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Thursday, August 24, 2006

Who Will Bank of America Acquire Next? And Where?

CNBC's Charlie Gasparino said the network has learned that Bank of America (BAC) may do a transformational deal. This is not of ANY real surprise if they see something they can integrate and we have notified about B of A being at the federally mandated caps of not being able to do banking acquisitions in the US because of the 10% of the deposit base limitation in the US. That figure does not include credit union deposits, but so far B of A has not been able to get that definition changed (yes, they have tried making the credit union argument according to a Federal Reserve contact). That means they cannot acquire a Bank in the US, but they can branch out into non-banking operations in the US or go international to buy a non-US deposit institution.

CNBC sort of hinted that the company will most likely go the route of an international bank, and HSBC (HBC) was thrown out as "one example" of an international bank in this criteria. Oddly enough they just sold its franchise equivalent stake of its Hong Kong retail operations to China Construction Bank for about $1.25 Billion that we noted this morning, so where does this leave them? You could probably go pick two dozen large international banking operations that they could go after, and the list may be too long to note.

They could also be "transformational" in other domestic financial operations outside of banking, but the street is into more of a de-conglomerization attitude these days so that may not be in the works. They have just recently integrated the large acquisition of MBNA for credit cards, so we'll have to see what are the next obvious candidates. Bank of America has gotten more into mortgage offerings and has even sent out insurance offerings in the mail to its customers, so that could be the case too. The company could also go after a money management and asset advisory firm, so long as they are not deemed "deposits" according to federal reserve definitions. You could even see them go for a pure-play auto loan company or merchant banking operation. We could even make the case that they will want a pure-play brokerage firm, although most of those firms have managed to remain independent because of critical business being tied to a small number of individuals that "walk out the front door" every night.

You can flip a coin as to what they will do. If you pick heads for a US deal, then you have your answer that it would be a non-depository institution. If you pick tails then you can presume they would go after a large international bank that doesn't have a large US deposit base. To make matters more complicated, if you picked tails it could be the international bank that has a large non-depository operations inside the US to boot.

Whatever B of A decides, you can bet the list of "speculation companies" will come out one after another.

Jon C. Ogg
August 24, 2006

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