Bank of America yesterday agreed to buy FleetBoston Financial for $47 billion (€40 billion) in stock, creating a bank with a commanding share of US deposits and prompting speculation about further consolidation in US banking.
The takeover was announced on the same day as two other multi-billion dollar deals, underlining the resurgence of merger activity this month.
Bank of America shares dropped by as much as 10 per cent yesterday, reflecting concerns that the company was paying too much for Fleet, which has been unable to expand outside its main market in the north-east and has struggled with losses in Argentina.
Fleet shares gained as much as 26 per cent and shares in other large regional banks also rose sharply.
Mr Ken Lewis, Bank of America chairman and chief executive, predicted the deal would force his peers to consider deals of their own.
Mr Octavio Marenzi, chief executive of the consulting firm Celent Communications, said banks such as Wachovia, Bank One and Wells Fargo, would be under pressure to do deals.
"There is now a big gap between the top three US banks and the rest. The next tier down from the Big Three will look at this deal and wonder what their strategy should be now."
Bank of America is offering 0.5553 shares for each Fleet share, representing a price of $45 a share, or a 42 per cent premium, based on the closing stock price of October 22nd. Such a premium was considered too steep by rivals who also looked at Fleet, including Wachovia and Citigroup.
Buying the seventh-biggest US bank would allow Bank of America to jump ahead of JP Morgan Chase into the number two spot for US banks ranked by assets behind Citigroup. The transaction should close in the second quarter of 2004.
Mr Lewis will cede his chairman role to Mr Charles Gifford, Fleet chairman and chief executive. Mr Lewis will continue the day-to-day running of Bank of America.
Mr Gifford said that, in the past year, he had realised his bank did not have the scale to compete outside its home market.
The new entity will have 9.8 per cent of US banking deposits. The government-imposed limit, through acquisitions, is 10 per cent. It will also have at least the third-largest market share in 21 of the 29 states in which it will have a presence.
