When a shareholder seeks to double its holding in a highly successful venture, there are understandable concerns that it is licking its lips at the prospects of a takeover, because this is what the money game is all about. Temperatures as well as eyebrows maybe raised.

This seems to have been the experience of the grand US custodian bank, State Street, which is anxious to play down any suggestion of a possible merger with the Bank of New York (BoNY), thereby creating the world’s biggest provider of custody services. Merger speculation was triggered by BoNY’s expression of interest in doubling its State Street holding to 10%.

European pension fund managers are no doubt watching developments with interest. State Street handles some £35bn worth of pension fund money for 20 clients in the UK alone. If it were to merge with BoNY, it would have combined assets under manangement to the order of $5,700 bn.

But State Street is denying the rumour. Senior vice president, Charlie Cassidy, says it’s best if State Street and its customers ‘remain independent’.

As the largest custodian after BoNY in the US, with $2,700bn in assets under custody-compared to the former’s $3,000bn- there’s no doubt that State Street would be a glittering prize for BoNY which is already in the business of taking in other banks ’ washing, by reason of third-party processing.

Third-party processing- providing a white lable service for outsourcers to keep their brand identity-is big business. It can be embarrassing if a third-party processor finishes up providing a cheaper product for the customers of its outsourcer (perhaps a competitor) than it is able to provide for its own customers!

Third-party processing is also done in the provision of cheque books, with some western banks printing cheque books for Middle Eastern and other banks, it makes sense for some banks to outsource their processing to others with superior expertise and/or econ-omies of scale to their advantage, particularly on the custody markets where the practice is seen as a means of going for growth, not least in Europe. But the fear is, how long will it be before the third-party processor helps itself to the outsourcer’s cilents? How long before the outsourcer outsources itself, lock stock and barrel, into the bargain?

Growth through getting into bed with others, either by means of third-party processing, or by investing in one’s competitors, is clearl;y one of the strings to BoNY’s bow.

According to one Amercian banker, if anyone is likely to be taken over it is BoNY, rather than State Street which, if it were sold , would cost big bucks, since it is a premium business that would sell at a premium price. He says: ‘BoNY has set its sights on being the bank in the processing business but, this latest move may be designed to protect itself from being taken over. It would be a very reluctant State Street that went to BoNY.’

BoNY is the bank that is being chased hard by Germany’s Deutsche Bank which has dec-lared its ambition to overtake it in the race for cross-border trades in the global custody markets and oust it from third position in the world, after Chase and Citibank. By merging with State Street, BoNY would stay ahead of the global race, as numer-one in the world, rather than as number-four, say, in the event of Deutsche succeeding in its ambition. So it makes sense for BoNY to increase its slice of the global action through a merger with State Street. With Deutsche looking over its shoulder, with a view to knocking it off its perch and becoming number-three in the cross-border sector, BoNY cannot afford to be complacent in this area.

Nor, its seems, can State Street, if it really does want to remain independant while, at the same time, conceding more of its stock to BoNY.

When BoNy media spokesman in London was aked to comment, he responded: BoNY is making no comment. It depends which way you put it. It’s neither confirming nor denying it.”

The senior vice president of State Street Bank & Trust Company in London is David Bilbe, who confirms what Cassidy says: ‘Our position is very clear. We wish to remain independent.”

At the time of going to press, the BoNY’s application to double its holding in State Street - following a Federal hearing in the US and two week comment period - was awaiting a decision from the State Board of Banking.