06 August, 2009

United States Bank Mergers & Acquisitions (Bank of America)


Photo: A Bank of America office in Lincoln Square, New York City.
With special thanks to my friends Don and Rupert for taking this photo for me during their trip to New York.


Bank of America Corp.


Like many major banks in the United States, Bank of America was created through numerous combinations over the past two centuries. A vast majority of the constituent banks were too small to worth a mention here. Having said that, Bank of America's genealogy can be traced to three major lineages:
  1. The original Bank of America (San Francisco)
  2. FleetBoston Financial (Boston)
  3. Nationsbank (Charlotte, North Carolina)

Genealogy: The FleetBoston lineage (BankBoston, Fleet Financial)

BankBoston Corp.

In 1784, Massachusetts governor John Hancock signed a state charter to create the Massachusetts Bank, one of earliest commercial banks in the U.S. The bank in 1786 financed the first ever sailing of an American ship to China, commencing direct trade between the two countries. Then in 1791, the bank backed the first American ship to Argentina, establishing the Massachusetts Bank's (later BankBoston) long presence in Latin America.

The bank was renamed Massachusetts National Bank in 1864. Then in 1903, First National Bank of Boston (founded in 1859) and Massachusetts National merged, retaining the name First National Bank of Boston. Following the 1929 Stock Market Crash and banking crisis, the passing of the Glass-Steagall Act required the separation of stock brokerage from commercial banking functions. First National of Boston was forced to spin off its stock brokerage businesses into a new entity called First Boston Corp. in 1934. This was the same First Boston that was acquired by Credit Suisse in 1988 to become Credit Suisse First Boston (CSFB).

Fleet Financial Group

In 1987, Fleet Financial acquired Albany, New York-based Norstar Financial Corp. for USD $1.3-billion. The new entity was named Fleet/Norstar Financial. The name was eventually shortened to Fleet Financial.


Genealogy: The NationsBank lineage (NCNB, C&S/Sovran)

Nationsbank

In 1874, Commercial National Bank was founded in Charlotte, North Carolina, to finance the developing textile industry that was based on the cotton crop. In 1957, Commercial National combined with American Trust Co. to form American Commercial Bank. The 1960 merger between the Charlotte-based American Commercial Bank and Security National Bank of Greensboro created the North Carolina National Bank (NCNB).

C&S Sovran

In 1990, South Carolina's Citizens and Southern Bank merged with Sovran Financial of Norfolk, Virginia. The new entity took the name C&S/Sovran Corp. and was based in Norfolk.


Genealogy: The BankAmerica lineage

In 1904, a second-generation Italian immigrant A.P. Giannini saw the growth potential of banking service for the thousands of immigrants arriving in California each year and established the Bank of Italy in San Francisco. Merely two years later, the Great Earthquake of 1906 devastated the entire city, including the Bank of Italy building. Fortunately, the vault was not damaged by the earthquake and the fire that swept through the city. Mr. Giannini immediately recovered the cash and gold from the vault and set up a makeshift office by the waterfront. Loans were made to the survivors often just on a handshake. Bank of Italy not only survived the disaster intact, but made a name for its efforts in helping to rebuild San Francisco.

By 1930, Bank of Italy's focus had long expanded beyond its original Italian immigrant market. Following a merger with a New York bank named Bank of America, the Bank of Italy was renamed the Bank of America (of California). In the same year, A.P. Giannini bought the Occidental Life Insurance Co. and placed all his banking, insurance and industrial businesses under a holding company called Transamerica Corp. As the name implies, Giannini's original plan was to create a nationwide banking, insurance and industrial conglomerate.

Bank of America's willingness to invest in the community during tough times was once again proven during the Great Depression in the 1930s, when it took the leadership in subscribing $6-million of the $35-million bond issue needed to build the Golden Gate Bridge over San Francisco Bay.

In 1956, the Congress passed the Bank Holding Company Act forbidding holding companies from owning both banks and non-bank entities. Transamerica Corp. was hence forced to divest its Bank of America subsidiary to concentrate on the insurance business. In 1958, Bank of America introduced the first general-purpose credit card called the Bank Americard. The bank soon realized that for the credit card to gain market share nationally, it must be made available to other banks outside of its home state of California. In 1966, other banks began to issue Bank Americards under licenses, making it the first credit card to be accepted by merchants nationwide. In 1975, Bank Americard became the VISA card, presently the world's most popular credit card.

