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Fans Shrug at Bank of America Deal

Shares drop as investors wonder if BofA's plate is full.


Bank of America

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have too many balls in the air?

The big bank agreed Monday to pay

ABN Amro


$21 billion for its Chicago-based U.S. franchise. Bank of America says the deal, tied to ABN's huge $91 billion tie-up with


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, gives it a big presence in Midwest cities such as Chicago and Detroit and the prospect of solid growth.

But critics say the pact is likely to keep a lid on Bank of America's stock. They say investors want to see more so-called organic growth -- driven by improved results at existing properties, rather than acquisitions -- and that the bank already faces big merger-integration headaches.

"The stock sells at the lowest price-to-earnings multiple of any bank in the U.S.," says Richard Bove, an analyst at Punk Ziegel who rates Bank of America buy. "In essence, if management continues to ignore the wishes of the owners, the owners will continue to keep pressure on the stock price."

Bank of America fell 62 cents Monday to $50.42.

Notably, Monday's agreement comes as the Charlotte, N.C., lender has two other pending deals in the hopper: a $3.3 billion deal for

Charles Schwab's

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wealth management firm, U.S. Trust, and last week's part in a $25 billion takeout of student lender

Sallie Mae

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During a conference call on Monday, CEO Ken Lewis likened the deal to BofA's $47 billion acquisition of Fleet Financial in 2004. Fleet gave BofA a solid presence in the Northeast for the first time.

"We believe the opportunity in Chicago parallels what we saw in New England several years ago -- that is, we can grow our business even if the underlying economy is not growing as quickly," Lewis said on the call. "Much like we did with Fleet, we believe we can materially improve the performance at LaSalle through our broader and more sophisticated platform on both the commercial and retail side. "

"The LaSalle franchise has materially underpenetrated Chicago and to a lesser extent Detroit," Lewis adds.

As it turns out, that's just what some critics of the deal are perplexed about.

BofA "will be buying a property that will need a deft touch in rejuvenating a franchise that has received scant resources in recent years," writes Nancy Bush, an independent analyst in Aiken, S.C., in downgrading the stock to hold from buy. "This company is doing a good job of managing in a bad banking environment, but this move guarantees that this stock goes nowhere for a while."

Not everyone is sure the deal is a bad move.

"The bank has tended to execute well on transactions," writes Joseph Dickerson, an analyst at Atlantic Equities in London, "and we see no reason why this should not be the case with LaSalle."

But Bush believes Bank of America investors are "mystified" about the deal. "The conference call was really flat," she says in an interview, "and created a lot of questions in people's minds."

Bush questions, among other things, why BofA would want to expand in a demographic area of the U.S. that has generally seen sluggish growth over the past few years.

She also notes the Chicago-area presence of competitors such as

JPMorgan Chase

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, which bought Chicago's Bank One just a few months after BofA bought Fleet.

JPMorgan has been a darling on Wall Street, in part because of the respect accorded CEO Jamie Dimon.

BofA's stock is trading at 10.43 times its 2007 earnings estimate, according to Thomson Financial. Other large banks, such as JPMorgan Chase and


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, carry price-to-earnings multiples closer to 12 times, Thomson says.

"You have got a really sharp competitor in that market," Bush says. "Chase carries a multiple premium because of the regard for management. I don't think you can say the same about Bank of America's stock."