B of A Is Favored in Bidding for Bank of New England

Bank of America patriarch Amadeo Peter Giannini’s dream was to build a nationwide bank with a system of branches stretching from the hills of his hometown of San Francisco to the streets of Manhattan.

He failed to do it in the late 1920s, an era when powerful New York’s financial titans exerted enough influence to lock in federal laws that to this day still prevent the bank from opening up branches at will in most states.

But all that could begin to change in one fell swoop next week. Federal banking regulators April 24 are expected to announce the winning bid for the failed Bank of New England, the third-largest bank collapse in history.

Bank of America’s parent, BankAmerica Corp., is the favorite of the four bidders. But it faces stiff competition from two groups with New England ties.

Should it win, BankAmerica would overnight become the closest thing this country has to a nationwide bank, and one that would be well on its way to fulfilling Giannini’s vision within this decade.

But the sale, which would involve purchasing the Boston-based bank’s branches, deposits and best loans, involves a number of complex issues being debated both within the bank’s headquarters in San Francisco and the halls of the Federal Deposit Insurance Corp. in Washington. And although the primary goal of the FDIC is to get the best price, powerful political and social pressures have emerged that probably will influence the outcome.

Although BankAmerica is favored, the race has grown tighter within the past two weeks, thanks to a full-court press launched by the Bank of Boston. Faced with the prospect of a powerful new competitor, the bank tapped some of the deepest pockets in the nation--investor Warren E. Buffett, CBS Chief Executive Laurence A. Tisch and General Cinema Corp.--for money to dispel fears that it doesn’t have the financial wherewithal to join the bidding.

The bank has been telling anyone who will listen how important it is to keep the bank in New England hands, that a merger would save huge amounts of money in overhead by combining operations of the two banks and that it would help bring about much-needed shrinkage in New England’s bloated banking system.

“Bank of Boston is putting enormous political pressure on anybody and everybody they can,” said James E. Moynihan Jr., senior vice president and banking specialist in Boston with brokerage Advest Inc.

The winning bid for Bank of New England’s three units in Massachusetts, Connecticut and Maine is expected to be about $750 million, with buyers managing bad loans and ultimately given the opportunity to return them to the FDIC.

The other major bidder with a serious chance is Rhode Island banking firm Fleet/Norstar and the investment firm Kohlberg Kravis Roberts & Co. A bid has also been made by New Maine Bank Associates, an investor group led by Marco DeSalle of Cape Elizabeth, Me., but the offer is given little chance.

BankAmerica has shown in its bidding for failed savings and loans that it is willing to spend what it takes to win what it wants. It shocked the industry when it outbid rival Security Pacific by $50 million and paid a huge premium for a medium-sized failed thrift in Oregon.

Three important factors are also working in BankAmerica’s favor:

* The bank would bring to the depressed New England economy needed capital and the ability to make a lot of loans. “We’ve seen a shutdown in the availability of credit that is so vital, particularly for the small to medium-sized companies,” said Rep. Joseph Kennedy (D-Mass.), who sits on the House Banking Committee.

BankAmerica has clearly played this hand. It emphasizes that after nearly failing in the mid-1980s under the burden of bad foreign and other loans, it roared back to become one of the nation’s strongest institutions.

“A lot of people complain about not having lending capacity and are crying out for someone who is prepared to make loans. We have the capital to make good loans,” said BankAmerica Vice Chairman Frank N. Newman, who is overseeing the financial details of the bank’s bid.

* A second concern is the loss of jobs caused by merging Bank of Boston with Bank of New England. As the banks are consolidated, New England would be hit with another round of layoffs of relatively high-paid workers.

“We are facing tremendous job losses already. If you saw the merger of two of the largest banks in New England, it would move toward a great consolidation that would lead to up to 10,000 people being laid off,” Kennedy said.

* Finally, there are concerns that if the New England economy enters a free fall instead of bottoming out soon, a combined Bank of Boston/Bank of New England could become an even bigger headache for regulators down the line.

But how badly does BankAmerica want Bank of New England?

From the start, bank executives have said that Bank of New England does not represent a critical acquisition for them but just a good opportunity. The deal carries a relatively low risk because it is unencumbered by problem loans. And the Bank of New England’s branch system is considered attractive.

Still, the wisdom of the bid has been widely debated within the bank itself. It is a radical departure from its strategy of building a strong retail bank through the West, which it is doing by acquiring failed savings and loans.

Other concerns raised by bankers and analysts are whether BankAmerica, in buying Bank of New England, will take itself out of the running for future acquisitions that may be better. Will its management, already working to absorb failed thrifts throughout the West, be stretched too thin? Has New England’s depressed economy hit bottom? And will it be able to oversee and compete in a market 3,000 miles from its home state?

BankAmerica’s Newman, who grew up outside Boston as did the bank’s chief executive, Richard M. Rosenberg, said BankAmerica officials asked themselves many of the questions that doubters are raising about the bid now.

“The acquisition is not a stretch for us,” Newman said. “We didn’t automatically say that this is the right thing to do. We did a lot of soul-searching and an awful lot of strategic analysis. After that more soul-searching.”

HANDICAPPING THE BIDS Four bids have been made for the failed Bank of New England. At stake are banks in Connecticut, Massachusetts and Maine with total assets of about $20 million.

* Bank of America: The San Francisco bank has generally been viewed as the favorite. Its bid would bring needed outside capital into the sagging New England economy. After nearly failing in the mid-1980s, the bank turned around dramatically and is now one of the nation’s strongest. Problems: Regional pressures have been building against selling the bank to a strong outsider that may prove too competitive for other weak New England bans.

* Fleet/Norstar and Kohlberg Kravis Roberts & Co.: Bid brings in outside capital and provides a respected Rhode Island-based bank. It also gives regulators a chance to force needed consolidation on New England’s bloated banking system. Problems: Regulators, nervous about the mere involvement of financier KKR in any bid, would need assurance the group would be a long-term investor.

* Bank of Boston and other investors: Once given little chance because it has been weakened by problem real estate loans, Bank of Boston is making a strong run. It lined up capital said to be from such wealthy investors as CBS Chief Executive Lawrence Tisch, General Cinema Corp. Chairman Richard Smith and investor Warren Buffett. A merged Bank of Boston/Bank of New England could save huge amounts of money in overhead costs. Problem: Bank of Boston’s own problems have raised fears that a merger could eventually create an even larger problem if the region’s economy weakens.

* New Maine Bank Associates: A long shot offer by a group of relatively unknown investors who want to buy Bank of New England’s Maine bank. Problem: Federal regulators would prefer to sell the bank in its entirety rather than breaking it apart.