M&A: Survival of the Fittest in the 21st Century, Strategic Positioning in the Banking and Communications Industries - Should a Bank Acquire, Merge, or Divest

Fordham Journal of Corporate & Financial Law, Dec 2019

By Maureen S. Bateman, Published on 01/01/96

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M&A: Survival of the Fittest in the 21st Century, Strategic Positioning in the Banking and Communications Industries - Should a Bank Acquire, Merge, or Divest

Fordham Journal of Corporate & Financial Law Bank Acquire Merge or Divest Maureen S. Bateman - 1996 Article 9 Copyright c 1996 by the authors. Fordham Journal of Corporate & Financial Law is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/jcfl SHOULD A BANK ACQUIRE, MERGE OR DIVEST? * MAUREN SnE BATEum* Keynote Speaker INTRODUCTION I want to go through a specific bank's experience in evaluating its individual businesses and what led it to decide whether it should merge, spin-off, or acquire. In particular, I will focus on the legal implications of these decisions. The bank which I will use for this discussion will be U.S. Trust Company of New York ("U.S. Trust"). I NON-DISCRETIONARYBUSINESSES U.S. Trust is an institution with capital assets of about $4 billion and value to shareholders of approximately $363 million.' Its businesses generally fit into two categories: discretionary and nondiscretionary. The non-discretionary businesses involve back-office processing for unit investment trusts This speech was part of a symposium held at Fordham University School of Law on March 12, 1996 entitled M & A: Survival of the Fittest in the 21st Century, Strategic Positioning In the Banking and Communications Industrie.s.. Ms. Bateman is Senior Vice-President &General Counsel for U.S. Trust. Prior to joining U.S. Trust, Ms. Bateman was an Attorney at Bankers Trust and Morgan Guaranty Trust and an associate at Davis, Polk & Wardwell. IPress Release from United States Trust Company of New York, U.S. Trust Agrees to Sell Securities ProcessingBusinesses to ChaseManhattan,PR NEwsWiRE, Nov. 18, 1994 [hereinafter Press Release]; U.S. TRUsT COMPANY OF NEw YORK,INC., Proxy Statement (Feb. 9,1995) [hereinafter Proxy Statement], at 1 (indicating that the value on the closing date of the merger would be less than $363.5 million). (UTM), master trusts, and mutual funds.2 The non-discretionary side is generally a high volume, backoffice processing business with low profit margins. A. UITBusiness The UIT business is a closed-end investment securities portfolio, generally comprised of municipal bonds although some contain high-yield bonds. UITs are passive asset pools administered by a trustee, who serves as custodian, recordkeeper, income collector, disburser, and transfer agent.3 UITs have natural maturities and the individual investor buys a piece known as a unit. The unit investment trustee retains custody of the units and receives payments from the various securities that are held by the UIT, but only makes disbursements to unit holders every six months. This creates a tremendous float for the trustee. While the trustee receives payments throughout each six month period, the trustee makes disbursements only twice a year. In the interim, the trustee retains the use of the cash and receives fees based on the amount of assets held. These fees gradually decrease throughout the term of the trust because the assets are disbursed as they mature. UITs are not as popular today as in the past. The mutual fund, or open-end mutual fund, industry is much stronger and people tend to invest in them more than in UITs, which have an older, more 4 conservative market. 2Proxy Statement, supranote 1, at 28 (regardingU.S. Trust's five lines of business). According to the Proxy Statement, U.S. Trust "conducts five principal businesses: asset management, private banking, special fiduciary, corporate trust and securities processing." Id. 3U.S.TRUST COMPANY OFNEW YORK,INC., U.S. TRUST: A HISTORY OF GROWTH WrrHA COMMITMENT TO PERSONAL SERVICE, Jan. 1994, at 9 (unpublished document, on file with U.S. Trust Company of New York). 4See Chet Currier, Funds Low-Key Relatives: UnitInvestment Trusts,Cfu. SUN-TIME, B. Master Trust Business The second non-discretionary business, the master trust, is a high volume business. To remain competitive in this business, you have to implement the latest technology in data processing. For U.S. Trust, this would have required a large investment to strengthen the global custody and multi-currency businesses.5 C Mutual FundBusiness The mutual fund servicing business is also an operations oriented business with a low profit margin. Businesses with low profit margins rely on a high volume of transactions, with a large number of them being the same, so that they can build up their profit Maintaining high volume is the key to nondiscretionary securities processing business. R DISCRETIONARYBUSINESSES The other side of the business is discretionary in nature and yields high profit margins. It includes private banking, custody, and trusts and estates businesses. Private banking is involved in the more traditional banking businesses of accepting deposits, making loans, administering checking accounts and 5 See Proxy Statement, supra note 1, at 31. According to the Proxy Statement, the U.S. Trust board, in reaching this determination and recommendation considered the follow (...truncated)


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Maureen S. Bateman. M&A: Survival of the Fittest in the 21st Century, Strategic Positioning in the Banking and Communications Industries - Should a Bank Acquire, Merge, or Divest, Fordham Journal of Corporate & Financial Law, 1996, Volume 1, Issue 1,