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Bank of america creating 2nd biggest bank { October 27 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/10/27/business/27CND-BANK.html?hphttp://www.nytimes.com/2003/10/27/business/27CND-BANK.html?hp
October 27, 2003
Bank of America to Buy Fleet, Creating 2nd Biggest Bank
By KENNETH N. GILPIN
The Bank of America Corporation said today that it had agreed to acquire the FleetBoston Financial Corporation for stock valued at $47 billion in a deal that would create the nation's second biggest banking company in terms of global assets.
The deal would combine two institutions that have grown to their current size largely through acquisitions.
It would give Bank of America, which was created in 1998 from the $42 billion merger of the NationsBank Corporation and the BankAmerica Corporation, a substantial footprint in the Northeast, where its presence is currently limited, as well as expand the organization's reach in Latin America and other international markets.
The combined bank would have operations in 34 countries and serve 2.5 million business clients. Once the merger is completed, the new Bank of America will have $68 billion in shareholders equity. Through the first nine months of this year, the combined companies have generated $10 billion in earnings.
The deal would create a retail banking powerhouse, with 180,000 employees, 5,700 branch offices and more than 16,500 automated teller machines. The company would occupy the first, second or third biggest market share in 21 of the nation's 30 biggest metropolitan areas.
The companies valued the deal at $45 a share for Fleet shareholders, representing a 41.5 percent premium over Fleet's closing stock price on Friday.
After the acquisition, the new Bank of America will have total deposits of more than $541 billion, or 9.8 percent of all banking deposits in the United States.
Since bank holding companies are prohibited by law from obtaining more than 10 percent of the nation's banking deposits through acquisitions, the deal announced today would almost certainly be the last one that Bank of America would be allowed to do.
With that in mind, banking industry analysts questioned whether Bank of America made the right choice in agreeing to acquire FleetBoston.
"It's more math than momentum," said Robert Albertson, chief strategist at Sandler O'Neal.
"They have paid a very high premium to buy an institution whose market share is so dominant in a slower growth region that there isn't much room for them to grow," he said. "I think this is strategically limiting for Bank of America. I don't find this inspiring."
Mr. Albertson said Bank of America would have been wiser to buy "half a dozen to a dozen" smaller banks in areas with much better growth prospects than the Northeast.
Indeed, in recent years Fleet itself has been looking outside the Northeast corridor for potential acquisitions as a way to generate faster growth.
Robert Stickler, a Bank of America spokesman, said the bank already had a presence in most of the nation's growth markets.
"What Fleet is in is the best market for wealth in the country," he said. "In that regard, this is a natural fit. And we do believe we have opportunities to grow in New England and that we can take some market share."
At a news conference, Kenneth D. Lewis, Bank of America's chairman and chief executive, acknowledged that "the cap does preclude us" from doing additional acquisitions of any size.
"I can't wait to see us organically grow through that ceiling," he added.
There is no legal impediment to internally growing the deposit base through the 10 percent ceiling.
Once the deal is completed, Charles K. Gifford, who is currently chairman and chief executive of FleetBoston, will become chairman of the merged company and will remain in Boston, where FleetBoston has its headquarters.
Mr. Lewis will serve as chief executive and maintain his principal office in Charlotte, N.C., where Bank of America is based.
"The opportunity to merge with Fleet is unique," Mr. Lewis said in a statement. "From the Bank of America perspective, we will have the leading market position in Massachusetts, Rhode Island, Connecticut and New Jersey as well as a powerful retail platform in New York City, upstate New York, New Hampshire and Maine. From a broader perspective, we are building a company that will deliver more financial service capabilities to more Americans than ever before in our nation's history."
Bank of America is able to do this deal because its stock has been a strong performer over the last year. But the stock, which closed on Friday at $81.86 a share, has never regained the $88 a share level it reached in 1998, when NationsBank purchased Bank of America.
"A year ago, the stock was trading around $60 a share," said Tom Burnett, president of Merger Insight, an affiliate of Wall Street Access, an independent brokerage and research firm. "They have a strong currency, and they want to use it."
The value of the currency got weaker after the stock market opened today. As is often the case for an acquirer in a deal, Bank of America's shares fell today, dropping $7.96, or 9.7 percent, to $73.90 by this afternoon on the New York Stock Exchange. Meanwhile, FleetBoston's stock shot up $7.79, or 24.5 percent, to $39.59 a share.
Bank of America "is paying a pretty stiff price," Mr. Burnett said. "This is a good deal for the Fleet shareholders."
Asked about the stock market's reaction, Mr. Lewis said: "I don't think anybody could do a deal at any price that investors would like in the short term. They are going to like this deal over time."
Under the terms of the deal, which must be approved by shareholders and regulators, FleetBoston shareholders would receive 0.553 shares of Bank of America stock for each of their shares. The exchange ratio is based on Bank of America's closing price of $81.03 on Oct. 22.
The trend toward consolidation in the banking industry has slowed in recent years, in large part because of the downturn in the stock market.
But the rationale for completing mega-mergers, which were so much in vogue during the late 1990's, has soured somewhat, because many of the big deals have not produced the results that had been promised.
Although Bank of America now appears to be on firm footing, the combination with NationsBank generated more than its share of problems. As recently as 2000, the stock was trading at $36 a share.
The combination of the Chase Manhattan Corporation and J.P. Morgan & Company, which up up until today was the second biggest banking company after Citigroup, has not lived up to expectations.
And Fleet, which has been buying banks all over the Northeast for a number of years, saw its stock trade as low as $18 a share late last year.
At the news conference, Mr. Lewis said he first approached Mr. Gifford about a deal in the middle of 2002.
"It has been some time in coming," he said.
"Ken took the initiative," Mr. Gifford said. "I guess I am a slow date."
Copyright 2003 The New York Times Company
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