B of A Seeks Buyer for Its Finance Unit : Bank Pulling Back From Plan to Build Nationwide Network
BankAmerica Corp. is seeking a buyer for its FinanceAmerica unit in a move reflecting the giant bank company’s shrinking territorial ambitions.
BankAmerica, parent of Bank of America, said it has retained the investment banking firm Salomon Bros. to explore the sale of FinanceAmerica, a commercial and consumer finance company with nearly $3 billion in assets.
The sale is expected to bring B of A between $300 million and $400 million, Wall Street analysts said.
The bank bought the finance company, with its 300 offices in 42 states, more than a decade ago in an early step toward creating a coast-to-coast network of B of A branches and affiliates. B of A, which grew from a strong base in California to become the nation’s largest bank, hoped to become the dominant financial institution in the United States.
Court Decisions
But recent court and congressional actions, coupled with the bank’s serious financial problems, have forced it to rethink its strategy. The U.S. Supreme Court ruled last month that states may bar acquisitions of local banks by national megabanks such as B of A. And Congress so far has refused to rewrite federal law to allow national branch banking, stalling the big New York and California banks’ expansion plans.
At the same time, B of A’s dismal financial performance has sparked a search for assets and subsidiaries that are not providing adequate returns. The bank’s parent company lost $338 million in this year’s second quarter, the second-largest quarterly deficit in U.S. banking history.
Focusing on West
Bank executives have decided to concentrate on building a regional banking network on the West Coast rather than trying to compete in 50 states and around the globe. B of A already owns Seattle-based Seafirst National Bank and has made an offer for Oregon Bank. Both institutions are among their states’ largest.
Nationally, the bank will try to build a low-cost customer base through credit cards and offices of its Charles Schwab & Co. discount brokerage subsidiary. Acquisitions of distant banks or savings and loans are not anticipated, bank officials said, and the sale of FinanceAmerica fits in with that strategy.
“BankAmerica is strategically pulling in its horns,” said bank analyst Don Crowley of the Wall Street brokerage Keefe, Bruyette & Woods. “We’re seeing a new tone of restraint.”
The bank is under regulatory orders to bolster its capital position, and some analysts are suggesting that it will not be able to cover its quarterly dividend without a cash infusion from the sale of assets.
The bank previously announced that its San Francisco headquarters is for sale, and a bank spokesman said Monday that the sale of other real estate holdings, including B of A’s 52-story downtown Los Angeles headquarters, is under consideration.
The San Francisco building is expected to bring more than $500 million, and bank officials hope to conclude the sale before the end of the year. Negotiations on other properties are in earlier stages, a bank spokesman said.
The spokesman stressed, however, that the sales of FinanceAmerica and the buildings are strategic decisions reflecting long-term planning for the company and are not designed solely to meet regulatory orders or cover dividend payments.
B of A bought FinanceAmerica, then known as GAC Finance, in 1974 for $100 million. The company has been profitable since it was acquired, a senior bank official said, but made only about $20 million last year on assets of $2.8 billion.
The company offers commercial loans to small and medium-size businesses, corporate and personal leasing and loans to individuals. The consumer finance unit made a profit last year while the commercial side posted a sizable loss, the bank officer said.
