Hanley, chairman and CEO of State Street, commented: “The decision not to proceed with this transaction was not taken lightly and is in no way a reflection of the quality of the BBH franchise.

“Since we announced the proposed acquisition, we maintained our focus on achieving a transaction that would meet our strategic and financial objectives.”

Bill Tyree, managing partner of BBH, added: “It is disappointing that State Street’s inability to secure regulatory approval precluded the compelling vision that they brought to us.

“That said, we can now move beyond the State Street transaction and return our undivided attention to day-to-day service excellence, to being an employer of choice, and to shaping the many opportunities before us in the interests of our clients and employees.”

After beating other candidates such as BNP Paribas Securities Services and Northern Trust to secure a deal in principle, the acquisition of BBH’s custody, accounting, fund administration, global markets and technology services and $5.4trn assets under custody (AUC) would have seen State Street overtake BNY Melon as the world’s largest custody bank.

It would have also been the bank’s largest purchase since it bought Charles River Development for $2.6bn in 2018.

BBH’s Tyree confirmed his company has “no plans” to sell its investor services arm or pursue another transaction.

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