State Street Corporation (STT Quick QuoteSTT - Free Report) and France’s BNP Paribas SA (BNPQY Quick QuoteBNPQY - Free Report) are making indicative bids as they compete to acquire Banco Bilbao Vizcaya Argentaria, S.A.’s (BBVA Quick QuoteBBVA - Free Report) custody business as part of their efforts to build scale. The news was reported by Reuters.

Shares of BNPQY (which is one of Europe’s main custodian servicers) gained 1.2% following the news release. The French lender has been working for several months on the offer.

Banco Bilbao’s custody business, which has 80 billion euros under administration, includes investment funds, pension funds and open-ended collective funds (known as SICAV).

BBVA announced the sale of its custody unit this summer, while the final auction is expected early next year. Currently, the Spanish lender has been working on shortlisting bidders that can be admitted to the final stage.

Per sources, who asked not to be identified, the sale is valued at 500 million euros ($566.5 million). A couple of other firms have also been showing keen interest in buying BBVA’s custody business.

None of State Street, BNP Paribas or Banco Bilbao has made any comment on the matter yet.

Through their custody units, banks manage clients’ assets in return for a fee. However, since custodian servicing is a low-margin business, rapidly increasing competition has made scale important, which is, in turn, pressurizing banks to sell such operations.

Per Reuters, one of the sources stated, “You need to generate heavy volumes for these operations to make sense as margins are low.”

Over the past year, shares of State Street have gained 30.4%. BBVA and BNPQY stocks have gained 19% and 29.8%, respectively.

Image Source: Zacks Investment Research

Currently, State Street, BNP Paribas and Banco Bilbao carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.