Bank America And Shawmut Mulled Joint Bid for BNE
The chief executives of Bank-America Corp. and Shawmut National Corp. discussed the possibility of teaming up to acquire the failed Bank of New England, according to three sources familiar with the talks.
Among the bold ideas considered was having BankAmerica inject capital into ailing Shawmut, which would then have bid for the $15 billion-asset Bank of New England franchise.
Had Shawmut won, BankAmerica would have acquired the Hartford, Conn.-based company - giving it control of the largest banking operation in New Zealand.
Time Ran Out
The preliminary talks, initiated by Shawmut in February, broke off partly because BankAmerica determined it could not work out a deal in time to meet the March 29 bidding deadline for Bank of New England, the sources said. Fleet/Norstar Financial Group, based in Providence, R.I., ultimately acquired Bank of New England Corp's three failed banks.
But the discussions, which had the code name "Sigma," underscore how aggressively BankAmerica considered expanding into the region. "They thught they could own all of New England," said one source involved in the discussions.
A combined Shawmut and Bank of New England would have had about $37 billion in assets - and been a competitive nightmare for Bank of Boston Corp., which has $32.3 billion in assets.
With one stroke, BankAmerica - the nation's second-largest banking company, with $113 billion in assets - would have gone a long way to fulfilling its goal of becoming a nationwide bank.
Spokesmen for BankAmerica, based in San Francisco, and Shawmut declined to comment on the discussions.
BankAmerica is still viewed as a possible acquirer of Shawmut. But the Connecticut company's management, buoyed by a second-quarter decline in non-performing assets, is now more determined to remain independent, according to Nancy Bush, an analyst at Brown Brothers Harriman. Shawmut is still seeking to raise capital, nevertheless, and an infusion by BankAmerica is seen as one option, she said.
Route into New England
Richard Rosenberg, BankAmerica's chief executive, mulled the Shawmut link as way to reap huge cost savings from the overlapping franchises of Shawmut and Bank of New England. He also thought it might allay fears regulators had about an outside company entering the region.
For Joel B. Alvord, Shawmut's chief executive, the arrangement would have offered a way out of the problems caused by the region's downturn, the sources said. Shawmut has lost $634.7 million since October 1989, mainly because of souring real estate loans.
The talks lasted only a few weeks and ended with most key issues unresolved. But they progressed far enough for confidentiality letters to be signed and preliminary due diligence to take place.
The talks were reportedly initiated by Shawmut executives. Mr. Alvord and Mr. Rosenberg met directly a number of times, the sources said.
One of the possibilities considered was to have BankAmerica recapitalize Shawmut under a so-called "stakeout" arrangement. Shawmut would get enough money to bid on Bank of New England, and BankAmerica would have the option of acquiring the combined company.
Another possibility was having BankAmerica acquire Shawmut, then bid on the failed banks.
The sources said the San Francisco company was confident it could devise protections for itself, in case Shawmut's loan portfolio took a turn for the worse.
The idea appealed to BankAmerica on several levels.
At the time, Bank of Boston, a rival bidder, was waging an effective public relations campaign against the San Francisco company. Bank of Boston executives maintained that having a bank from outside the region own Bank of New England would damage the local economy because it would not cause consolidation. They lobbied legislators and editorial writers heavily.
BankAmerica thought that teaming up with Shawmut would help counter that campaign.
Overlaps to Pare Down
Furthermore, the Shawmut connection would have provided BankAmerica with the opportunity to garner high expense savings from a Bank of New England deal. Both BNE and Shawmut had banks in Boston and Hartford, and eliminating the overlap would have provided big benefits.
Banking regulators, who were aware of the discussions, said they would not have stood in the way, according to the sources. In fact, the sources said, the arrangement might have given BankAmerica a better chance of success, because regulators would have welcomed the opportunity to bolster Shawmut.
The idea died, however, because the bidding deadline did not leave enough time to reach an agreement.
"Timing was the critical issue," one of the sources said. "You would have had to figure out how to value Shawmut and how much capital it would need and at the same time bid for Bank of New England.
"When you consider that all the parties were changing their BNE bids until the very last moment, you can understand how complex [having Shawmut involved] would be," he said.