State Street Corp. has agreed with Intesa Sanpaolo, a Milan banking company, to buy its securities services business for $1.87 billion in cash.

State Street said it will buy the global custody, depository banking, correspondent banking and fund administration portions of the business, which is centered in Italy and Luxembourg. The business had $500 billion of assets under custody at June 30.

The Boston banking company said that it plans to support the acquired business' balance sheet with $800 million of capital once the deal closes, which it is expected to do in the second quarter. State Street plans to finance the deal with available capital and expects it to add $16 billion in cash deposits.

Also as a result of the deal, State Street would add 555 employees, 420 in Italy and 135 in Luxembourg. This year's revenue from Intesa Sanpaolo's securities services business is expected to total about $427 million.

International expansion through acquisition has been part of State Street's strategy for the past three years under Ronald Logue, its chairman and chief executive officer. Logue, who announced in October that he plans to retire in March, has said that he wants the company to be able to generate 50% of its revenue from international channels.

Also this month, the company agreed to buy a European fund administrator, Channel Islands-based Mourant International Finance Administration, to expand its alternative servicing capabilities. This deal would add $170 billion of assets under administration and about 650 employees in Dublin, Singapore and New York.

State Street derived 35% of its revenue for 2008 from non-U.S. operations. These two purchases would increase that share to 38%. The company has had an investment servicing operation in Milan since 2003 when it bought Deutsche Bank's global securities services business.

State Street said it expects its capital ratios to remain strong after the Intesa deal's closing.

For 2010, its total capital ratio is estimated to be about 16.8%, Tier 1 capital ratio about 15.6%, Tier 1 leverage ratio about 7.4% and tangible common equity ratio about 5.5%.

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