On March 15, when Fleet Financial Group Inc. agreed to combine with BankBoston Corp. in a $16 billion deal, skepticism over the proposed transaction ran long and deep.

The deal, the largest so far this year, will create a powerhouse in New England and the eighth-largest bank in the country, with $180 billion of assets.

Because of the size on the deal, Fleet and BankBoston will have to divest 292 branches.

Such a deal has also created a battalion of naysayers who are concerned about the new company's concentrated size, its community reinvestment commitments, and its ability to execute the deal seamlessly.

But doubts about the proposed deal dissipated - at least for the time being - on July 15 when BankBoston issued its second-quarter report, surprising Wall Street analysts with stronger-than-expected quarterly earnings.

The engine behind BankBoston's robust quarter was its investment bank Robertson Stephens & Co., which it purchased in May 1998 for $800 million.

Fleet's strong second-quarter earnings, released a day earlier, met analyst expectations. The company's earnings were bolstered by strong results from Quick & Reilly, a discount brokerage firm that Fleet bought for $1.6 billion in February 1998.

"It's a blowout at Robertson Stephens - and not too shabby at Quick & Reilly," said a headline in a report issued by Nancy Bush, a bank analyst at Ryan Beck & Co., Livingston, N.J., who has rated the company a "strong buy."

Even bank analyst Ruchi Madan, who has a "neutral" rating on BankBoston, said that "Robertson Stephens even beat our very high expectations."

The market's reaction was favorable. Shares of both companies - which had been dragging ever since the merger was announced - received a healthy boost.

So Mr. Gifford, know as Chad to his associates, has plenty to smile about.

"People see that our numbers are viable and they see our increasing strength," said Mr. Gifford in a July 19 phone interview. "This encourages positive statements about our transaction," with Fleet.

Indeed. There is very little that could derail this deal, which is expected to close in the third quarter, said analysts.

"At the end of the day, this deal will close in the manner in which the company said it would when they first announced the deal," said Edward Narjarian, a bank analyst at Wheat First Union. "The strength of the combined entity is starting to show through in the earnings performance of both companies and, from an investment point of view, that is the only thing that matters."

Ms. Bush agreed.

"Corporate structure, clash of cultures, the size of the offices of the top guys," wrote Ms. Bush to clients shortly after the release of the earnings. "We're sure all of those things are being worried over. But thank goodness, it looks like the two respective CEOs will not have to worry too much about how their companies are doing on a fundamental basis as this deal comes down to the homestretch - they're both doing fine if second- quarter earnings are any indication."

But it wasn't too long ago that investors and some analysts were dubious about the deal.

Shortly after the combination was announced, shares of both companies were pummelled as a cold antimerger sentiment swept through the market. Investors wondered whether two banking companies with distinct cultures could pull off a merger when similar deals had disappointed.

"The market is always skeptical initially of any combinations of this size," said Frank Barkocy, a senior analyst at Keefe Managers. Investors were wondering "how these two rivals - which have beaten each other up over the years - could meet together in a smooth transaction."

In addition, Fleet's chairman, Terrence Murray, and BankBoston's Mr. Gifford had been touting the transaction as a merger of equals, a concept that has dulled the market's appetite.

Merger of equals are not viewed favorably because the biggest hurdle to jump is combining two separate bank cultures. And in the case of BankBoston and Fleet, no two banks could be more different.

BankBoston, the nation's oldest commercial bank, is a venerable institution with strong corporate lending and investment banking operations. Fleet, on the other hand, was the consummate outsider: a small bank from Providence, R.I., that stomped its way up the ranks with a series of aggressive acquisitions.

In the last 10 years, Fleet has acquired several sizable banking institutions, including Shawmut National Corp. in 1995 and Natwest Bancorp and Bank of New England Corp. in 1991.

Fleet's chairman, Mr. Murray, was viewed as abrupt and aggressive; BankBoston's chairman, Mr. Gifford, affable and gracious.

Mr. Gifford, however, said most of the skepticism toward the new company, which is expected to be called Fleet Boston Corp., has been overdone. He also dismissed talk that he and Mr. Murray are far too different to get this merger through its difficult execution process.

