B of A May Face Risks if It Buys Bank in Boston

An acquisition by BankAmerica Corp. of the failed Bank of New England through a government-assisted deal would bring the San Francisco-based banking firm a big step closer toward becoming a national bank. And the move would carry little immediate risk because the government would keep the bad loans.

But such an acquisition carries with it some important long-term strategic considerations that could add to the risks down the road, according to bankers and analysts.

The most important consideration is continued uncertainty over how much further New England’s ailing economy will soften before it turns around. Another potential problem is that Boston-based Bank of New England is thousands of miles from the California market that BankAmerica knows best. And Bank of New England’s well-publicized problems have hurt employee morale and the bank’s image.

“There are a lot of questions in my view, but it’s worth a look because it could be interesting. But there are still questions on all of the structural changes still going on in the New England economy,” said Kidder, Peabody & Co. bank analyst Thaddeus W. Paluszek.

BankAmerica executives say they are well aware of the potential problems. Still, they say, Bank of New England is a rare opportunity to enter a major market in a big way and deserves at least a look in hopes that a good deal can be negotiated with regulators.

“We don’t intend to do anything dumb. The success of the company over the past few years has given shareholders and investors confidence we would act in the best interests of shareholders,” said Frank N. Newman, BankAmerica’s vice chairman and chief financial officer.

BankAmerica, parent of Bank of America, is one of two banking firms identified by regulators and industry executives as leading potential buyers of Bank of New England’s healthy operations in Massachusetts, Maine and Connecticut. Also at the top of the list is Banc One, a successful banking firm based in Columbus, Ohio.

Other institutions considered possible--but less likely--contenders are Wells Fargo & Co. in San Francisco, NCNB Corp. in North Carolina and Fleet/Norstar in Rhode Island.

Any acquisition is far from certain because terms have yet to be spelled out by government regulators. Hurt largely by bad real estate loans, Bank of New England was declared insolvent by regulators Sunday.

Buying Bank of New England would be a sharp departure from BankAmerica’s strategy to develop itself as a Western bank by acquiring failed savings and loans. But the approach is in line with its method of expanding by buying from the government the branches and good assets of failed institutions, leaving problem assets with the government.

Many banks get burned buying seemingly healthy institutions, only to find out they inherited a lot of bad loans.

Newman, the BankAmerica vice chairman, said the firm sees national banking as inevitable by the end of the decade. He added that the bank is attracted by Bank of New England’s extensive branch system and its consumer and business operations.

A key concern for BankAmerica and Banc One is the quality of management left at Bank of New England, industry officials say. Both banks are already devoting considerable management talent to digesting recent acquisitions--BankAmerica to failed thrift operations it bought in Arizona, Oregon and Nevada, and Banc One to acquisitions of failed banks and thrifts in Texas. But New England’s economy remains the biggest wild card.

The once-booming economy has turned into a near-depression, caused by slowdowns in defense and high-technology businesses combined with extensive overbuilding.

Continued softness would mean that any purchaser of the bank would have to wait patiently for profits and growth.

“If it takes 10 years to get back on its feet, that’s a long time even if you have no bad assets,” said John Russell, a Banc One vice president.