While Bank of Boston has successful operations in Latin America, it decided its domestic operations were too small to compete with the growing banking giants, especially Fleet, which bought the Shawmut National Corporation in January, forming the largest bank in New England.
Baybanks has long been the most obvious acquisition for Bank of Boston, which has lagged in serving the consumer market. In contrast, over the last 20 years, Baybanks' ubiquitous green sign and vast automated teller machine network have captured the business of Boston's university students, many of whom have stayed with the bank as they have grown to be affluent professionals.
Many other large regional banking companies have similarly had their eyes on Baybanks, and several, including Corestates, have made overtures.
All of these have been sternly rebuffed by William M. Crozier Jr., the crusty 63-year-old banker who has been chairman of Baybanks for 21 years, and styled its lively marketing more on the model of L.L. Bean than the stodgy examples set by other banks. He had long said that were he to sell, he would prefer an out-of-state buyer to Bank of Boston, in order to protect employees' jobs.
In an interview yesterday, however, Mr. Crozier said that in the current environment protecting jobs was less important to him.
"Times change," he said. "There will be job losses, but today we are growing, and the economy here is growing, and so protecting jobs is less important." Mr. Crozier emphasized that this deal would preserve another large banking company based in New England.
Mr. Crozier owns about 120,000 shares of Baybanks, worth about $12 million in the deal, and he has options to buy about 134,000 more shares.
Mr. Crozier will be the chairman of the combined banking company through 1998, and will look after its retail operations. Charles K. Gifford, 53, the chief executive of Bank of Boston will be chief executive and president until taking the chairman's title when Mr. Crozier retires. All of the top Baybanks executives will have senior jobs in the combined company.
The deal was initiated by Mr. Gifford, who became chief executive of Bank of Boston in August when his predecessor, Ira Stepanian, was forced out by the board of directors. Mr. Stepanian's abrasive style was blamed for the collapse of the previous merger discussions.
"We looked around and saw a combination with Baybanks as the No. 1 strategic option because it would combine what I think is the top consumer bank in the country with our strong corporate and international banking," said Mr. Gifford, who is known as Chad.
In talks that began last month, Mr. Gifford agreed to a number of concessions that smoothed the negotiations with Baybanks. The deal was arranged quickly and secretly, in deliberate contrast to Bank of Boston's highly public failed merger with Corestates.
Mr. Crozier said that the most important issue to him was the name and logo of the new company. The banks' branches throughout New England will go by the Baybanks name, displayed in its trademark green combined with the Bank of Boston's eagle logo. The holding company and the foreign and corporate banking operations will use the Bank of Boston name.
The price, of course, was lucrative as well, representing 2.2 times Baybanks' book value, relatively high for bank deals. The deal would give Baybanks' stockholders ownership of 30 percent of the combined company's shares.
Analysts said, however, that the price was not too high for Bank of Boston and that its per share earnings would increase as a result of the deal, once the cost savings were realized.
"The price is actually a little under what I thought Baybanks would go for," said Nancy Bush, an analyst with Brown Brothers Harriman who was critical of Bank of Boston's earlier proposed deals. "When you look at the options for Bank of Boston, this is far and away the best one," she said.
The acquisition is expected to eliminate $190 million in expenses, 11 percent of the combined banks' spending in the United States. The banks also expect $50 million in increased revenue. Bank of Boston will take a $140 million charge for the merger, which is expected to be completed in the middle of next year.
One potential problem that Bank of Boston will have in this deal is convincing the Justice Department that that there are no antitrust concerns. After this deal, Fleet and Bank of Boston will be by far the dominant banks in New England, with the next largest institutions -- State Street Boston and the Boston Company unit of Mellon -- focused on serving institutions rather than consumers.
Bank of Boston executives insist that the combination does not violate the Justice Department's rules. But some banking experts say that this interpretation requires the Government to treat all the savings banks in the region as equally competitive to commercial banks, an approach that is not always taken.
While some shareholders of Bank of Boston may be upset that it did not choose simply to sell itself to an out-of-state banking company, Mr. Gifford defended the acquisition.Continue reading the main story
Citation.Banco de La Provincia de Buenos Aires v. Baybank Boston N.A., 985 F. Supp. 364, 1997 U.S. Dist. LEXIS 17124, 33 U.C.C. Rep. Serv. 2d (Callaghan) 964 (S.D.N.Y. Oct. 31, 1997)
Brief Fact Summary. Banco de la Provincia, (Plaintiff) seeks declaratory judgment that on April 1995 it had the right to set-off against the funds in Banco Feigin’s account with Plaintiff and that this right was superior to any right BayBank Boston N.A., (Defendant) may have had as the bank maintaining an account of Banco Feigin to which Banco Feigin had requested its funds sent. Plaintiff moves for summary judgment.
Synopsis of Rule of Law. A bank may not exercise bad faith or abuse its discretion in deciding whether to accept or reject payment orders.
Facts. Plaintiff is a bank incorporated in the Republic of Argentina. Plaintiff extended a loan of $250,000 to Banco Feigin S.A., an Argentine bank and disbursed the funds into Banco Feigin’s account with Plaintiff. In March of 1995 the Central Bank of Argentina commenced an Intervention, an inquiry into the solvency of a bank, and ultimately revoked Banco Feigin’s authorization to operate as a bank under Argentine law. In light of these circumstances, Plaintiff placed an administrative freeze on Banco Feigin’s account. At the time the account consisted solely of proceeds from Plaintiff’s loan in the amount of $245,529.55. Banco Feigin requested a wire transfer of these funds to its account with Defendant intending to use the funds to satisfy debts owed to Defendant. Plaintiff received the request but did not accept the payment order or transfer the funds because of the freeze on Banco Feigin’s account and Plaintiff’s then existing right of set-off resulting from the Intervention.
Whether Plaintiff properly rejected the payment order under U.C.C. 4-A-209.
Whether Defendant can sustain a cause of action for conversion.