U.S. Bank acquiring Wachovia trust unit

Deal aims to boost revenue, assets

U.S. Bank is undertaking another acquisition to grow its trust business amid industry consolidation.

The Minneapolis-based bank said Tuesday that it has agreed to buy the corporate trust and institutional custody businesses of Wachovia Corp. in Charlotte, N.C., for as much as $800 million in cash.

The deal fits U.S. Bank's strategy of buying fee-based specialty businesses that boost revenue and bring more assets into the bank.

U.S. Bank will gain $980 billion in assets under administration and about 16,000 new clients from Wachovia.

Competition for trust business has intensified in the past few years as new players vie for customers and assets. The business involves tedious tasks such as serving as trustee on bond and securities issues, storing important records for corporate clients and holding assets on behalf of companies, mutual funds and nonprofit groups.

"In this business, it's consolidate or be consolidated," said Jon Arfstrom, a bank analyst for RBC Capital Markets in Minneapolis. "U.S. Bank has been clear that it would rather do a transaction like this than pay for a bank (in a merger)."

U.S. Bank and Wachovia, two of the nation's largest banks, are at opposite ends of the spectrum.

"We did not have the scale and growth projections we were looking for," Wachovia spokesman James Griffin said. "We could invest an enormous amount of money in the business to get it to where we wanted it or divest the business."

The Wachovia deal is the seventh trust acquisition for U.S. Bank since 1999. The acquisitions help U.S. Bank compete against industry leaders Bank of New York, JPMorgan Chase and Wells Fargo.

Trust services generate hefty fees and profits for U.S. Bank. Last year, trust and investment management fees of $918 million were the single largest fee contributor. Its private client, trust and asset management business added $440 million to total operating profits last year, up 13 percent from 2003.

"We've seen a significant amount of growth in this business," said Diane Thormodsgard, president of U.S. Bank's corporate and institutional trust services.

Thormodsgard said she expects "significant" cost savings from the deal but declined to be specific.

As part of the deal, U.S. Bank will gain about 700 employees and expand its presence on the East Coast and in California, a state where the bank wants to grow. It already has 67 trust offices nationwide. Both banks said they'll work together to determine if all employees and offices will remain.

Pending regulatory approvals, the deal is expected to close next month. U.S. Bank will pay Wachovia $720 million and could pay $80 million more depending how much of Wachovia's business it retains.

Analyst Ben Crabtree, of Piper Jaffray in Minneapolis, expects U.S. Bank to make more trust acquisitions as long as the industry continues to consolidate.

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