B of A Makes a Move for ABN AMRO's LaSalle Bank

Implications: Bank of America and ABN AMRO have agreed on an all-cash deal for LaSalle Bank, a division of ABN AMRO Holding NV. The deal's net cost to B of A will be $16 billion. This deal will catapult B of A from a distant #10 into the #1 market position in Chicagoland, which is the #3 US market. B of A also picks up 260 branches in Michigan and another #1 market share position. However, some investors may be upset, thinking that B of A is over paying for LaSalle just to bulk up in the Midwest. To gain regulatory approval, B of A will have to manage its total deposit base combined with LaSalle's to fall below the 10% ceiling.

Analysis: Bank of America has the potential to hit a home run with the LaSalle deal. Execution will be the key, as it always is with M & A deals. The upside for B of A is worth the price of gaining #1 market share positions in Illinois and Michigan. For B of A, this deal has a lot of similarities to its acquisition of Fleet Financial, which closed in 2004. Meeting the regulatory deposit share test is quite achievable for B of A. The benefits outweigh the risk of overpaying for LaSalle.

1. Projected after tax cost savings of $800 million represents an after tax ROE of 5% on the net purchase price - a pretty good start on making the deal generate value.

2. LaSalle's two main banking subsidiaries (IL, and MI), generated a combined ROE of 11.4% in 2006, which can be improved upon as B of A did with the Fleet franchise.

3. Retail, small business, and middle market banking franchises in IL and MI can benefit from the best practices that B of A has already developed in large scale market places.

4. Compared to other deals to acquire scale and market presence, such as Royal Bank of Scotland's purchase of Charter One in 2004, this price looks acceptable.