By AP / Ieva Augstums / TIME / Apr. 23, 2007
(CHARLOTTE, N.C.) — A year after making a successful $34.2 billion move into credit cards, Bank of America Corp. found yet another multibillion opportunity to grab more customers. The Charlotte-based bank said Monday it will purchase LaSalle Bank Corp. from ABN Amro North America Holding Co. for $21 billion in cash.
The deal, initially announced by ABN Amro Monday when the Dutch bank agreed to sell itself to Barclays for nearly $91.2 billion, fills a big hole in the bank's nationwide branch network by making it Chicago's largest bank.
It also raises questions about Bank of America, who is up against a federal cap that bars it from making acquisitions that would give it more than 10 percent of all U.S. deposits. The bank, which is the nation's second-largest after Citigroup, recently controlled just over 9 percent.
"I think there is a huge opportunity here, but the near-term costs are what people initially see," said Jefferson Harralson, an equity analyst with Keefe, Bruyette & Woods Inc. in Atlanta. "Long term, it's a great strategic move for them."
The net cost to Bank of America will be $16 billion after a return of $5 billion in excess capital.
Bank of America said it expects the deal to immediately enhance its earnings per share and about $800 million in after-tax cost savings. Restructuring costs also are expected to be around $800 million, the bank said.
Investors and Wall Street offered mixed reactions, sending shares of Bank of America down 53 cents, or 1 percent, to close at $50.51 on the New York Stock Exchange.
Analysts at Friedman, Billings, Ramsey & Co. said "we like this deal, particularly as this strengthens BofA in the third-largest deposit market in the U.S.," referring to Chicago. They maintained their "outperform" rating on the stock.
For the past several months, Bank of America Chairman and Chief Executive Ken Lewis has expressed his bank's interest in the Chicago market, particularly the strength of LaSalle, in speeches and conference presentations.
While not desiring to be the leader in every market in the U.S., "Chicago is attractive to us," Lewis said during a call with analysts. "The opportunity arose and we acted."
Chicago-based LaSalle is a top-20 U.S. bank holding company, with $113 billion total assets.
The combination of LaSalle and Bank of America creates a leading banking franchise in Chicago, the No. 3 banking market in the United States, and in Michigan. Together the banks would surpass current market leader JPMorgan Chase & Co. in Chicago and set up a battle with that bank, the nation's third-largest.
In the last four years, Bank of America has increased its retail presence in Chicago from a single financial center to 56 locations. Once combined with LaSalle's 141 Chicago area offices, Bank of America will have more than 14 percent of the deposit market share in Chicago.
The purchase, which is expected to close later this year, also will mark Bank of America's retail branch entry in Michigan, where it will have 264 offices and be the largest bank with a 23 percent deposit market share. Bank of America also will acquire LaSalle's six offices in Indiana.
While Chicago has experienced a surge in bank branches, Michigan has suffered economically from a loss of auto industry jobs. Last month, Comerica Inc. said it will move its banking headquarters to Dallas from Detroit to be closer to its faster-growing markets.
"The Detroit franchise is going to be a challenge to grow because of the economic backdrop," Harralson said.
Analysts also are questioning how Bank of America will get around the federal deposit cap law.
In 2004, the bank acquired FleetBoston Financial. A year ago it added millions of names to its ledger through its purchase of credit card issuer MBNA Corp. Currently, the bank has pending purchases of wealth management company U.S. Trust Corp. and a stake in the student lender SLM Corp., known as Sallie Mae.
Last month, when the Federal Reserve Board approved Bank of America's plan to buy U.S. Trust, it said the buyer held $612 billion in deposits, or 9.1 percent of the U.S. total before the purchase. With LaSalle's approximately $57 billion deposits and U.S. Trust's $9.4 billion deposits, the bank would appear to be slightly over the 10 percent threshold.
Bank officials said they are confident they can meet the requirements.
"We will not plan on changing our retail deposit strategy," Lewis said.
Ganesh Rathnam, a banking analyst with Chicago-based Morningstar, said the bank will more than likely just "not pay as high on their CDs as other banks do," thereby meeting the requirement, he said.
In all, Bank of America had $1.46 trillion in assets at the end of 2006, second only to chief rival Citigroup Inc. — the nation's largest financial services company with $1.88 trillion in assets.