In 1983, Bank of America expanded outside of California when it acquired the financially-troubled Seattle-based SeaFirst Corp. (Seattle First National Bank) from the Federal Reserve Bank of San Francisco for USD $250-million plus $150-million in new capital into SeaFirst.


Recent transaction(s):

  • In April 1991, Fleet/Norstar bought the bankrupt Bank of New England Corp. from the U.S. Federal Deposit Insurance Corp. (FDIC), which had become the receiver to the bank holding company when it failed in January 1991 after suffering severe losses from sour real estate loans.
  • In 1992, NCNB Corp. acquired C&S/Sovran Financial for USD $4.3-billion. The new bank took the name Nationsbank.Also in 1992, BankAmerica Corp. [old] acquired its California rival Security Pacific Corp. in a USD $4.3-billion deal.
  • In 1995, Fleet bought Hartford, Connecticut-based Shawmut National Corp for USD 43.7-billion.
  • Also in 1995, Fleet Financial bought National Westminster Bancorp (the U.S. retail bank unit of Britain's National Westminster Bank) for USD $3.6-billion (GBP 2.3-billion). National Westminster Bancorp had about 310 branches in New York and New Jersey.
  • In 1996, Bank of Boston Corp. merged with BayBanks Inc. and took the new identity of BankBoston Corp.
  • In 1996, NationsBank acquired St. Louis, Missouri-based Boatmen's Bancshares, Inc. for USD $9.46-billion.
  • In January 1998, NationsBank took over Jacksonville, Florida-based Barnett Banks Inc. for USD $15.5-billion.
  • In September 1998, NationsBank acquired San Francisco-based BankAmerica Corp. [old] in a USD $66.0-billion deal. The new entity took the name Bank of America Corp. and is based in Charlotte, North Carolina.
  • In 1999, Fleet Financial Group Inc. and Bank of Boston Corp. merged to form FleetBoston Financial Corp. in a deal valued at USD $16.3-billion.
  • In 2000, FleetBoston Financial acquired New Jersey's biggest bank, Princeton-based Summit Bancorp for USD $7.0-billion.
  • In 2003, Bank of America Corp. [new] acquired FleetBoston Financial Corp. for USD $48.0-billion.
  • Also in 2003, Bank of America bought 24.9% of BSCH Mexico (now Santander Mexico) from BSCH (now Banco Santander) for USD $1.6-billion.
  • In 2005, Bank of America acquired a strategic, 9% stake in China Construction Bank for USD $3.0-billion.
  • Also in 2005, Bank of America bought credit card specialist MBNA Corp. for USD $35.0-billion.
  • In 2006, bought U.S. Trust for USD $3.3-billion in cash from Charles Schwab Corp. U.S. Trust provided private banking service to wealthy clients.
  • Also in 2006, Bank of America sold its Brazilian-based BankBoston to Banco Itau (now Itau Unibanco) for BRL 4.5-billion (USD $2.2-billion) in Itau stock. BankBoston provided banking services to high net-worth clients in Brazil, Chile and Uruguay.
  • In 2007, in a highly unusual move, Bank of America, along with JPMorgan Chase & Co., private equity firms J.C. Flowers & Co. and Friedman Fleischer & Lowe LLC agreed to buy SLM Corp., better known as Sallie Mae, for USD $25.0-billion. Sallie Mae provided student loans in the U.S. Bank of America and JPMorgan Chase & Co. were each to take a 24.9% stake in Sallie Mae for a total of 49.8%; the two private equity firms would acquire the other 50.2% stake of the student loan underwriter. The purchase of a major financial service firm in a leveraged buyout (LBO) deal was very rare, as LBO transactions involve loading the acquired company with billions of debt, but the financial services sector is governed tightly by regulators with restrictive funding and reserve requirements.
  • In October 2007, the consortium buyout group, citing a "material adverse event" has occurred due to new student loan legislation passed by Washington, revised its offer for SLM Corp. to USD $21.0-billion from USD $25.0-billion. SLM then threatened to sue the buyout consortium unless it either paid the original offer, or walked out and paid the previously-agreed upon USD $900-million termination fee to SLM Corp.
