Bank of America buys US Trust
Bank of America, the No 2 US bank, said on Monday it agreed to buy US Trust, the private banking unit of Charles Schwab, for $3.3 billion to expand in the lucrative business of managing money for wealthy people.
The all-cash purchase would create the largest US private banking business, with $261 billion of assets under management. Bank of America ranks second with $167 billion, while US Trust ranks fourth with $94 billion, the companies said.
Adding US Trust “enhances our credibility in this market (and) adds scale,” Bank of America chief executive Kenneth Lewis said in a statement. Charlotte, North Carolina-based Bank of America is using its size and distribution network, including 5,722 branches, to expand in areas where it has not traditionally been dominant.
Bank of America will combine US Trust with its private banking unit under the direction of Peter Scaturro, now US Trust’s chief executive. He will report to Brian Moynihan, president of the bank’s wealth and investment management unit.
For Schwab, the deal frees up cash as intensifying competition among brokerages, including from Bank of America, drives commissions lower. Bank of America last month introduced free online stock trades for many customers, causing shares of discount rivals such as Schwab to fall.
Schwab expects to receive $2.5 billion of after-tax proceeds, and realise a $1.9 billion pre-tax gain. It acquired US Trust for $2.9 billion in ’00. “This transaction will improve our overall profit margin and return on equity, and further sharpen our strategic focus on serving individual investors and independent investment advisers,” said Charles Schwab, who runs his namesake firm, in a statement.
He said he plans to remain a US Trust client.The transaction is expected to close around March 31, Bank of America spokesman Jon Goldstein said. Adding US Trust gives Bank of America one of the best-known names in wealth management, famed for handling money of families like the Astors.
The firm was founded in 1853 by industrialist Peter Cooper, railroad developer Erastus Corning, dry goods merchant Marshall Field and others. US Trust employs 2,100 people, and Bank of America’s private bank employs 2,300. Citigroup’s private bank has $233 billion of assets under management, while JPMorgan Chase’s private bank has $150 billion of assets under management, and $347 billion of assets under supervision.
The purchase could help Bank of America vault ahead of Citigroup to become the world’s largest bank by market value. Citigroup’s market capitalisation was $249.6 billion on Friday, while Bank of America’s was $246.3 billion.
For Scaturro, the merger is a vindication of sorts. Citigroup ousted him in ’04 in an ethics scandal involving its Japanese private bank, without accusing him of wrongdoing. He will now compete directly with his former employer. Schwab itself was bought by Bank of America in 1983, but split off in 1987 in a $280 million management-led buyout.
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