Bank of America to buy Fleet

$47 billion stock deal would form No. 2 U.S. bank

$933 billion in combined assets

Buyer seeks to expand its presence in Northeast


Bank of America Corp. said yesterday that it had agreed to acquire FleetBoston Financial Corp. in $47 billion stock deal that would create the second-biggest banking company in the country.

The deal would combine two institutions that have grown to their current size largely through acquisitions.

It would give Bank of America a substantial footprint in the Northeast, where its presence is sparse. The merged bank would have a combined $933 billion in assets, second to Citigroup Inc., and the new company would be the No. 1 retail bank in the nation with about 5,700 branches, nearly twice as many as nearest rival Wells Fargo.

The bank would have operations in 34 countries and serve 2.5 million business clients. Once the merger was completed, the new Bank of America would have $68 billion in shareholders equity. Through the first nine months of this year, the combined companies have generated $10 billion in earnings.

The company, which also has 16,500 automated teller machines, would have the biggest, second-biggest or third-biggest market share in 21 of the nation's 30 most populous metropolitan areas.

The companies valued the deal at $45 a share for Fleet shareholders, a 41.5 percent premium over Friday's closing stock price of $31.80.

After the acquisition, the new Bank of America would have total deposits of more than $541 billion, 9.8 percent of all banking deposits in the United States.

Because the law prohibits bank holding companies from having more than 10 percent of the nation's banking deposits, the acquisition would almost certainly be the last deal allowed Bank of America.

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 B. Albertson, chief strategist at Sandler O'Neill & Partners LP. "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. I think this is strategically limiting for Bank of America. I don't find this inspiring."

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, rather than pay a premium price for Fleet.

Fleet in recent years has been looking outside the Northeast for potential acquisitions as a way to generate faster growth.

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 said.

Once the deal was completed, Charles K. Gifford, FleetBoston's chairman and chief executive, would become chairman of the merged company and would remain in Boston, where FleetBoston has its headquarters.

Lewis would be chief executive of the merged company and maintain his principal office in Charlotte, N.C., where Bank of America is based.

"The opportunity to merge with Fleet is unique," 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 make this deal because its stock has been strong over the past year. But the stock, which closed Friday at $81.86 a share, has never regained the $88 a share it reached in 1998, when NationsBank bought BankAmerica Corp. for $42 billion and adopted the Bank of America name.

Bank of America's shares fell $8.29, or 10.1 percent, to close at $73.57 yesterday, while FleetBoston's stock shot up $7.40, or 23 percent, to $39.20. Both trade on the New York Stock Exchange.

Under the terms of the deal, which have yet to 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 last Wednesday.

Although Bank of America appears to be on firm footing, the combination with NationsBank resulted in more than its share of problems. As recently as 2000, the stock was trading at $36 a share.

Fleet has been buying banks across the Northeast for a number of years. Its stock traded as low as $18 a share late last year.

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