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and Michael Hiltzik

A Bigger, Better Bank of America? Confusion Reigns at Compaq


Stock Exchange lets readers listen in as staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.

Bank of America (BAC)

Jim: Right off, Mike, let me note that I have a checking account at Bank of America . . .

Mike: . . . as do I.

Jim: Which means I'm among those who are nickeled-and-dimed to death with all sorts of fees because BofA, with its $614 billion in assets--that's billion, with a b--can't possibly shoulder those costs alone. However, that won't affect my opinion of its stock.

Mike: Same here. Bank of America, of course, is the gigantic California bank with a fabled history that's headquartered in--what's this?--Charlotte, N.C.?

Jim: It's true.

Mike: Boy, this is not my grandfather's BofA. In fact, it's not even my older brother's BofA!

Jim: That's because BofA last year merged with another huge bank, NationsBank, that called Charlotte home.

Mike: Let's be more precise, Jim. BofA got taken over by NationsBank.

Jim: Good point. This was one of those deals called a merger of equals, but except for keeping the BofA name, the surviving bank clearly is dominated by NationsBank and its culture. That's also why BofA's longtime headquarters in San Francisco was abandoned in favor of Charlotte.

Mike: I'm not surprised. I always believed in these "merger-of-equals" things about as much as I ever believed there was, oh, a "new Nixon."

Jim: Or that BofA was "here to serve you." Anyway, the new Bank of America has found itself in the hole in recent months. After completing the merger with NationsBank, BofA was being hit with huge losses from investment trading overseas and from its high-risk hedge-fund unit, called D.E. Shaw. By the way, now you know why BofA nicks you for $1.50 every time you want to use another bank's ATM machine. I mean, someone has to finance its gamble on currency futures and the like.

Mike: Actually, the big loser from that fiasco was BofA's old CEO, David Coulter.

Jim: True. Coulter became the No. 2 executive to NationsBank's CEO, Hugh McColl, after the merger. But he was shown the door last fall after these problems surfaced, and now McColl's having to clean things up.

Mike: Well, let's think about BofA from the customer's standpoint. You know, we recently talked about Washington Mutual, the savings-and-loan behemoth that's struggled lately to absorb the customers of the numerous thrifts it's bought, especially here in Southern California.

Jim: And these problems are nothing new, of course. They were evident after BofA bought Security Pacific Bank a few years ago.

Mike: Right. The other day I had to execute some paperwork involving a BofA account, and was told I had to fill out the same form twice, once for BofA and once for NationsBank, because BofA is changing its computer system over to the NationsBank system at the end of the month.

Jim: Did they charge you $1.50 for the extra ink you needed?

Mike: Point is, that episode raises a very legitimate question about what snags may occur throughout the bank as it completes this merger, and whether they will impact the company's earnings and its stock.

Jim: No question these problems have to be overcome, as in any merger. But I'd still buy BofA as a conservative, long-term investment, though there was nothing conservative about the bank's forays into overseas, high-risk trading that caused so many of its recent problems.

Mike: At least the new management is putting a leash on that activity.

Jim: McColl & Co. have spent a good amount of time paring all this esoteric speculation. Also, don't forget that BofA seems on track to wring about $1 billion of costs out of the newly merged bank per year, which was one of its main goals in the first place.

Mike: And the bank is preparing to give some of that savings back to its stockholders via a buyback program of more than 7% of its stock over the next couple of years which, at current prices, amounts to some $9 billion. That's already helped the stock.

Jim: Bank of America got as high as $88 a share last year, only to plunge to about half that price after its problems began coming to light. But it's since rebounded to a recent $75 or so, or about 16 times its estimated '99 earnings per share.

Mike: Well, as a BofA customer I'm sitting here gripping the arms of my chair, because this merger will be a rocky ride for account holders. But as a stockholder, I'd like to get the savings that are going to be taken out of my hide as a customer.

Jim: So you'd buy the stock?

Mike: I would. Now whether I'd be courageous enough to buy it through my Bank of America brokerage account before these problems get fixed is quite another matter.

Compaq Computer (CPQ)

Jim: Since we're talking about companies trying to climb out of deep holes, Mike, we turn to Compaq Computer.

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