Sovereign Bancorp of Wyomissing, Pa., was officially confirmed Tuesday as the winning bidder for 278 branches and $12 billion of deposits to be divested from the merger of Fleet Financial Group and BankBoston Corp.
The transaction would instantly create New England's third-largest bank, with $11.8 billion of assets and 700,000 consumer and corporate customers. Sovereign Bank New England, as the new Boston-based institution is to be named, would be about the size of the old BayBanks Inc., which was acquired by BankBoston in 1996.
The deal would nearly double Sovereign's size and greatly expand its geographical reach, from Pennsylvania, New Jersey, and Delaware where it has 300 branches and $12 billion in deposits to Connecticut, Massachusetts, New Hampshire, and Rhode Island.
"It is a historic day," said Jay Sidhu, Sovereign's president and chief executive officer. "Within a short period of time you will find Sovereign to be a household name in New England."
Fleet, which plans to close its $16 billion acquisition of BankBoston in October, was forced to sell off branches, deposits, and loans to allay antitrust concerns. The combined Fleet Boston Corp. would have $170 billion of assets and 20 million customers.
The second-largest banking company in the region is Providence, R.I.-based Citizens Financial Group, a $19.8 billion-asset subsidiary of Royal Bank of Scotland.
The divestiture plan, which was approved by U.S. Department of Justice last week, offers a total of 306 branches and $13.2 billion of deposits in four states. The disposition of 28 branches and $810 million of deposits that are not part of Sovereign's package is to be announced in the next couple of weeks, Fleet said. Observers said those winners are a consortium of Massachusetts-based community banks.
The plan of divestiture drew fire from some New England political officials. Connecticut's Attorney General, Richard Blumenthal, said last week that he was not satisfied that the plan would create a viable competitive alternative to Fleet Boston Corp. He said he might consider bringing his own antitrust suit.
Sovereign's agreement includes 549 remote and on-site automated teller machines and $3.6 billion in small-business and middle-market commercial loans. The bank said it would hire 3,500 employees from Fleet and BankBoston, including all affected branch personnel and lending officers.
Mr. Sidhu said that in keeping with Sovereign tradition, the New England unit would have autonomy at the local level. Joseph Campanelli, currently president of Sovereign's structured finance unit, will become president of Sovereign Bank New England.
Sovereign is to get 176 branches in Massachusetts, ranking it third in that state with a 7.6% market share. In Rhode Island where it is essentially acquiring the remains of BankBoston's Rhode Island Hospital Trust Sovereign would have 50 branches and rank third with a 10.5% share.
Sovereign would have 13 branches in New Hampshire and rank fifth with 3.8% of deposits. It would have 39 branches in Connecticut, ranking seventh with 2.8%.
The deal also includes a BankBoston back-office location in Dorchester, Mass., a BankBoston telephone banking center in East Providence, R.I., and BankBoston's consumer lending center in Providence.
Sovereign said the deal completes its transformation from a thrift to a bank. Over the last year, Sovereign has acquired $3.8 billion of deposits and 125 branches, including 93 offices of CoreStates Financial Corp. that were divested along with CoreStates' purchase by Charlotte, N.C.-based First Union Corp.
Over the last decade, Sovereign has made 25 deals for more than $11 billion of deposits and 284 branches. It entered New England last year with the acquisition of Fleet's $2 billion automobile lending portfolio.
"The deal will allow them to take a quantum leap in size and geographic reach," said James Ackor, an analyst at Tucker Anthony Cleary Gull. "It turns them into a superregional community bank overnight."
Still, analysts said, Sovereign faces big challenges. It will have to spend big money to develop brand and name recognition, they said. Sovereign may also not be able to capitalize as effectively on market disruption like that experienced during First Union's integration of the old CoreStates. Fleet is seen as better equipped to handle the integration of BankBoston.
"This is also an enormous transaction relative to their size," Mr. Ackor said of Sovereign.
Mr. Sidhu said he takes the skepticism in stride. "We have a tremendous amount of confidence," he said. "Our entire focus for the next few quarters will be nothing other than making sure that Sovereign in Pennsylvania, New Jersey, and Delaware does not miss a beat."
"Our priority will be to maintain the business that we have and have a smooth integration of systems," he added.
The transaction is scheduled to be complete by April and is expected to add to earnings in the first year, Mr. Sidhu said. Sovereign is paying a 12% premium to Fleet, slightly higher than normal but not lavish, analysts said. Sovereign plans a $70 million pretax charge to account for additional personnel, systems conversion, and a branding campaign in New England.
Mr. Sidhu said the branding effort will kick off Wednesday with full-page advertisements in New England's major daily newspapers
"Is there room for a new bank to emerge in New England? Definitely," he said.