"The newspapers like to say that Terry is a tough Irishman who swallows nails and that I am this patrician who embraces everybody," said Mr. Gifford. "But these are stereotypes that are overstated. Financial discipline is going to make this merger work and financial discipline is what we have."

Mr. Gifford also takes issue with the fact that many view the Fleet- BankBoston deal as an acquisition by Fleet, or regard BankBoston as a company that had to sell because of weakness.

"I did not sell," said Mr. Gifford. "Both managements bring so much to the table; we require both sides to make this work.

"Consolidation and convergence in financial services is an increasing reality," he added.

It is also a reality that BankBoston - which has sizable business operations in Argentina and Brazil - stumbled in the 1998 third-quarter, when financial woes in Latin America bruised its earnings and stock price.

Other reasons why many see the deal as an acquisition are that Fleet paid a 13% premium for BankBoston's shares and that Fleet executives are expected to hold six of the top eight management positions in the new company.

Still, Mr. Gifford sees the combination as a team effort.

He will become chairman and chief executive officer of the new bank when Mr. Murray retires from those positions in stages by 2002. By then Mr. Gifford will be 59; Mr. Murray, 62.

"Two facts brought me to the table," said Mr. Gifford. "No. 1, our two businesses are complementary and when you have power within a market, that is almost always the most advantageous for shareholders.

"And beyond that, we saw a diversity of earnings and revenue that broadens our footprint."

Fleet-BankBoston still has much to contend with as it nears its closing date. Skeptical investors, wary customers, and even the low morale of employees at both companies could trouble the transaction.

Indeed."Most of the commercial customers of BankBoston are not happy about the deal," said Arthur Loomis, president of Northeast Capital & Advisory Inc. "The reason why they are with BankBoston is because they do not like Fleet. Fleet alienated a lot of customers and was heavy-handed in its dealings with small business. Many people from the commercial end and the wealthy personal trust customers are just not thrilled about this."

Some investors also are less than thrilled by the deal, analysts said.

"Investors are taking a wait-and-see attitude to the Fleet BankBoston merger," said Christopher A. Bamman, a bank analyst at Advest Group. "Investors are looking at most deals like that. They are taking the fact that deals are accretive at face value."

Mr. Barkocy of Keefe Managers agreed.

"The integration process is still a way from completion," said Mr. Barkocy. "So there are always concerns that there will be some glitches" along the way.

Mr. Gifford acknowledged that morale had fallen since the merger, but said the dynamism of the new company would likely make it short-lived.

"When there is a merger anywhere in market, there will be employee dislocation and job loss. Anybody denying that is disingenuous," said Mr. Gifford. "But the closer we get to the closing point, the more people will focus on the new company. People trust that our management will get us through this."

Problems have been kept to a minimum. Fleet and BankBoston have quieted - at least for the time being - community activist groups and politicians concerned about the new bank's commitment to lending in low- and moderate- income neighborhoods.

The banks said that they planned to provide $14.6 billion in community lending over the next five years.

The company's plans to divest are also running smoothly, said analysts. To comply with antitrust restrictions, Fleet and BankBoston plan to divest up to 292 branches and about $12.5 billion of deposits in four states.

Eight billion dollars in deposits is expected to go in Massachusetts, with the remainder mostly in Connecticut and Rhode Island. The premium for branches is expected to be 13% to 16%, said one investment banker.

Sovereign Bancorp, Wyomissing, Pa.; Charter One Financial Inc., Cleveland; Citizens Financial Group, Providence, R.I.; and the U.S. operations of HSBC Group are said to have been invited to do due diligence on Fleet-BankBoston branches.

Other banks that are likely to bid include Summit Bancorp, Princeton, N.J., and Bank of America Corp., Charlotte, N.C., an investment banker said.

Up to 15% of the branches are expected to go to community banks. They include a consortium of nine community institutions and closely held Boston Bank of Commerce.

The winners of the bids are expected to be announced in the first week of August, said Mr. Gifford.

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