Wall Street marveled last week at how Bank of America's gargantuan purchase of FleetBoston Financial Corp. creates the second-largest bank in the United States. But little has been mentioned about how it will result in the fourth-largest fund complex in the country.
BoA's acquisition of Fleet for $47 billion in stock will consolidate nearly 120 funds across the two companies, accounting for $187.4 billion in assets, according to Lipper. In addition to BoA's Nations Funds, Fleet will bring its Columbia, Galaxy, Wanger and Bank of Boston families, as well as a host of other sundry portfolios to the new company.
Most agree Fleet's arsenal brings a nice complement to BoA's lineup and the pair should have good synergies, filling in gaps in each other's offerings. While it isn't exactly murderer's row, it is impressive and has left many industry watchers split as to how BoA should present its new fund assets.
Jeff Keil, vice president of Lipper's Global Fiduciary Review, said he initially expects Fleet's funds, especially the Columbia brand, to stay at arm's length from Bank of America. BoA will basically be a "holding company for a period of time. I don't see any real rush to merge the businesses together. They can certainly retain the name and not damage what they've bought."
The Columbia brand name carries more weight in certain circles than does Nations Funds, especially in the Northeast, Keil said.
"It will be interesting to see how BoA integrates Fleet into the fold since it has not fully integrated all of the aspects of its merger with Nations Bank, according to Amir Hartman, author of Ruthless Execution: What Business Leaders Do When Their Companies Hit the Wall. (BoA is a former client of Hartman.)
The deal allows BoA to convert a lot of the acquired customers and move them to the investment banking side of the house, Hartman said. "BoA is strong on the investment banking side versus FleetBoston. The trick is going to be integration."
"From the Bank of America perspective, we will have the leading market position in Massachusetts, Rhode Island, Connecticut and New Jersey, as well as a powerful retail platform in New York City, upstate New York, New Hampshire and Maine," said Bank of America Chairman and CEO Kenneth D. Lewis. Lewis will continue as chief executive of the combined company.
"From a broader perspective, we are building a company that will deliver more financial service capabilities to more Americans than ever before in our nation's history," Lewis said. "The company will have 9.8% of the banking deposits in the United States."
Hartman expects BoA to keep the Nations Funds brand name in place, as does Bob Maneri, a buyside analyst for the banking/brokerage sector at Victory Capital Management, and David Marder, a partner with the law firm of Robins Kaplan Miller & Ciresi. "BoA is very conscious of being BoA and branding is going to be very important," Marder said.
"Look at what BoA has done in past acquisitions," Maneri said, adding that the merger is likely to do little to improve BoA's damaged reputation from the fund scandal.
But Russ Kinnel, Morningstar's director of fund analysis, said the move presents BoA with some good opportunities, including ridding itself of Richard DeMartini, head of BoA's asset management unit, and the only one left at the firm publicly associated with New York State Attorney General Eliot Spitzer's investigation. DeMartini announced plans to retire once the deal is done.
"If they want, they can get rid of Nations brand, rename it Columbia, and move as many tasks from Nations to Fleet," Kinnel said. "Fleet/Columbia has quite an extensive effort on its own," he said, emphasizing sales and money management. However, he said Columbia could feel some negative impact from guilt by association with BoA and its involvement in the fund scandal.
The scandal and damage control should play a big role in how BoA reconfigures its new fund lineup. "There is a tremendous opportunity to rebuild confidence, now that BoA has added Columbia," Kinnel said. "By and large, big fund mergers have been a big mess for fund investors. BoA could set a higher standard."
That higher standard is exactly what Fleet was trying to achieve by the merger, but couldn't on its own. Fleet executives told staffers in an internal memo that the company has turned the corner from the rough times it endured the past three years, but that the merger was the only way it could be a trailblazer, not just a follower. "We certainly could have gone on independently and successfully in the near term. But it has always been a hallmark of Fleet to be a winner, not just a survivor, to be at the forefront of our industry."
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