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BofA to Buy Fleet in New England

The $43-billion stock purchase would make Bank of America No. 2 in the nation by assets.

October 28, 2003|E. Scott Reckard | Times Staff Writer

Bank of America Corp. said Monday that it planned to buy FleetBoston Financial Corp. for more than $43 billion in an all-stock deal that would establish BofA as a major player in the Northeast and catapult it ahead of J.P. Morgan Chase & Co. to become the second-largest U.S. bank.

The takeover would be the largest such deal since Charlotte, N.C.-based NationsBank bought San Francisco's BankAmerica Corp. for $57 billion in 1998, taking the BofA name and setting up the new company in North Carolina.

In a sentiment echoed by many analysts, BofA Chairman Kenneth D. Lewis predicted the proposed stock swap would set off a wave of bank takeovers by rivals struggling to stay abreast.

"We are now truly the Bank of America," Lewis said at a New York news conference, displaying slides showing how FleetBoston's holdings in New England, New York and New Jersey would complement BofA's franchises in the West, the Southeastern coastal states and the Sunbelt from Texas to California.

At a time when bank takeovers have been on the rise, Boston-based FleetBoston was high on most target lists.

Last year, it was forced to write off a string of its initiatives from the 1990s, including venture capital deals, much of its extensive lending in Latin America and its purchase of Robertson Stephens Inc., a technology-oriented San Francisco investment bank that FleetBoston was unable to sell and had to shut down.

The agreement to be acquired by BofA came as something of a surprise, however, because New York's Citigroup Inc., the No. 1 U.S. bank by assets, was mentioned most often as the leading suitor. A Citigroup spokeswoman declined to comment, but executives at Citigroup and other banks privately raised their eyebrows at the deal's high price, which BofA said would depress its per-share earnings until the second half of 2005.

Wall Street also expressed reservations about the price, knocking BofA shares down $8.29, or 10%, to $73.57. FleetBoston shares rose $7.40, or 23%, to $39.20. Both trade on the New York Stock Exchange.

Under terms of the deal, which must be approved by seven regulatory agencies and the banks' shareholders, FleetBoston stockholders would receive 0.5553 of a Bank of America share for every FleetBoston share they own, valuing the bank at more than $43 billion at BofA's closing price Monday.

If the purchase of FleetBoston closes as expected at midyear 2004, Bank of America would have 5,700 branches in 29 states and 16,500 automated teller machines, with plans to add more than 200 branches a year -- a strategy Lewis said would be accelerated by the larger footprint .

Although Citigroup is larger by total assets, Bank of America has the greatest amount of deposits in the country. With FleetBoston, the total would grow to 9.8% of all U.S. bank deposits. That would cap BofA's ability to expand through acquisitions, because regulations don't allow a takeover that gives a bank more than 10% of the total.

Unless Congress changes that limit, the largest hole in Bank of America's reach would range from West Virginia through the upper Midwest and out to the Rockies. Much of it is prime territory for Bank of America's California archrival Wells Fargo & Co.

Like BofA, Wells was created during the last wave of bank consolidation in the 1990s, when Minneapolis' Norwest Corp. acquired Wells and took over its name, logo and San Francisco headquarters.

Lewis said BofA, which focuses on urban locations more than Wells does, would continue to grow "the old-fashioned way" in Chicago, where it plans to open 30 to 40 branches. The target there includes the nation's third-largest Latino community -- Wells, Bank of America and others are battling for the U.S. Latino market -- as well as private banking customers.

After becoming chairman and chief executive in April 2001, Lewis concentrated on consolidating the many acquisitions of his predecessor, Hugh McColl, and retreating from unpredictable businesses such as lending to Latin America and to U.S. consumers with poor credit histories. The proposed deal would put the bank back into lending in Argentina and Brazil, where FleetBoston still does business.

The deal calls for Lewis to remain CEO, running the bank from Charlotte. Charles K. "Chad" Gifford, FleetBoston's chairman and CEO, would become chairman, working from Boston. The executives described their banks' cultures as similar and said layoffs would be minimal because their branches overlap only in New York.

Gifford said FleetBoston's customers would be offered a better package of services when the deal is done. That would contrast with the experience of Bank of Boston customers who, Gifford acknowledged, were worse off when their bank was acquired by Fleet Financial Group in 2000 and switched to Fleet systems and services.

Gifford said he hadn't looked forward to "being the guy who sold the bank in the Northeast." But he added that he came to trust Lewis during a series of conversations hat began halfway through last year.

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