Expert: FleetBoston Merger May Spur Copycats
Bank of America’s takeover of FleetBoston to form the world’s second largest bank may inspire other regional banking companies to join forces, says a Tufts expert. Medford/Somerville, Mass.
Boston [10.28.03] On Monday, the landscape of New England's financial services industry was dramatically changed following the announcement that FleetBoston would be bought out by Bank of America. The move, which will produce the second largest bank in the world, is expected to have far-reaching consequences. According to a Tufts economics expert, the union has produced a new global player in the financial services industry while potentially spawning similar mergers in the sector.
"This is a merger that makes a lot of sense, combining banks that operate in similar consumer sectors but in different geographic areas: Fleet is strong in the North East and New York, extending Bank of America's strong presence elsewhere," said George Norman, Tufts professor of economics.
The Tufts expert said that the union of the two banks - a $48 billion deal - should make the new company more competitive worldwide.
"The international coverage of the two banks is also strongly complementary and should assist Fleet in recovering from important losses in Latin America," Norman said.
But creating an international financial player isn't the only effect of the mega-merger. According to Norman, the move may inspire similar moves among other regional banks looking to improve their coverage.
"This merger also has the potential to spur the next merger wave in the financial sector after a two to three year period of relative quiet," said the Tufts economist. "There are several other super-regional banks that could now appear as attractive targets for major banks looking to further extend their reach."
Norman - who is the William and Joyce Cummings Family Chair of Entrepreneurship and Business Economics at Tufts - told USA Today that the takeover may spawn more buyouts.
"[The Tufts professor] says the bank deal could signal the end of a long drought for merger and acquisition activity across the economy, where activity has been limited since the height of the stock market a few years ago," reported USA Today.
As Norman told the newspaper, "It's not taking us back to those days, but it is certainly an indication of optimism."
While stockholders may be excited about the merger, those in the New England region are worried that the buyout will mean layoffs in the area. Published reports said Bank of America intends to maintain job levels existing at Fleet. According to Norman, only time will tell if the new bank will keep its promise.
"We shall have to wait to see how this actually plays out on the ground but since there is limited geographic overlap of the two banks it may well be that cost reductions and employment savings will be confined to headquarters functions rather than branch operations," said the Tufts expert.