COMMISSION DECISION of 25/08/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1618 - BANK OF NEW YORK/ROYAL BANK OF SCOTLAND TRUST BANK) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 25.08.1999

To the notifying party

Dear Sirs,

Subject: Case No IV/M.1618 - Bank of New York/Royal Bank of Scotland Trust Bank

Notification of 29.07.1999 pursuant to Article 4 of Council Regulation No 4064/89

1. On 29.07.1999, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 of the acquisition by the undertaking, BNY International Financing Corporation ("BNY"), belonging to the Bank of New York Company Inc. ("BNY Group"), of the Royal Bank of Scotland Trust Bank (Holdings) Limited ("RBSTB"), a wholly-owned subsidiary of the Royal Bank of Scotland, plc ("RBS").

2. Following examination of the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation (EEC) No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the EEA Agreement.

I. THE PARTIES AND THE OPERATION

3. The BNY Group provides a broad range of banking and financial services, including retail and corporate banking, financial market services, investment management and private banking, and securities services and cash processing. It has five English subsidiary companies, and branches located in the U.K., Belgium and Germany, and recently commenced an operation in Luxembourg.

4. RBSTB's main business is the provision of custody and investment administration services and treasury dealing in the U.K. for domestic and foreign entities, carried out through its main operating subsidiary, RBS Trust Bank Ltd ("Trust Bank"). It also carries out this type of activity in Luxembourg for Luxembourg-based funds.

5. The proposed operation consists of the acquisition by BNY of sole control over RBSTB through the purchase of all the shares in RBSTB from RBS.

II. CONCENTRATION OF A COMMUNITY DIMENSION

6. The operation constitutes a concentration within the meaning of Article 3.1.b of the Merger Regulation.

7. The BNY Group and RBSTB have a combined aggregate worldwide turnover in excess of EUR 5,000 million (The BNY Group, EUR 5,167 million; RBSTB, EUR 327 million). Each of them has a Community-wide turnover in excess of EUR 250 million (The BNY Group, EUR [&]; RBSTB, EUR 327 million). The BNY Group and RBSTB do not both achieve more than two-thirds of their aggregate Community-wide turnovers within one and the same Member State. The notified operation has, therefore, a Community dimension.

III. COMPETITIVE ASSESSMENT

A. Relevant Markets

8. The areas in which the activities of the parties overlap are those of i) custodian services (described below), and ii) the administration of funds, which involves the provision of accounting services and net asset value calculations.

9. The notifying party describes custodian and trustee services as including the provision of safe keeping, settlement, portfolio management, asset valuation, record keeping, foreign exchange dealing, security lending and reporting services. Depending on the type of service, customers can include fund management entities, insurance companies, banks, government institutions and pension funds.

10. Within custodian services, the notifying party has distinguished global from domestic services. It has described the former as the provision of global custodian services to investment institutions (wherever they may be located) which own or manage securitised investments from a variety of international markets. This would constitute a global market (as its name implies), in which numerous major banks and other financial services companies compete actively. Following the same reasoning, the parties contend that custodian services provided at a domestic level would constitute a domestic/national market. Given that the operation does not raise serious doubts on any of the alternative levels, the question of the exact geographic scope for the provision of custodian services can be left open in the present case.

B. Assessment

11. The only area of overlapping activities in which after the operation the BNY Group would have a 15% share or more is that of the provision of domestic custodian services to a variety of investment institutions in respect of UK assets.

12. The notifying party describes the provision of domestic custodian services in the UK as a mature market in which the combined market share of the BNY Group and RBSTB would reach some [15-25%], behind the market leader, the Midland Bank with some [15-25%], and followed by Chase Manhattan with [10-20%], Lloyds TSB with [5-15%], along with several other competitors, including ABN Amro, State Street and Mellon, with some [1-10%] of the market each.

13. Given the level of the combined share of the BNY Group and RBSTB in the provision of custodian services in the UK, and given the presence of several other significant operators, among whom some with a comparable or even higher share, it is considered that this operation would neither create nor strengthen a dominant position for custodian services in the UK.

IV. ANCILLARY RESTRAINTS

14. Under clause 9.1 of the Share Sale and Purchase Agreement, the vendor, RBS, undertakes to BNY that it shall not, and that it shall procure that the members of the RBS Group shall not, for a period of [&] years from completion, engage in the activities of the RBSTB group of companies in Europe. RBS, in addition, undertakes to BNY, under clause 9.3, that it will not during the [&] year period following completion solicit, canvass, induce or encourage any person who was at any time during the six months prior to the completion date a director or employee of the Trust Bank Group.The Commission considers that both of the afore-mentioned obligations, in so far as they afford protection to the purchaser of the full value of the assets of the company transferred, can be considered related and necessary to the implementation of the concentration.

15. Under clause 10.1, BNY agrees to use all reasonable endeavours to procure for a period of [&] years from completion that the RBSTB Group shall continue to provide specified existing customers with the same or substantially the same levels of service as such services were provided immediately prior to completion. BNY also agrees that RBSTB will continue to administer the global custody operations and retail funds business for RBS, consisting of certain residual issues to be managed on behalf of the vendor for a [&] year period following completion.

16. In addition to the above, under clause 10.4, BNY and the Bank of New York agree to use all reasonable endeavours to refer as much business relating to the business of RBSTB as commercially possible to the RBSTB Group for a period of [&] years following completion.

17. Under clauses 10.5 and 10.6, BNY agrees not to undertake for [&] years from completion any action without RBS' consent which may result in a material change in the scope of the RBSTB business, which may prejudice its status as a bank or which may have a material adverse effect on the relationship between the RBSTB Group and specified customers.

18. The restrictions contained in clauses 10.1, 10.4, 10.5 and 10.6 described above relate to the [&] year period following completion during which RBS will retain a financial interest in the commercial success of the RBSTB Group through contingent Loan Notes to be issued by BNY as part of the consideration for the RBSTB shares, the payment of which is contingent on RBSTB achieving certain levels of income. The notifying party has submitted that the said restrictions are intended to provide reasonable protection for the vendor's interest until the final payment date [&]. In this context they can be considered directly related to and necessary for the purposes of the concentration.

19. Clause 10.3 sets out arrangements to provide for the reciprocal marketing of services to mutual customers as between RBS, RBSTB and BNY for an initial [&] year period. The notifying party submits that they are intended to facilitate the transfer of the RBSTB business from RBS to BNY, and in particular to facilitate the provision of a seamless service to customers on completion of the transaction. In this context, they can be considered related to and necessary for the purposes of the concentration.

20. In addition, under clause 10.8 RBS has agreed for a period of [&] years from completion to continue to use RBSTB as its sole supplier of the services the latter offers and to recommend RBSTB as its preferred supplier to related entities. The notifying party has submitted that this is an essential transitional measure to protect the ongoing supply of an important proportion of the volume of RBSTB's current business, and has further submitted that a sole supplier arrangement is the only practicable means of ensuring the necessary volume of ongoing supply of custodian business during the [&] year transitional period. The party has also submitted that the clause will provide RBS with the certainty of an ongoing custodian relationship, which it requires since it will not be able to compete with RBSTB for an initial period after the completion of the sale. In this overall context of ensuring continuity of supply during a transitional period after the break-up of the economic unity, the above-described terms of clause 10.8 are considered directly related and necessary for the concentration.

V. CONCLUSION

21. For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6 (1)(b) of Council Regulation (EEC) No 4064/89.

For the Commission,