B. of A. assesses its appetite for LaSalle

Critics already say the bank is overpaying. Can it raise its bid?

Referenced Symbols

NEW YORK (MarketWatch) -- Bank of America Corp. has made its offer for LaSalle Bank of Chicago. Now the question is: how badly does it want it?

A consortium led by Royal Bank of Scotland (RBS) on Wednesday said it will offer about $100 billion for LaSalle's owner, ABN Amro. ABN, +0.19% That deal represents a 13% premium to the friendly agreement among ABN, Barclays BCS, +0.99% and Bank of America that was announced Monday. See full story.

The unsolicited bid by RBS now pressures Charlotte, N.C.-based Bank of America. BAC, +0.77% Does it match, hold or raise? The bank has already come in for criticism by analysts who say the existing deal is too rich.

"It's a nice-to-have franchise for B. of A.," said Mark Batty, an analyst with PNC Advisers. "It does fill a hole. It's attractive. If they can't buy a franchise, then they have to build, and that takes a long time."

Under terms of the existing deal, Bank of America is due a $200 million break-up fee if another suitor bids more than the $21 billion B. of. A. has offered and ABN Amro accepts the bid. It's unclear whether the RBS offer, which is for all of ABN including LaSalle, trumps the Bank of America deal for LaSalle.

By adding LaSalle, Bank of America would fill a hole in its franchise. The bank's market share in Chicago would vault to 10.4% from 1.1%, according to Keefe Bruyette & Woods. Keefe analyst Jefferson Harrelson said the piece is the "last major component" needed for the franchise, but added that the price anticipates 8.5% core growth for LaSalle, which he called "fairly aggressive."

"The price is expensive," he wrote in a note to clients.

Others aren't as positive. Richard Bove, an analyst with Punk Ziegel & Co., said B. of A. Chief Executive Ken Lewis may be stripping cash from the company to pursue acquisitions. He said B. of A. is now losing deposit market share in California, Florida, Massachusetts, New York and Texas.

"LaSalle gives Bank of America a stronger position in the Chicago market and entry into Detroit, where it will be the largest bank," Bove wrote in a note to clients. "By allowing its market share to slip in places like Dallas and Charlotte, Bank of America has enhanced its position in Chicago and Detroit.

"Does this make sense?"

Maybe, said Fox-Pitt Kelton's Todd Hagerman. He said that the price was full and that B. of A. will lower its tangible-equity ratio -- a measure of a bank's leverage and solvency -- to 3.8% from 4.2%. He also said the projected $1.25 billion cost savings -- half the bank's expense base -- seems "aggressive" in the current market climate.

He said he expects B. of A. to counter any offer because it's pursuing an acquisition-based strategy, but added that LaSalle isn't essential to the bank's future.

"That's why B. of A. is trading at about 10 times earnings," which is below that of its peers, he said. "It's Ken Lewis. People believe he's going to pursue acquisitions."

Bank of America was advised in the transaction by Banc of America Securities and received legal advice from Wachtell, Lipton, Rosen & Katz. ABN Amro was advised by UBS and the law firm of Davis Polk & Wardwell.