London-based RBS Trust Bank, a unit of the Royal Bank of Scotland PLC, is currently valued at approximately $340 million. Both companies expect a premium to be paid, but the exact amount will not be known until December 2001 because payments will be made in installments based on the performance of RBS Trust Bank, which has about $640 billion in assets under administration.

Bank of New York is the 17th-largest bank in the U.S. as measured by assets. It was already one of the world's biggest players in custody services, with more than $5.2 trillion in assets under administration. But the purchase, if completed, would vault Bank of New York ahead of Chase Manhattan Corp., now the world's largest supplier of custody services. The purchase is expected to be completed by the third quarterof this year, the bank said.

"This is a positive move -- it obviously increases their European custody business," said Ronald Mandle, analyst with Sanford C. Bernstein & Co. But Bank of New York's share price declined Tuesday, in line with other financial companies, falling $1.25 to $36.9375 in composite trading on the New York Stock Exchange.

Large US custody-services companies provide administrative services and process transactions for mutual funds, pension funds and other investment products. They view Europe as fertile ground because of the trend toward privatizing pension funds and the launch of the euro. But custody is a business with slim profit margins in which size is seen as crucial to profitability.

"You read every day about the expansion of the mutual fund market throughout Europe with the push to privatize pension funds," said Thomas Perna, Bank of New York's senior executive vice president. "In addition to what we currently have here, this positions us very well to take advantage of thatgrowth."

RBS Trust Bank is the largest provider of pension-fund services in the UK and specializes in providing back-office services for fund managers. The purchase remains subject to final due diligence examinations, the negotiation of a definitive contract, and regulatory approval. In addition, Bank of New York will acquire a 30% equity stake in RBSI Security Services (Holding) Ltd., a Royal Bank of Scotland unit that specializes in offshore-funds administration.