ZURICH BlackRock (BLK.N) is to buy Credit Suisse's (CSGN.VX) exchange-traded fund (ETF) business, which will give the U.S. asset manager greater scale in Europe.
The price tag on the deal, announced on Thursday, was not disclosed, but two sources familiar with the matter put it at between $200 million and $300 million.
For Credit Suisse, the disposal marks another step to bolster capital in line with tough new requirements on banks after the financial crisis.
BlackRock, the world's biggest investment manager by assets, will increase its scale and distribution with this deal.
Credit Suisse is the fourth largest ETF provider in Europe, with 58 ETFs and a 5.3 percent market share as of December 31, according to ETF Global Insight, a London-based ETF research firm.
BlackRock is the largest ETF provider in Europe, with more than 42 percent of the $331 billion European ETF market. Its 202 European iShares ETFs had $139.6 billion in assets as of December 31, the research firm said. With the acquisition, BlackRock will have more than a 47 percent market share of the European ETF market, according to ETFGI.
Exchange-traded funds are baskets of securities, like mutual funds. But ETFs trade on exchanges, like individual securities, and carry lower fees than mutual funds.
Scale is key in ETFs. "The ETF business is generally a low-margin business which needs scale to make it attractive," said Bank Vontobel analyst Teresa Nielsen.
"The acquisition ... represents BlackRock's continued commitment to the Swiss market and underpins the importance we place on meeting the needs of our clients," chairman and chief executive Laurence Fink said.
The European ETF market is expected to grow substantially in coming years as more financial advisers move from charging commissions toward fee-based businesses, said Deborah Fuhr, founding partner of ETFGI.
Fee-based advisers like using ETFs because they are low cost and allow the advisers to maintain a bigger portion of their fees.
"The European ETF market is about five or so years behind the U.S. market," she said.
Given the importance of scale in the ETF business, it is likely that there will be more consolidation of ETF providers in coming months, said Luke Montgomery, an analyst at Bernstein Research.
"It seems to be headed toward more consolidation given that so many players only have about 5 percent of the assets under management," he said.
Two ETF industry sources said BlackRock was likely paying a premium for the scale and distribution that it would gain from the Credit Suisse business, which they valued at between 150 and 200 million Swiss francs ($162 million - $216 million).
"Anyone not in the top three in Europe would be willing to sell their ETF business at the right price," said one ETF industry source.
A source familiar with the situation said that CS's legal advisers do not expect significant antitrust issues.
Credit Suisse put the ETF business, which manages 16 billion Swiss francs in client funds, on the block in July as part of a plan to bolster capital by 15.3 billion francs. This included issuing convertible bonds and selling prime Zurich real estate and other assets.
In November, Credit Suisse said it was integrating its private banking and asset management divisions into a new wealth management unit to cut costs.
Credit Suisse said the effect of these measures to bolster capital will be detailed in its four quarter earnings on February 7.
Credit Suisse's ETF business is the second international ETF business BlackRock has acquired in the past year after it bought Toronto-based Claymore Investments, a Canadian ETF operation, from Guggenheim Partners LLC, in March.
Credit Suisse and BlackRock said they expected the deal to close by the end of June.
(Reporting by Katharina Bart and Martin de Sa'Pinto in Zurich, Sophie Sassard and Anjuli Davies in London,; Jessica Toonkel in New York; Editing by Dan Lalor, Jane Merriman, Nick Zieminski and Bernard Orr)