LaSalle Bank Sparks a Duel

The Chicago hometown bank has been called a "fixer-upper." But it has become a bone of contention between bidders in the ABN Amro buyout

LaSalle Bank, an outfit that Chicagoans have treated as a hometown bank since the Great Depression, has become an unlikely prize in the global battle to carve up the big bank's Dutch parent, ABN Amro Holding (ABN). LaSalle, No. 2 by deposits in the Chicago area, has emerged at the center of a tussle among banking giants including Royal Bank of Scotland and Britain's Barclays (BCS), as well as the U.S. retail banking powerhouse Bank of America (BAC) (see, 4/25/07, "Can the Scots Spoil Barclays' ABN Deal?"). The Chicago bank is much coveted because it provides entrée into the Midwest banking market, which is potentially lucrative and strategically important to the bidders.

Yet LaSalle has been something of an underachiever, say analysts and even its would-be owner Bank of America. In a market ripe for consolidation, it has failed to grow its share of the market much in the last few years. Even though it might be a prize as a launching pad for growth for a retail-minded outfit that lacks a presence in the Midwest, LaSalle would need plenty of work from any acquirer. A "fixer-upper" is what independent banking analyst Bert Ely calls the Chicago bank.

Ripe for a Takeover

LaSalle has been outshone by more aggressive consolidators, both large and small. JPMorgan Chase (JPM), for instance, knocked the 80-year-old LaSalle off its perch as the leader in deposits in the Chicago area in 2001 and has kept its lead ever since. As of last June, JPMorgan boasted some $40 billion, or 15.3%, of deposits in the market. In comparison, LaSalle has just under $37 billion, and its share of deposits in the Chicago-area market has stalled at about 14% in recent years.

Meanwhile, the No. 3 bank in the market, Bank of Montreal's Harris unit, has been nipping at LaSalle's heels. Harris doubled its share of deposits in the Chicago market from just 4.6% in 2001 to a 9.53% share, or $24.9 billion, as of last June, the most recent figures available.

Still, LaSalle—a big name in Chicago because of its sponsorship of the Chicago Marathon and generous patronage of the arts in the city—is a proven moneymaker that could serve as a potent base for expansion throughout the Midwest. If Bank of America took over LaSalle, it would rebrand the bank as Bank of America, which has virtually no presence in the Chicago area, and goose its growth, promises BofA Chief Executive Kenneth Lewis. If Royal Bank won, it would fold LaSalle into its Citizens Bank operations, which are big in the Northeast, and similarly would try to expand the franchise.

New Offer May Scotch the Deal

The bank is at the center of the global fight for ABN Amro. The big Dutch banking combine cut a deal to sell itself to Barclays for about $88 billion and then reduce the total cost to Barclays by selling LaSalle to Bank of America for $21 billion. Now, however, a consortium led by Royal Bank of Scotland aims to upset that deal with an uninvited $98.6 billion takeover offer. The Scottish bank would keep LaSalle, while a couple of partners would carve up the remaining ABN Amro operations around the world (see, 4/26/07, "The Making of a Monolith").

Investors have been enraged at ABN Amro CEO Rijkman Groenink's plan to sell LaSalle to Bank of America and sell the rest of the company to Barclays despite the more lucrative offer from the Royal Bank group. At an angry shareholder meeting in the Hague, Netherlands, on Apr. 26, one investor charged the stage and was sent back to his seat by guards. He threatened legal action to block the deal if the Dutch bank insists on going forward with it. Groenink said he would welcome a formal bid from Royal Bank for LaSalle or for all of ABN.

No matter who wins the tussle, Chicago is ripe for bank consolidation. For years, Illinois had antiquated regulations that blocked banks from having any branches. Even though the rules have been reversed, there remain hundreds of small banks scattered throughout the state that could be scooped up by an acquisition-minded titan. Scores of such banks now operate in the area with less than a single point of market share each.

BofA Sees Greener Pastures

That may be why BofA chief Lewis took such a tough tone in an Apr. 23 conference call with analysts about his deal to buy LaSalle. Saying that LaSalle's retail banking operation has "materially underpenetrated Chicago," he argued that BofA would "materially improve the performance at LaSalle through our broader and more sophisticated platform on both the commercial and retail side."

To be sure, over the nearly 30 years that it has owned LaSalle, ABN Amro has driven a lot of regional consolidation stretching outside Illinois. LaSalle did become one of the 20 biggest bank holding companies in the U.S. as its Dutch owner added banks from Michigan and Indiana. Indeed, LaSalle's Michigan unit has become the leading bank in the Detroit area, with some $20 billion in deposits, or about 23% of the market, according to the FDIC. Overall, LaSalle boasts about $113 billion in assets and it generated just over $1 billion in net income last year.

But the outfit as a whole has "needed some repairs," according to ABN's Groenink. American Banker newspaper quoted him as saying the U.S. operation would "deteriorate over time" because of strengthening super-regionals and national players. "So for us it was a matter of time whether we would sell LaSalle," Groenink said.

Peripheral as it seems to ABN Amro, LaSalle could wind up playing a spoiler role in the global battle. ABN Amro's managers have favored the Barclays deal, and seem to have arranged the sale to BofA to help make it happen. But the richer offer that the Royal Bank group is making depends on Royal Bank being able to take over the Chicago banking operation. For its part, BofA argues that it has a legally solid deal and it will collect a $210 million breakup fee if it doesn't win LaSalle. Either way, Chicagoans are looking at a new owner who is likely to breathe new life into their sleepy hometown bank.

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