FRAMINGHAM (10/27/2003) - Bank of America Corp. (BofA), the nation's second-largest bank, announced Monday plans to acquire Boston-based FleetBoston Financial Corp. for US$47 billion in stock.
The current BofA, formed under a $60 billion 1998 merger with NationsBank, would likely surpass Citigroup in deposits following an acquisition of FleetBoston. The new BofA would have the largest retail banking network in the U.S., with 5,700 branches across 29 states.
During a conference call with analysts this morning, BofA executives said they expect the deal to generate $1.1 billion in cost savings and efficiency gains -- including consolidation of redundant systems, applications and software licenses, said Jim Eckenrode, an analyst at Needham, Massachusetts-based TowerGroup.
"The challenge before BofA and Fleet is to make this transition as seamless as possible," said Eckenrode. Following the 1999 merger between Fleet and BankBoston, there was a perception among bank customers in the Boston area that Fleet "was the only game in town, so there was some consumer runoff from doing business with a big bank that doesn't know me," said Eckenrode.
He believes that there's probably "some leftover baggage" in BofA's acquisition of NationsBank, such as redundant retail banking software platforms that continue to be operated. On the flip side, Fleet "has taken a much more rigorous approach" toward systems integration through its banking mergers, including the BankBoston deal, he said.
BofA executives defended the 43 percent premium being paid for Fleet's stock by claiming the merger can generate big savings throughout the combined company, including consolidation of redundant data centers and common banking applications. But in past bank mergers, "the pursuit of big expense savings has led to market share gains for competitors," according to a research report published by New York-based Merrill Lynch & Co.
Bill Bradway, an analyst at Framingham-based Financial Insights, expects the BofA/Fleet merger to lead other big banks, such as Wells Fargo & Co., Citigroup, Wachovia, J.P. Morgan Chase & Co. and Bank One Corp. to re-evaluate their own national banking intentions and consider exploring mergers of their own.
Charles K. Gifford, chairman and chief executive officer (CEO) of FleetBoston, will become chairman of the board of directors of the merged company, working out of Boston. Kenneth D. Lewis, now chairman and CEO of Bank of America, will take over as CEO of the newly merged company in Charlotte.
Eugene M. McQuade, who will be president of the merged bank, will be responsible for technology and operations. Joseph Smialowski, former chief information officer (CIO) at Sears, Roebuck and Co., is the current vice chairman of technology and operations at FleetBoston and Tim Arnoult is now head of technology and operations at BofA. It was not clear this morning what roles they would have in the new company.
Both Bradway and Eckenrode said it's too soon to tell whether Smialowski or Arnoult will be tapped for the CIO role. Eckenrode noted that Smialowski has more of a technology background than Arnoult, while Bradway suggested that the combined company may split the CIO role between the two executives, who might end up managing technology operations for specific lines of business.
BofA spends just under $3 billion a year on IT while Fleet spends a little less than $2 billion a year on technology, said Bradway.
Eckenrode said he believes Gifford will "do the best he can" to help preserve IT jobs for the technology workers in the Boston area. Gifford "has been very focused on philanthropy and doing right by his Boston-based staff," said Eckenrode, adding that the new bank has already announced that certain lines of business, such as wealth management and leasing, will be based out of Boston though not out of the merged company's Charlotte headquarters.
For his part, Bradway said he would expect to see "a slight reduction" in IT staff over the next two to three years, after phases of the IT consolidation have been completed. Bradway said it was too soon to quantify the potential impact on the combined IT workforce.
The merged bank is expected to have 9.8 percent of U.S. banking deposits and will also rank first, second or third largest in retail market share in 21 of the 29 states in which it operates.
Lewis said the company expects to complete the integration of the two banks sometime in the second half of 2005.