Bank of America's Radically New Risk Profile

Is Bank of America (BAC Quote - Cramer on BAC - Stock Picks) paying too much for FleetBoston(FBF Quote - Cramer on FBF - Stock Picks)?

Shares of Bank of America fell sharply Monday, as several analysts downgraded the stock, citing concerns about the lofty price tag for Fleet.

"We are concerned about [the] premium paid for Fleet, a company we think has low earnings visibility, volatile earnings history [and] ongoing credit quality issues," said Standard & Poor's analyst Mark Morgan.

Bank of America agreed to buy FleetBoston for $47 billion in stock, or about $45 a share. Although a sharp drop in BofA's share price Monday reduced the value of the deal to about $41 a share, that's still a 29% premium over Fleet's share price at the close of trade Friday.

Fleet has struggled in recent years with slow growth and higher credit costs than its peers. The bank has been recovering from losses triggered by Argentina's debt default and loans to companies like Enron. But in the third quarter, Fleet said earnings rose 17% thanks to a big improvement in credit quality, among other things.

RBC Capital analyst Joseph Moreford said Fleet has made progress in repositioning itself but still feels that Bank of America might be paying too much for the franchise. "It seems like a very full price," he said. "And the cost savings projections of 25% seem a bit high given that there's no branch overlap."

Michael Stead, a portfolio manager for Wells Capital Management, who invests in financial stocks and owns shares of both banks, said he thinks the deal is "terrible" for BofA, noting that are "no real cost savings." BofA agreed not to lay off any employees in New England and Stead said this makes it harder for the bank to reduce expenses.

There are other concerns, too. Many investors have owned Bank of America in recent years because they consider it to be a low-risk investment, said Moreford. "Now, you've got the big risk of integration as well as some of the ancillary issues that come with the acquisition, like Argentina and Brazil."

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