Bank of New York Mellon said on Tuesday that it would buy an investment servicing unit from PNC Financial Services Group

for $2.31 billion.

Proceeds from the deal will help PNC repay the $7.6 billion in Troubled Asset Relief Program funds it received to help fund its 2008 acquisition of National City Corp.

PNC approached BNY Mellon at the end of last year to discuss selling the business, which provides accounting and other services to fund managers, Jim Palermo, co-chief executive of BNY Mellon Asset Servicing said.

For BNY Mellon, the unit will add $855 billion in assets under administration and increase its position in fund accounting and administration, among other businesses.

New York-based BNY Mellon, which has $22.3 trillion in assets under custody and administration, will have the No. 2 position in fund accounting and administration after the deal, it said.

Large players usually have an advantage over smaller ones in processing businesses, because of the significant technology spending involved. Smaller players do not typically have the resources to spend as much on technology, and stand to gain less profit from there investment.

It further adds a high proportion of fee-based revenues to our business which is an important part of our strategy, said Palermo. Adding fee-based revenues makes the company less reliant on more volatile revenue from capital markets, he explained.

BNY Mellon plans to sell about $800 million in stock as part of the deal, which is expected to close in the third quarter.

Pittsburgh-based PNC had been shopping the unit, known as Global Investment Servicing Inc, for months, a source familiar the situation said.

The more than 30-year-old business, based in Wilmington, Delaware, employs about 4,500 people, BNY Mellon said. It has become the largest service provider to the U.S. mutual fund industry.

PNC Chief Executive James Rohr told Reuters in December he plans to repay the money from the U.S. government's Troubled Asset Relief Program this year but he said he is in no rush.

Shares in BNY Mellon closed up 1.7 percent at $29.58 on Monday. Shares in PNC closed up less than 1 percent at $55.86.

(Reporting by Elinor Comlay; Editing by Lisa Von Ahn and Derek Caney)