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Bank's plans unclear after LaSalle buy: Bank of America unlikely to grow local retail biz, but lending office should stay, industry observers say

October 29, 2007

But here in Indianapolis, where LaSalle's lone location is a downtown commercial lending office, banking observers don't expect Bank of America retail outlets to follow.

"I don't think [Indianapolis] will be a primary focus, at least not in the near term," said Tom Kersting, an Edward Jones analyst in St. Louis who follows the bank. "Their main purpose in making the purchase was getting the Chicago presence. That was the last major market they were lacking."

Even so, observers say Bank of America would be wise to leave LaSalle Bank's commercial lending operations in Indianapolis intact. The local office started its commercial lending and commercial real estate operations in 1996 and 1997, respectively, and since has built a sizable niche in the midsize commercial loan market.

LaSalle has grown by going after middle-market corporate financing, with services including unsecured, cash- flow and commercial real-estate lending. Indiana, with a large manufacturing base, has a strong middle market, experts said, making the office's continued outlook in the region bright.

The bank employs roughly 20 people locally and is led by Keith Slifer, who once told IBJ most of its transactions are $2 million to $30 million apiece. IBJ reported in March of last year that its Indiana portfolio included $2.5 billion in commercial real estate and $1 billion in commercial banking, making it one of the largest commercial lenders in the state.

Slifer did not return phone calls seeking comment on the acquisition or his banking future. But local banking veteran Steve Beck, Chicago-based Geneva Capital Corp.'s managing director for Indiana, said LaSalle's local staff is well-respected in the industry.

"I can't imagine Bank of America would screw with it," said Beck, who has led commercial lending efforts at several Indianapolis-area banks during his 38-year career. "LaSalle approaches lending like we used to 20 years ago, in that they immerse their leaders into a sector they specialize in and really get to know it. They become an adviser as much as a lender."

"If it's doing well and it's a profitable business, it's appealing," said John Reed, president of David A. Noyes & Co.'s Investment Banking Group. "Often, and certainly in the last few years, banks are very hungry for quality loans."

The Charlotte, N.C.-based Bank of America completed its acquisition of LaSalle parent and Netherlands-based ABN Amro Holding NV Oct. 1, ending an era for the popular Chicago bank franchise. With more than $36.4 billion in deposits and 140 retail branches, LaSalle is the second-largest bank in the Windy City.

Retail branches doubtful

In addition, the deal gives Bank of America significant market share in Michigan, where it absorbed 256 LaSalle locations. By comparison, LaSalle's presence in Indiana is much smaller and consists of just four retail branches in South Bend and two in Elkhart.

A Bank of America spokesman said it is too early after the purchase to assess its Indianapolis plans. But Mike Renninger, principal of Renninger & Associates LLC, a Carmel consulting firm specializing in mergers and acquisitions, doubts an expansion is in the offing.

"There's a lot of interest in central Indiana ... but would central Indiana be the first place Bank of America would choose to go?" he asked. "They may see more dynamic areas to pursue growth."

Yet, many banking players in the Indianapolis market are expanding, even amid consolidation in the industry nationwide. During the past 10 years, the number of banks taking deposits in the metropolitan area has grown from 41 to 56, according to annual data from the Federal Deposit Insurance Corp.

Analysts attribute much of the growth to smaller banks and startups that are trying to pick off customers amid the wave of big-bank mergers over the past decade.

Locally, Milwaukee-based Marshall & Ilsley Corp.'s purchase of First Indiana Corp., the city's largest locally owned bank, is the latest in a string of deals to further alter the banking landscape.

Others include the acquisition of Union Federal Bank of Indianapolis last October by Bowling Green, Ohio-based Sky Financial Group Inc., which was snapped up just nine months later by Columbus, Ohiobased Huntington Bank.

In their stead, Providence, R.I.-based Charter One Bank, Union Savings Bank in Cincinnati, and locally based Symphony Bank are among the newcomers who have entered the market through expansion, not acquisition, the past five years.

Deposits at limit

Bank of America, however, would be more apt to enter Indianapolis via acquisition, if it could. Its purchase of LaSalle puts the bank at the 10-percent deposit cap, meaning customer deposits now make up 10 percent of the U.S. total.

A federal law passed in 1994 prohibits U.S. banks from exceeding 10 percent of the country's deposits through acquisition, but banks are allowed to exceed that mark through their own growth.

"What are they going to buy in Indianapolis?" Kersting at Edward Jones asked. "The logical answer is nothing, because they can't."

Bank of America earlier this year backed off its efforts to have the cap repealed after disseminating a position paper on the issue.

It contends the cap unfairly puts U.S. banks at a disadvantage in three ways: It can prevent them from acquiring foreign banks that hold U.S. deposits; it can limit potential merger partners of a U.S. bank to foreign banks; and it could put large U.S. banks at risk of being acquired by foreign banks, which aren't as restricted by the cap.

Nationally, Bank of America has 5,700 branches in the United States, twice as many as Chase, ranking it largest in terms of locations.

LaSalle's bank branches will be transformed to Bank of America sites starting early next year.
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