In a move to bulk up in some of its current markets, Keycorp agreed to buy Bank of Boston. Corp.'s Vermont and Maine banks for $198.5 million in cash.
With the sale, Bank of Boston is abandoning retail markets where it was a relatively small player, focusing instead on the more urban, wealthier southern parts of New England.
The $61.5 billion-asset Keycorp will acquire Casco Northern Bank, a $1.1 billion-asset bank based in Portland, Maine; and Bank of Vermont, based in Burlington, with $700 million in assets. Into First Place in Maine The deal will edge Keycorp past Fleet Financial Group to become the largest bank in Maine, with combined assets of $3.7 billion. It also marks Keycorp's entry into Vermont, an area adjacent to the bank's upstate New York branches.
The purchase price for the two affiliates is 1.9 times book value.
"What this ought to signal is we intend to be an important financial services provider in New England," said Robert W. Gillespie, Keycorp's president and chief operating officer. He said the Cleveland-based holding company is particularly interested in further expansion in Maine, New Hampshire, and Vermont.
"For Keycorp, there's a profit opportunity in Maine," said Jeffrey Cohn, a bank analyst at H.C. Wainwright & Co. "It is likely to continue to build in Vermont, which is not that different from many of the upstate New York communities it serves."
'Where the People Are'
"It was pretty clear the northern banks fit Keycorp's strategy better than they did ours," said Charles K. Gifford, president of Bank of Boston. "Our retail strategy is southern New England. That's where the people are."
Bank of Boston had to inject capital into the Maine and Vermont banks during the region's recession, but both banks recently became profitable, Mr. Gifford said.
The Boston bank will continue to expand its retail network in Massachusetts, Connecticut, and Rhode Island, he added.
The sale "allows Bank of Boston to focus on markets that are bigger and more important to it," said Ronald I. Mandle, banking analyst at Sanford C. Bernstein & Co.
Keycorp has made several acquisitions this year that fill in existing markets in Oregon, Washington, and upstate New York.
Eyeing Fund Companies
In comments at an analysts' meeting, Mr. Gillespie said the bank wants to expand in the North Central region, in cities like Minneapolis and St. Louis, but said he was pessimistic about the possibility of expanding in Chicago.
Keycorp is also looking at buying a mutual fund company, he said.
"There's a certain group of mutual fund companies that are long on name recognition but short on capital," he said. Any such deal would not be as large as Mellon Bank Corp.'s pending acquisition of Dreyfus Corp., he added.
Mr. Gifford personally announced the change of ownership on Thursday morning to the employees of Casco Northern in Maine. Edward O'Neil, head of Bank of Boston's retail bank, made the announcement in Vermont.
Keycorp said the acquired Bank of Boston units will be merged into its own. Branches will be consolidated in Maine.
A Keycorp spokesman said the bank does not yet know how many branches will be closed. Casco Northern has 34 offices and 615 employees, and Bank of Vermont has 12 offices and 233 employees. Keycorp already employs 1,500 in Maine.
Keycorp said it expects to close the deal in either the fourth quarter or the first quarter of next year, and said that the acquisition will be accretive to earnings in 1995.
The bank said there are opportunities to sell a broader range of products to customers of the two banks, including its 401(k) product, called Prism, aimed at small and large corporations.
A Keycorp spokesman said the bank expects an upturn in the economies of Maine and Vermont, mainly from tourism.