  • Also in 2007, Bank of America agreed to purchase LaSalle Bank Corporation (ABN AMRO North America Holding Co.) from Netherlands's ABN AMRO Holding NV for USD $21-billion in cash. LaSalle Bank, headquartered in Chicago, operated more than 400 branches in Illinois, Michigan and Indiana. The purchase of LaSalle Bank filled Bank of America’s void in the Chicago/Midwest market. The purchase, however, would push Bank of America's share of deposit to over 10% of the total deposit in the U.S., which was prohibited by U.S. banking regulations. It was believed that Bank of America would need to give up some branches and clients to win anti-trust approval for the LaSalle Bank purchase.
  • In August 2007, Bank of America invested USD $2.0-billion of non-voting convertible preferred stock in Countrywide Financial Corp. The convertible preferred shares would pay 7.25% dividend per annum and could be converted into Countrywide Financial's common stock at USD $18 per share, a 21% discount to Countrywide's share price at the time. When the conversion is exercised, Bank of America would own 16% of Countrywide, the largest mortgage lender in the U.S.
  • In January 2008, amidst widespread fears that Countrywide Financial was heading towards bankruptcy, Bank of America agreed to takeover Countrywide for USD $4.0-billion in stock. The offer price of about USD $7.16 per Countrywide share was actually about 7.6% below the previous day's closing price. Before rumours of the deal surfaced the day before, Countrywide's shares had fallen to below USD $5 per share due to the insolvency fears. Countrywide's stock was trading at around USD $22.75 when Bank of America made a USD $2.0-billion investment into its convertible preferred shares in August 2007.
  • Also in late January 2008, Bank of America, JPMorgan Chase & Co. and SLM Corp. (Sallie Mae) settled out of court over the failed buy-out of SLM Corp. by the J.C. Flowers & Co.-led buy-out group. Under the original deal, the buy-out group had agreed to acquire SLM for USD $25.0-billion, and had provided SLM a USD $30.0-billion financing package that would expire on 2008-02-15. As the global credit squeeze deepened in 2007, the buy-out group rescinded its offer in October, and SLM was left with the severe challenge of re-financing the USD $30.0-billion short-term loan that was part of the buy-out offer. SLM responded with a lawsuit pressing the buy-out group to either proceed with the original offer, or pay a USD $900-million termination fee. Under the settlement, a banking group consisting of Bank of America, JPMorgan Chase, Barclays Capital, Deutsche Bank, Credit Suisse, the Royal Bank of Scotland and UBS agreed to provide a USD $31.0-billion financing to SLM for 364 days. SLM agreed to drop the lawsuit against the J.P. Flowers & Co.-led buy-out group. The new financing would ease the skyrocketing borrowing cost for SLM, as the credit crisis had made investors around the world wary of lending to financial institutions.
  • In 2008, Bank of America exercised its call option to buy additional shares of China Construction Bank (CCB) for HKD $14.52-billion (USD $1.86-billion). The purchase would raise Bank of America's stake in CCB to 10.75% from 8.2%. The shares being bought actually had a market value of HKD $39.9-billion (USD $5.11-billion). The low exercise price was agreed upon back in 2005 before CCB went public. CCB shares had soared since Bank of America's initial investment.
  • In 2008, Bank of America sold its hedge fund servicing prime brokerage unit to France's BNP Paribas for a reported USD $300-million (Eur 194-million). The unit had about 500 hedge fund clients.
  • On 2008-09-14, amidst the collapse of Lehman Brothers Holdings Inc. and fears of the rapidly spreading banking crisis, Bank of America agreed to acquire Merrill Lynch and its debt for USD $50.0-billion in stock. Shareholders would receive 0.8595 share of Bank of America for each Merrill Lynch share. The combination would amalgamate America's largest retail bank with the brokerage house with the largest retail client base. However, by the time Merrill Lynch shareholders approved the sale to Bank of America on 2008-12-05, the value of the all-stock deal had fallen to USD $19.36-billion.
  • Following the lead of Britain’s GBP 37-billion (USD $64-billion) partial nationalization of The Royal Bank of Scotland Group, HBOS and Lloyds TSB Group, the U.S. government unveiled a similar plan on 2008-10-14 under which the U.S. Treasury would invest USD $250-billion in nine major U.S. banks. The nine banks that issued new preferred stock in exchange for USD $250-billion in funds were: Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of New York Mellon, and State Street. All nine banks’ preferred stock would pay 5% dividends annually in the first five years, and 9% thereafter until the bank redeems them. The funds were disbursed under the name Troubled Asset Relief Program (TARP). Bank of America obtained USD $25-billion under TARP.
