Some of the biggest trust banks in the country are mulling the acquisition of Boston Co., but many observers believe the $1.3 billion asking price is too high for the banks.
American Express Co. has confirmed that it is considering the sale of its Boston-based affiliate, a major securities custodian and money manager.
PNC Financial Corp., Chase Manhattan Corp., and Mellon Bank Corp. are in discussions with the subsidiary of American Express' Shearson Lehman Brothers, sources say.
But the charge-card giant will have to reduce its asking price or forget selling the unit, observers say.
"It's a high price," said one money-center banker whose company looked at the Boston Co. but declined to bid.
Chase, Mellon, and PNC, however, continue to weigh the virtues of the company's lucrative global custody, master trust, and private banking businesses against the risk of losing customers once a purchase is made. The custodial businesses is very competitive and highly dependent on customer loyalty.
Each of the three banks has hired investment banks to help with their due diligence investigations of Boston Co., sources said.
Nonperformers a Factor
A deterrent to some of the banks may be the fact that Boston Safe Deposit and Trust Co. -- the private banking and custody unit of Boston Co. -- is sitting on $67 million of nonaccrual loans and has added $13 million to its loan-loss provisions in the first half of the year.
Though the numbers are not awesome, they were enough to deter at least one bidder, a source said. Whether an entire $1.3 billion deal could falter on that relatively small amount, however, is questionable.
Chase, Mellon, and PNC will not comment. A Shearson spokesman confirmed that the company is in preliminary discussions with a handful of banks but declined to name them.
Chase, PNC, and Mellon ranked among the top 10 banks in trust and fiduciary service revenues in the second quarter, said Jr. Richard Fredericks, an analyst at Montgomery Securities.
But most analysts believe none could afford to pay $1.3 billion, particularly if American Express is looking for cash. Banks are loath to pay cash for an acquisition, since they would have to record the purchase premium as goodwill against capital.
Most analysts believe that Boston Co. will have to reduce its price tag and accept a combination of stock and cash to get the deal done. Even then, they said, a bank purchaser would almost certainly have to raise more equity. That could upset current shareholders.
Much Going for It
But the prize is tempting.
The Boston Co., with $250 billion in assets under custody and $31 billion assets under management, ranks seventh in the nation by assets under management. In the first six months of 1992, it booked fee revenue of $203.5 million, up 16% from $158.6 million in the year-earlier period.
Its advanced computer systems, including a sophisticated multi-currency accounting system, is another valuable asset. One source said it would cost a competitor about $100 million to develop a similar system.
Other analysts say they wouldn't be surprised if a non-Japanese foreign institution with a lot of cash steps up to play suitor to Boston Co.
European institutions interested in establishing a U.S.-based trust and private banking beachhead, or expanding an existing U.S. business, might be interested in the unit, sources say.