A Midwest foray by Bank of America

LaSalle Bank deal gets mixed reviews

April 24, 2007|By Charlotte Observer

CHARLOTTE, N.C. -- Bank of America Corp.'s $21 billion gamble on Chicago received a tepid reception yesterday from some analysts and investors worried about the bank's continued appetite for big deals.

The Charlotte, N.C., bank confirmed an agreement to buy Chicago's LaSalle Bank from Dutch parent ABN Amro Holding, which is being acquired itself by Britain's Barclays PLC for $91 billion. The takeover would give Bank of America the top spot in the nation's third-biggest city and would also make it the largest player in struggling Detroit.

"While a Chicago presence might be deemed essential to a bank wishing to fill a geographic hole, we just don't see how this adds much to the growth profile of the company," analyst Nancy Bush of NAB Research wrote in a report yesterday.

Bank of America has a strong presence on both coasts but not as much in the Midwest.

Unlike most big bank deals, Bank of America is paying cash, one of the largest transactions of this kind and a sign of the company's mammoth size. The deal came together quickly and competing offers could still surface.

In recent months, Chairman and Chief Executive Officer Kenneth D. Lewis has been emphasizing Bank of America's efforts to expand through internal growth, while keeping his options open in Chicago, where he has only a small presence.

Executives said the deal is attractive because Bank of America can build on LaSalle's expansive retail and business customer base by offering additional products and services. The bank also plans to slash LaSalle's annual $2.5 billion expense base by half.

The bank wants to keep employees who work with customers, but back-office and support staff among LaSalle's 15,000-member work force are likely in jeopardy. Bank of America has 199,000 employees worldwide, including Chicago.

Spokesman Scott Silvestri said the company had not completed the number of job cuts but said they would come through attrition and reductions over two years.

Affected employees would be eligible to apply for open Bank of America positions, he said.

With reports of the deal breaking Sunday, the bank's stock fell 53 cents, or about 1 percent, to $50.51 in trading yesterday.

Analyst Richard X. Bove of Punk, Ziegel & Co. called the agreement "shareholder-unfriendly," questioning why the company would want to expand in the Midwest.

The deal pushes the bank close to a 10 percent cap on total U.S. deposits that can't be eclipsed through acquisition because of federal guidelines. That means the bank might have to shed business in attractive markets such as Charlotte to slip under the threshold, Bove said.

"These guys are meaningfully hurting organic earnings growth," he said.

However, in a research report, analyst Gary Townsend of Friedman, Billings, Ramsey Group said he liked the purchase, noting the addition in the Chicago market and the fact that the deal will add to earnings immediately.

Bank of America said its purchase was not contingent on ABN Amro's sale to Barclays. Bank of America said competitors are allowed to examine the deal over the next two weeks.

"We knew we had to do a full price," Lewis said in a conference call yesterday. "We knew others were lurking."

The bank gets a $200 million breakup fee if a competitor prevails. Otherwise, the transaction needs approvals from the Federal Reserve Board and ABN Amro shareholders.

The bank expects the purchase to close late this year or early next year.

The deal is part of the company's more than two-decade march across the country.

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