Bank of America buys US Trust for $3.3bln
Bank of America Corp. (BAC.N: Quote, Profile, Research) on Monday said it will buy Charles Schwab Corp.’s (SCHW.O: Quote, Profile, Research) U.S. Trust Corp. unit for $3.3 billion to expand in the lucrative business of managing money for the rich.
The all-cash purchase will vault Bank of America to the top spot in the business known as private banking, with $261 billion of assets under management. JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research) will be second with $204 billion.
Schwab, for its part, is jettisoning a unit catering to multimillionaires to focus on providing low-cost services to ordinary investors who like doing their own trading.
Adding the 153-year-old U.S. Trust, a venerable name known for handling money of families like the Astors, "enhances our credibility" in wealth management, Bank of America Chief Executive Kenneth Lewis said in a statement.
Charlotte, North Carolina-based Bank of America, the No. 2 U.S. bank, is expanding through non-bank purchases in areas where it has not traditionally been dominant, as it nears the regulatory ceiling of 10 percent of all U.S. deposits.
The bank is adding 13,600 clients and $94 billion of assets under management from U.S. Trust. Its private bank already has 114,000 customers and $167 billion of assets.
Peter Scaturro, U.S. Trust’s chief executive, will oversee a combined private banking unit at Bank of America, reporting to wealth and investment management chief Brian Moynihan.
"The idea is to build a dominant wealth-management franchise," Scaturro said on a conference call. "The U.S. is a big place with a lot of money."
Bank of America said the purchase will result in a $250 million charge, and may add 1 cent per share to earnings by 2008. It expects a closing around March 31. The bank has not decided whether to keep the U.S. Trust name.
Assets at Bank of America’s wealth-management arm, which includes private banking, would still trail those of Merrill Lynch & Co. (MER.N: Quote, Profile, Research), Citigroup Inc. (C.N: Quote, Profile, Research), UBS AG (UBSN.VX: Quote, Profile, Research) and Morgan Stanley (MS.N: Quote, Profile, Research).
PRICEY?
Analysts viewed the transaction as pricey. San Francisco-based Schwab acquired U.S. Trust for $2.9 billion in May 2000, just after an equities bull market crested.
"Schwab is getting a robust price, likely reflecting the potential (for) expense and revenue synergies that never really materialized for Schwab," wrote David Trone, a Fox-Pitt Kelton Inc. analyst.
The combined business will employ about 4,400 people. Moynihan expects some cost cuts in back-office operations, and "relatively modest" attrition among U.S. Trust customers.
Schwab will realize a $1.9 billion pre-tax gain and collect $2.5 billion after taxes from the transaction. It will focus on retail investors as intense competition among brokerages drives commissions lower.
Bank of America, which operates 5,722 branches, last month started to roll out free online stock trading for customers who deposit $25,000, causing shares of discounters such as Schwab to fall
Charles Schwab, who runs his namesake firm, said he plans to remain a U.S. Trust client. He was not immediately available for further comment.
In afternoon trading, Schwab shares rose 35 cents to $18.91, while Bank of America rose 20 cents to $55.05.
DEPOSIT CAP
U.S. Trust was founded in 1853 by industrialist Peter Cooper, railroad developer Erastus Corning, dry goods merchant Marshall Field, and others.
Bank of America controls 9.2 percent of U.S. bank deposits and cannot make a purchase that sends it above 10 percent.
Adding U.S. Trust’s $9 billion leaves "ample room" under the cap, the bank’s chief financial officer, Alvaro de Molina, told journalists.
Northern Trust Corp. (NTRS.O: Quote, Profile, Research) ranks third in U.S. private banking, while Citigroup ranks sixth, Bank of America said.
For Scaturro, the merger is a vindication of sorts. Citigroup ousted him in 2004 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.
Source:
