The deal will see Bank of America money funds and separate accounts merged into BlackRock’s offerings.
According to Bloomberg, Blackrock Inc.’s cash-management business will take on $87 billion in assets for Bank of America Corp. clients. The industry is currently struggling with money-market fund regulations and the move is seen as an attempt to build scale.
At this year's Sohn Investment Conference, Dan Sundheim, the founder and CIO of D1 Capital Partners, spoke with John Collison, the co-founder of Stripe. Q1 2021 hedge fund letters, conferences and more D1 manages $20 billion. Of this, $10 billion is invested in fast-growing private businesses such as Stripe. Stripe is currently valued at around Read More
BlackRock will now manage around $372 billion in cash-management business
Once the deal is complete BlackRock‘s cash-management business will manage around $372 billion in assets. The New York-based firm is building out the business in the face of persistently low interest rates.
Banks are also faced with Basel III requirements which make large cash deposits more expensive to hold. New regulations from the U.S. Securities and Exchange Commission are also forcing money managers to restructure money-market funds. Institutional prime funds must now have a floating share price.
“The large compliance cost across the whole industry makes the cost of business substantially higher,” said Tom Callahan, co-head of global cash management at BlackRock, said in an interview. “It favors scale players.”
Cash management in a state of flux
Clients of Bank of America can access taxable and tax-exempt money-market funds, in addition to a U.S. dollar offshore fund and separate account strategies.The exact terms of the deal were not disclosed but it is expected to be completed in the first half of next year.
The issue of how to manage cash was explored by Juliet Chung and Sarah Krouse in The Wall Street Journal last month. They reported that State Street is now charging customers for large cash deposits, while J.P. Morgan will be charging new fees in order to save over $150 billion.
Speaking of a “deepening conflict over cash” the report claimed that there are few opportunities to profitably invest the large amounts of cash that many business have on hand. The problem is that banks do not want cash of a certain kind either and are passing on the cost of keeping it to customers.
Bank profits have suffered due to low interest rates and new regulations. They must now hold 40% reserves against some corporate deposits and 100% for some hedge fund deposits.