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By JEFF HARRINGTON, Times Staff WriterThe $47-billion purchase puts the Charlotte, N.C., megabank behind only Citigroup in size.
Bank of America Corp. agreed Monday to buy FleetBoston Financial Corp. in a $47-billion all-stock deal that would create the world's second-biggest banking company.
In absorbing the renowned Boston institution, Bank of America of Charlotte, N.C., would surpass JP Morgan Chase & Co. and rank behind only Citigroup Inc. Among consumer banks, it would be No. 1 with 33-million customers and 2.5-million business clients in 34 countries. The combined institution, with $68-billion in shareholder equity and $542-billion in deposits, would rank among the top three retail banks in 23 of the United States' 30 fastest-growing metropolitan areas.
In Florida, where Bank of America already has a market-leading 25 percent share of banking deposits, the deal will have little direct effect on customers. FleetBoston operates just two branches in Florida: one in Boca Raton and one in Delray Beach. It also owns the Quick & Reilly brokerage firm.
Bank of America hasn't attempted a big merger since 1998, when it was created by the blockbuster, $42-billion union of NationsBank Corp. and BankAmerica Corp. of California. Since then, New England has stood out as a key missing link in the megabank's coast-to-coast franchise.
"The truly compelling argument for this merger is the ongoing vision for a truly national bank," Bank of America chief executive Ken Lewis told analysts in a conference call Monday morning. "We are now truly the Bank of America."
But the math of the deal all but rules out the notion that this is the start of a new growth binge like the acquisitions engineered by Lewis' predecessor, Hugh McColl, a take-no-prisoners dealmaker.
By federal law, banks in mergers are prohibited from having more than 10 percent of the country's deposits. The FleetBoston deal would bring Bank of America to 9.8 percent of deposits, meaning it would almost certainly be the bank's last big acquisition.
Lewis said that doesn't stop the bank from trying to grow its national market share to 12 or 13 percent. In several markets such as Chicago, Bank of America is opening a rash of branches.
Lewis, who cut his teeth for the Charlotte bank by running its Florida operation out of Tampa in the mid 1980s, has been known largely as an operations guru.
After the NationsBank-BankAmerica deal, Bank of America stepped back from acquisitions, making a vow to repair problems in customer service and other areas. The need for improvement was particularly acute in Florida, where the bank was still smarting from miscues in its acquisition of Barnett Banks a year earlier.
At the time, the bank's customer service phone lines were overwhelmed with complaints of poor service, electronic problems and long lines at branches.
When he took charge in 2001, Lewis dismissed the idea of the next big deal, saying he would focus on "the knitting." And the bank's customer service ratings have markedly improved.
Still, the FleetBoston deal is crafted much like the acquisitions under McColl. FleetBoston chairman and CEO Charles K. Gifford will stay in Boston as chairman of the new bank, a common but temporary move for top executives of the large banks that Bank of America has acquired.
Power will remain in Charlotte as headquarters of the commercial bank.
In addition to expanding its national footprint, Bank of America also extends its international reach, particularly in Latin America. All told, Bank of America will have almost 5,700 retail branches and more than 16,500 automated teller machines.
The banks did not give specifics on job cuts, but there is little overlap of branches, and Lewis indicated any layoffs will be offset by the expected hiring of 35,000 new employees in 2004.
The agreement comes at an awkward time for both banks. Bank of America's mutual fund business has been roiled by a regulatory investigation, and a FleetBoston subsidiary has been targeted by the New York Stock Exchange and accused of questionable trading-floor practices.
Lewis and Gifford dismissed the respective inquiries as small issues, and certainly not deal-breakers during discussions.
Lewis said he first broached the idea of a merger in the middle of 2002 and slowly nurtured it over subsequent dinner meetings and phone calls. "I guess I'm a slow date," Gifford quipped.
In a conference call, the two chief executives deflected questions about executive compensation, saying the topic was never even broached during negotiations. In the past, executives of banks being sold have been richly rewarded. In Florida, for example, Barnett Banks chief executive Charles Rice received a payout package worth more than $100-million when he sold to NationsBank. Like Gifford, he was named chairman of the bank after the deal, but Rice didn't stay long.
Gifford told investors that FleetBoston would benefit from adapting Bank of America's rich suite of products. Lewis said he had never met a management team so in synch with his own. "There's nobody I trust any more than Chad Gifford," Lewis said.
Some analysts were not as enamored.
Bank of America "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," said Robert Albertson, chief strategist at Sandler O'Neal. "I think this is strategically limiting for Bank of America. I don't find this inspiring."
Albertson said that 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.
But Richard Bove, a banking analyst in St. Petersburg for Hoefer & Arnett, said the deal would ultimately be good for Bank of America shareholders: "Bank of America will be the premier retail bank in the United States." Under 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 Fleet shares. The exchange ratio is based on Bank of America's closing price of $81.03 on Oct. 22.
In a sign that investors believe FleetBoston shareholders are getting the better end, FleetBoston's stock price shot up $7.40 apiece, or 23.3 percent, to close Monday at a new 52-week high of $39.20 a share. Bank of America shares dropped $8.29, or 10.1 percent, to close at $73.57 a share.
Bove said the drop was a shareholder message to Bank of America. The bank came up with "a Hugh McColl-type merger," Bove said. "And shareholders said: "This isn't what you told us. This isn't what we were led to believe."'
- Information from Times files was used in this report. Jeff Harrington can be reached at harrington@sptimes.com or 813 226-3407.