April 23 (Bloomberg) -- Bank of America Corp. agreed to buy ABN Amro Holding NV's LaSalle unit for $21 billion in cash, making it the largest bank in Chicago and filling one of the few remaining holes in the nation's most extensive branch network.

Britain's Barclays Plc will then acquire the rest of ABN Amro, the biggest Dutch bank, for about 67 billion euros ($91 billion), the companies said today in a statement. Bank of America said its net cost for the transaction is $16 billion, after getting $5 billion back in excess capital from LaSalle.

Bank of America's takeover of LaSalle will vault it ahead of JPMorgan Chase & Co. in Chicago, increase earnings and satisfy a goal of Chief Executive Officer Kenneth Lewis to gain market share in the third-largest U.S. city. While Bank of America has been opening branches there since 2003, Chicago remained one of the few major U.S. financial centers where it didn't rank among the top five lenders by deposits.

``Geographically, it makes a lot of sense,'' said Jefferson Harralson, an Atlanta-based analyst at KBW Inc., who has a ``market perform'' rating on Bank of America. ``They weren't going to be able to build it up on their own.''

The transaction would give Bank of America 411 bank branches and 1.4 million retail customers in the Chicago area, Michigan and Indiana. The bank expects to save $800 million from the combination, with half falling in 2008 and the rest in 2009. It will record $800 million in restructuring costs.

Bank of America shares fell 53 cents, or 1 percent, to $50.51 at 4 p.m. in New York Stock Exchange composite trading.

`Attractive' Market

LaSalle probably is small enough to keep Bank of America under a federally mandated 10 percent cap on nationwide deposits, Harralson said. While the Charlotte, North Carolina-based company could exceed that limit by opening branches of its own and attracting customers, it's barred from doing so by acquisition.

Lewis in February named Chicago and Colorado as the two ``attractive'' markets for consumer banking where he hadn't succeeded in giving Bank of America a significant presence. Lewis said last week in an interview in Boston that he ``would be interested'' in buying LaSalle or Bank of Montreal's Harris Bank if either were available.

Royal Bank of Scotland Group Plc is interested in buying ABN Amro and breaking apart the Amsterdam-based company with partners Santander Central Hispano SA of Spain and Fortis of Belgium.

Talks Canceled

Led by CEO Fred Goodwin, Royal Bank would take LaSalle plus ABN Amro's Asian division and securities unit, UBS AG analyst Stephen Andrews wrote in an April 16 note to clients. ABN Amro's agreement with Bank of America may thwart the plan. Edinburgh- based Royal Bank said in a statement that it canceled planned takeover talks with ABN Amro today while it examines the LaSalle transaction.

``The banks need to understand the circumstances under which this sale can be terminated,'' the group said in a statement.

LaSalle, which earned $1 billion in 2006, had 141 branches and a 14.1 percent share of deposits in the Chicago-Naperville- Joliet metropolitan area as of June 30, according to the Federal Deposit Insurance Corp. Harris was third with 9.53 percent, and Fifth Third Bancorp followed with 3.23 percent. LaSalle's annual earnings are about $700 million going forward, excluding the impact of businesses it has sold.

Bank of America has opened 56 branches in the area in the last four years and currently has a 1.81 percent share of deposits. It has about 5,700 banking centers across the country.

`Full Price'

The agreement with ABN Amro permits the Dutch bank to accept a higher price than Bank of America's all-cash bid during the next two weeks, ABN Amro said in a statement today. Bank of America would be able to match any offer and the company would receive $200 million if the agreement with ABN Amro is terminated.

Lewis said on a conference call with analysts that Bank of America offered a ``full price'' because ``we knew there were others lurking and still may be.'' He said completion of the transaction isn't contingent on Barclays finalizing its deal with ABN Amro.

Bank of America is offering the equivalent of about 2.2 times book value for LaSalle, compared with the 2.8 times book value that Barclays is paying for the rest of ABN Amro, according to the companies' statements. Bank of America said LaSalle will be ``immediately accretive'' to earnings per share. Chief Financial Officer Joseph Price said on the call the bank will reduce its share repurchases to help fund the deal and return its capital ratios to desired levels.

Lewis's Acquisitions

Lewis, who became CEO in 2001 and is now 60, has spent more than $90 billion on acquisitions, including the $48 billion purchase of Boston's FleetBoston Financial Corp. in 2004 and last year's $34.2 billion acquisition of credit-card issuer MBNA Corp.

Bank of America agreed in November to buy U.S. Trust, the private-banking unit of Charles Schwab Corp., for $3.3 billion. That deal will bring its share of U.S. deposits to about 9.2 percent, according to documents filed with the Federal Reserve.

``We'll be out of any acquisitions of any size through 2008,'' Lewis said in response to a question on the call.

LaSalle was established in 1927 as the National Builders Bank of Chicago and acquired by ABN Amro in 1979. In addition to consumer banking, its operations include wealth management, real estate lending and cash management.

ABN Amro agreed in January to sell its U.S. home-lending unit to Citigroup Inc., the largest U.S. bank by assets.

Michigan Branches

The LaSalle purchase also makes Bank of America the biggest bank in Michigan, where it currently has no branches. Job cuts by the Big Three U.S. automakers have slowed that state's economy and departures to faster-growing regions put its population growth on track to lag behind the national average.

``All things being equal, Bank of America wouldn't have ventured into Michigan on its own,'' Harralson said.

LaSalle's $113 billion in assets puts it behind BB&T Corp., the nation's 12th-largest publicly traded bank based in the U.S. Bank of America ranks second after New York-based Citigroup, with $1.5 trillion in assets.

Lewis recently has been downplaying the need for acquisitions, saying Bank of America is ``full of opportunities'' without them. He said in February that the company didn't need any more big deals to become the world's largest financial institution and instead would invest in existing businesses on its way to boosting earnings per share by 10 percent a year.

`Looking for Another'

The company reported its slowest growth in quarterly profit in more than a year last week, when it said first-quarter earnings gained 5.4 percent. Results were the first to include a year-earlier comparison with MBNA.

``You see this out of Bank of America a lot where they'll acquire a bank and after about the fifth quarter of that transaction then they start looking for another one,'' said Joseph Dickerson, an analyst at Atlantic Equities LLP in London. ``It does highlight the fact that they have some problems growing the bottom line organically.''

Last week, Bank of America formed part of a group with JPMorgan and two private-equity firms that agreed to buy SLM Corp., the largest U.S. provider of student loans, for $25 billion.

On the LaSalle transaction, Bank of America was advised by its own investment bank, Banc of America Securities, and the law firm of Wachtell, Lipton, Rosen & Katz. ABN Amro was advised by UBS AG and Davis Polk & Wardwell.

To contact the reporters on this story: Will Edwards in Charlotte at wiedwards@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net.

Last Updated: April 23, 2007 16:10 EDT