By Patricia Kowsmann 

Spain's Banco Santander SA and France's Credit Agricole SA are to combine their custody and asset-servicing operations, creating a EUR3.34 trillion ($3.78 trillion) custodian business with more scale to compete.

Custodial banks secure assets for clients such as large institutional investors and fund managers. The joint venture announced Wednesday comes amid a push for consolidation of European banks which are struggling with low returns and high costs. Germany's Deutsche Bank AG and Commerzbank AG are currently in talks about a potential merger.

The new entity, which is subject to approval, will be the third largest in the eurozone by assets under custody after France's BNP Paribas SA and Société Générale SA. However, they are much smaller than their U.S. peers. State Street Corp., one of the biggest, finished the year with $31.6 trillion in assets under custody.

Santander's business is relatively small, generating EUR80 million in profit last year. It will transfer its S3 business, which covers Spain and Latin America and had EUR710 billion of assets under custody and EUR138 billion of assets under administration as of Dec. 31, to CACEIS, the asset-servicing arm of Crédit Agricole. CACEIS had EUR2.6 trillion in assets under custody and EUR1.7 trillion in assets under administration as of December.

Credit Agricole recorded a EUR174 million net income from asset servicing last year. It will hold 69.5% of the entity and Santander will hold the remaining 30.5%, with the Spanish bank retaining a majority stake in the Latin American operations. The banks said the combination will help them seek clients in growth markets like Latin America and Asia.

"S3 and CACEIS are highly complementary businesses, and by working together we can create a custody and asset servicing platform that leverages our collective scale and global presence," Santander Chairman Ana Botin said in a statement.

The banks said the impact of the joint-venture on capital and earnings per share won't be material.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com

(END) Dow Jones Newswires

April 17, 2019 06:30 ET (10:30 GMT)