FleetBoston: Bait?

FleetBoston Financial (FBF ), with assets of $202 billion, has become the eighth-largest U.S. financial holding company and the dominant bank in New England--mainly through acquisitions. Now, there is buzz that it may be a target of Citigroup, HSBC Holdings, or Wells Fargo. FleetBoston was formed by the 1999 merger of Fleet Financial Group and BankBoston. Then in March, 2001, FleetBoston acquired New Jersey's leader, Summit Bancorp. Behind the acquisitions is CEO Terence Murray, who will step down at yearend, as prearranged, to make way for Charles Gifford, head of BankBoston, as the next CEO. Murray opposed selling FleetBoston, but Gifford, say some pros, could be more amenable.

FleetBoston has 1,200 branches in the Northeast and 150 in Latin America. Peter Gulli, of New York's Dalton, Greiner, Harman, Maher, says any bank that wants a foothold in the Northeast will find FleetBoston alluring. That would appeal to San Francisco's Wells Fargo. And FleetBoston's Latin presence could be formidable sources of growth for Citigroup. And HSBC is expanding worldwide.

FleetBoston fell from 42 a share in late May to 34 in mid-August. But in recent weeks, it has edged up to 37, partly reflecting accumulation by investors who see a buyout. "Traders betting on a deal have been buying heavily--shares and call options," says one trader. Gulli says that even without a deal, FleetBoston is an enticing value play--trading at a discount to its peers. The price-earnings ratio of 11, based on estimated 2001 earnings, is lower than the bank average of 16, says Gulli. FleetBoston declined comment.

By Gene G. Marcial

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