By Bhanvi Satija and Mehnaz Yasmin
(Reuters) -Custodian bank State Street Corp said on Wednesday it had agreed to terminate its $3.5 billion deal to buy the investor services business of Brown Brothers Harriman & Co (BBH).
State Street's shares rose 5% to $77.64.
The deal, announced in September 2021, would have given Boston-based State Street access to BBH's expertise in cross-border, alternatives, exchange-traded funds, and other high-growth asset classes.
Adding BBH's $5.4 trillion in assets under custody to State Street's $31.9 trillion portfolio would have also helped the combined company better rival Bank of New York Mellon.
It is not in the best interests of clients, shareholders or employees to continue to invest time and resources in the transaction in this challenging financial services M&A environment, State Street said.
The bank's move to opt out underscores turbulence in the U.S. dealmaking market that saw several such transactions fall apart as financial companies reconsider expenses in the face of a worsening economic backdrop.
"The price was expensive then and likely became more expensive in a tightening economy," said Thomas Hayes, managing member at New York-based Great Hill Capital.
"Shareholders are relieved they don't have to pay peak prices for an asset that will take a long time to be accretive".
Earlier this month, OceanFirst Financial Corp terminated an agreement to acquire Partners Bancorp, while UBS scrapped a $1.4 billion deal to buy automated wealth management provider Wealthfront in September.
The deal termination does not require BBH's unit or State Street to pay any penalties.
(Reporting by Bhanvi Satija and Mehnaz Yasmin in Bengaluru; Editing by Devika Syamnath and Shounak Dasgupta)