State Street, Brown Brothers Harriman call off $3.5 billion deal

State Street is ending its bid to acquire Brown Brothers Harriman Investor Services, more than a month after it said the deal was in jeopardy. Brown Brothers said it has no plans to find a new acquirer.

Gaining regulatory approval would have required further delays and produced unfavorable alterations to the transaction, making going forward with the deal less appealing, State Street said in a statement Wednesday. Proposed changes to the deal would have increased State Street's operational risk and limited the anticipated benefits, the bank said.

"It is not in the best interest of clients, shareholders or employees to continue to invest time and resources in the transaction," State Street said.

The transaction, first announced in 2021, would have created the country's largest custody bank, vaulting it ahead of JPMorgan Chase and Bank of New York Mellon. Several other financial institutions have faced delays in deal approvals since President Biden's 2021 executive order directing federal financial regulators to reassess their processes for approving mergers. Still, the termination of proposed deals remains rare.

"It is disappointing that State Street's inability to secure regulatory approval precluded the compelling vision that they brought to us," Bill Tyree, managing partner at Brown Brothers, said in a statement.

In October, the banks warned that the deal might not go through. State Street CEO Ronald O'Hanley called the transaction's completion "increasingly uncertain," pointing to pushback from regulators. At the time, O'Hanley said State Street had drawn up a number of deal modifications to make the acquisition more palatable to regulators, including lowering the $3.5 billion purchase price.

The acquisition had been expected to expand State Street's reach in key markets, including Japan, and provide it with sought-after data-integration technology. Before the deal announcement, State Street was working on a software package that would have competed with BBH's software known as Infomediary. With the deal, State Street planned to integrate Brown Brothers' software with its own technology that facilitates services for institutional clients. 

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Neither institution will pay a penalty for terminating the deal. The original terms included the stipulation that either party could choose to walk away at no cost.

Boston-based State Street is one of eight U.S. financial institutions categorized by regulators as global systemically important banks, or GSIBs. Institutions with this label are required to set aside larger capital buffers in case of failure, and their proposed deals likely receive additional scrutiny from regulators.

State Street had close to $35.7 trillion worth of assets under custody at the end of the third quarter.