  • On 2008-11-18, Bank of America further raised its stake in China Construction Bank (CCB) to 19.10% from 10.75% for HKD $54.8-billion (USD $7.07-billion). The USD $7.07-billion CCB stake taken up by Bank of America actually had a market value of HKD $80.47-billion (USD $10.38-billion). The exercise price paid by the American bank was based on a call option agreement reached between the two banks back in 2005.
  • In January 2009, following the expiry of a previously-agreed locked-up period, Bank of America sold a 2.50% stake in China Construction Bank for USD $2.83-billion. Bank of America would book a USD $1.13-billion gain on the sale. Following the sale, the bank’s stake in China Construction Bank, the world’s biggest at the time based on market capitalization, would fall to 16.60% from 19.10%.
  • Just weeks after closing the deal to buy Merrill Lynch, Bank of America requested and received USD $118-billion in fresh capital and loan guarantees from the U.S. federal government to help it stomach the losses at Merrill Lynch. Bank of America would receive USD $20-billion cash from the government, which was in addition to the USD $25-billion in TARP rescue funds it had already received. The U.S. federal government would also absorb up to USD $98.2-billion of potential losses from Bank of America and Merrill Lynch’s toxic assets. In exchange for the new rescue pact, Bank of America would issue the U.S. government USD $4-billion of preferred securities.
  • In 2009, Bank of America sold a 5.78% stake (13.5-billion shares) of China Construction Bank for USD $7.32-billion (HKD $56.74-billion). Following the sale, Bank of America would hold an 11% stake in the Chinese bank. The buyers were Asian institutional investors that included China Life.
  • In October 2009, Bank of America sold private bank First Republic to a private-equity buyout group led by General Atlantic and Colony Capital. Terms of the deal were not disclosed but the price was reported as about USD $1-billion. Bank of America inherited First Republic from Merrill Lynch, which bought the private bank in 2007 for USD $1.7-billion.
  • In December 2009, Bank of America repaid the U.S. government the USD $45-billion state aid it obtained under the Troubled Asset Relief Program. The bank raised USD $19.3-billion from a securities issue and funded the rest of the repayment from existing reserves.
  • In May 2010, Bank of America sold its common and preferred share stake in Brazil's Itau Unibanco Holding for BRL 8.16-billion (USD $4.5-billion).
  • In June 2010, Bank of America sold its 24.9% stake in Santander Mexico back to Banco Santander for USD 2.5-billion.
  • In May 2011, Bank of America sold its remaining 7% stake in fund giant BlackRock back to BlackRock for USD $2.55-billion.
  • In August 2011, Bank of America sold its Canadian credit card operations MBNA Canada to the Toronto-Dominion Bank for CAD $8.6-billion (USD $8.5-billion). Bank of America received CAD $7.5-billion in cash and removed CAD $1.1-billion of liabilities from its books. MBNA Canada had 1.8-million active MasterCard accounts.
  • Also in August 2011, Bank of America sold half of its 10% stake in China Construction Bank to several institutional investors for USD $8.3-billion (CNY 52.96-billion, HKD $64.68-billion). Bank of America made about USD $3.3-billion from the sale.
  • In August 2012, Bank of America Merrill Lynch sold its private banking operations outside of the United States to Swiss bank Julius Baer for CHF 860-million (USD $882-million) in stock and cash.  The division sold had USD $84-billion of assets under management. The purchase would make Bank of America a minority shareholder of Julius Baer.
  • In December 2016, Bank of America sold its British credit card operations, MBNA Ltd. to Lloyds Banking Group for GBP 1.9-billion (USD $2.35-billion). MBNA has five million customers and over GBP 7.0-billion of receivables. 

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