France's Credit Agricole and Spain's Santander plan to combine their custody and asset servicing operations to create a business with around $3.8 trillion of assets under custody and close the gap on European leaders. 

The banks said in a joint statement the new entity would have about €3,340 billion in assets under custody and about €1,833 billion in assets under administration.  

Banks' custodian services businesses look after assets for clients in return for fees. 

Credit Agricole will own 69.5% of the merged unit, which will keep the brand name of Agricole's existing asset management arm – Caceis. Santander will hold 30.5%. 

Santander's 'S3' Securities Services arm in Spain and Latin America will also be combined with Caceis. 

Low profitability among European banks has sparked calls from officials at the European Central Bank and investors for cross-border consolidation.

But regulatory issues and political opposition to foreign takeovers have stymied deals so far. 

Joint ventures in areas such as fund management can thus provide an easier option, allowing banks to benefit from scale by collaborating on business lines without having to go into any full-blown takeovers. 

Santander and Credit Agricole's combined custody operations would make them one of the largest European players behind BNP Paribas, HSBC and SocGen, while also creating a stronger competitor to US leaders such as State Street. 

Santander said it would see a capital gain of around €700m from the deal. 

"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, and offers clients a comprehensive service that can support their ambitions and help them to prosper," Santander's chairman Ana Botin said. 

The tie-up comes amid other potential European bank deals. 

Germany's Commerzbank and Deutsche Bank are in merger talks, while Italy's Unicredit has also said it could explore a deal with Commerzbank. 

A German magazine said ING had also approached Commerzbank.