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Bank of America agreed to pay $21 billion for ABN Amro Holding's
The all-cash purchase will give Bank of America [BAC
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], the second-largest U.S. bank, 141 new branches in the Chicago area, 264 in Michigan and six in Indiana, as well as about 1,500 automated teller machines and about $113 billion of assets.
ABN Amro [ABN
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] agreed to be acquired by British bank Barclays [BCS
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According to Barclays and ABN Amro, Bank of America is paying the equivalent of 20.3 times 2006 earnings and 2.2 times book value for LaSalle. Bank of America said its net cost is $16 billion, after a $5 billion return of excess capital.
"It's a full price," said Chris Hagedorn, who helps invest more than $20 billion at Fifth Third Asset Management in Cincinnati. "It's hard to say they really wanted to be in Michigan on their own. The key takeaway is the desire to be in Chicago in a bigger way."
Bank of America Chief Executive Kenneth Lewis has long eyed expansion in Chicago, and his bank would vault past JPMorgan Chase [JPM
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"We see a compelling opportunity to fill in a key gap in our national franchise," Lewis said in a statement.
As of June 30, JPMorgan had 15.3% of deposits in and around Chicago, followed by LaSalle with 14.11%, Federal Deposit Insurance Corp. data show. Bank of America had 1.81%.
The purchase could bump Bank of America up against a federal cap that bars it from making acquisitions that would give it more than 10% of all U.S. deposits. Bank of America recently controlled just over 9%.
Chicago has experienced a surge in bank branches, so much so that Washington Mutual
Michigan, meanwhile, has reeled from a loss of auto industry jobs. This includes some 80,000 in recent months by the Big Three U.S. automakers alone -- General Motors,
Last month, Comerica
Acquisitions
The purchase would mean Lewis will have spent well over $100 billion on acquisitions since he became chief executive in 2001.
These include $48 billion in 2004 for FleetBoston Financial, $34.6 billion in 2006 for credit card issuer MBNA, and pending purchases of Charles Schwab's
Lewis has gotten much praise for integrating Fleet and MBNA, though card losses helped limit the bank's first-quarter profit increase to 5%, the weakest since the fourth quarter of 2005.
He has also developed a reputation for paying big prices for acquisitions. Bank of America's own shares trade at 10.5 times expected 2007 earnings, the lowest of any major U.S. bank, and 1.7 times book value. Analysts have cited Lewis' appetite for acquisitions as one reason for the low multiple.
But Lewis also surpassed his cost-cutting goals at Fleet and MBNA. He expects $800 million of savings from LaSalle, with half in 2008 and the rest in 2009. The bank also expects $800 million of restructuring costs.
ABN Amro can also accept a higher offer than Bank of America's for two weeks. Bank of America can match a higher offer, and get $200 million if its agreement its terminated.
Bank of America expects the LaSalle transaction to close in late 2007 or early 2008. Its own bankers and the law firm Wachtell, Lipton, Rosen & Katz advised on the transaction. UBS and the law firm Davis Polk & Wardwell advised ABN Amro.









