Bank of America has agreed to sell its $87 billion money-market fund unit to asset manager BlackRock, simplifying its business in the face of low interest rates and costly regulatory reforms.
Terms of the deal were not disclosed but the agreement is expected to lift BlackRock’s global cash-management business to $372 billion from about $285 billion. BlackRock is already the world’s largest money manager with $4.5 trillion in assets.
“Combining our business together with the Bank of America assets and distribution puts us in a unique competitive position,” Tom Callahan, co-head of global cash management at BlackRock, told Reuters.
As The Wall Street Journal reports, the money-market fund industry is preparing to face costly new regulations that take effect next year and require prime funds to abandon their fixed $1 share price and float in value like other mutual funds.
The profitability of money-market funds, which invest in relatively low-risk corporate and government debt that can be paid back within days or weeks, has been limited by U.S. interest rates hovering near zero. The $2.7 trillion industry has lost some $30 billion in revenue since 2009, according to trade group Investment Company Institute.
“It’s an environment that makes scale absolutely essential,” Tom Callahan, co-head of global cash management at BlackRock, the world’s largest fund manager, told the WSJ.
Peter Crane of the industry research service Crane Data told Reuters that Bank of America decided to sell the money-market fund unit after evaluating which businesses were essential. “At the same time asset managers are trying to get bigger, banks are trying to get smaller,” he said. “This reflects regulatory pressure on both sides.”
“This transaction is consistent with Bank of America’s ongoing efforts to simplify its business, in this instance, by outsourcing certain product manufacturing functions to an industry leader,” Bank of America spokeswoman Susan McCabe told Reuters.
BofA sold most of its stock and bond mutual fund business in 2010 to Ameriprise Financial for about $1 billion.