The Bank of New York and Mellon Financial Corp. have announced a definitive agreement to merge into a new entity to be called the Bank of New York Mellon Corp.

The deal will see around 3,900 of the two companies' combined 40,000 payroll cut over a three-year period.

The combination will have $16.6trn (€12.trn) in assets under custody and corporate trustee with $8trn in assets under trusteeship.

It will have more than $1.1trn in assets under management. The combined company - which industry wags are already calling "BoNY M", after the 1970s pop group - has more than $12bn in revenues.

The deal is aimed at reducing pre-tax costs of around $700m a year. The deal involves restructuring charges of some $1.3bn.

The merged group will be based in New York, with a presence in Mellon's hometown of Pittsburgh. The board will comprise 10 members designated by the Bank of New York and eight by Mellon.

The Bank of New York's chairman and chief executive Thomas Renyi will be executive chairman of the merged bank for 18 months after the transaction closes, with Mellon's CEO Robert Kelly serving as CEO of the new company. Kelly will take over as chairman.

Bank of New York president Gerald Hassell will hold the same position in the new company.

Bank of New York spokesman Ivan Royle said the merged entity would have some 6,000 employees in Europe. The deal is subject to regulatory approval, with the close targeted for July next year.

Custody consultant Richard Hogsflesh told IPE that culturally the two organisations are "pretty different".

In terms of client service, the two were "poles apart", with Mellon generally doing well in customer surveys with its high value-added approach while the Bank of New York's more commodity-style service did not win accolades.

Hogsflesh also said the deal puts into question the future of the ABN Amro Mellon European custody venture. The merger announcement makes no reference to this.

Renyi said: "We are creating one of the world's leading financial services growth companies. Both our companies focus their businesses in highly attractive sectors of the financial services industry.

"Together, we will be the global leader in securities servicing, and one of the top providers of asset and wealth management worldwide. Together, we will have the scale, the technology, the capital, and the people we need to compete and win in the rapidly expanding global marketplace."

Mellon's Kelly said: "The merger creates an extraordinarily strong and rapidly growing global competitor in our core businesses. Through this merger, we will be able to invest and expand more effectively than any of our competitors due to our combined scale, profitability and global reach.

"The organic growth of our respective companies is already strong, and the cost savings and revenue synergies opportunities are excellent."

Under the terms of the agreement, the Bank of New York's shareholders will receive 0.9434 shares in the new company for each share of they own, while Mellon shareholders will receive one share in the new company for each Mellon share they own.

Based on recent share prices, the deal values Mellon at about $16.5bn.

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