Gifford, 60, is focusing on the company’s U.S. consumer
businesses — credit cards, home equity loans and mortgages — as
he tries to recover from $2.4 billion in losses triggered by
Argentina’s debt default, and a three-year decline in stocks.
FleetBoston shut its technology-focused Robertson Stephens
investment bank in 2002 and is eliminating 1,900 jobs this year.
“Are they better off than they were two years ago? Yes,”
said Bill Batcheller, who helps manage $89 billion for National
City Corp., including 1.9 million shares of FleetBoston. “There
aren’t too many people under pressure to do deals, which gives
management time to consider their strategic moves.”
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A surge in bad loans at Boston-based FleetBoston forced it to
set aside $2.8 billion for loan losses last year, fueling
speculation among investors that the company would be sold.
Gifford has said he wants the bank to stay independent, and
selling more to U.S. consumers will help achieve that goal.
Bank’s Independence
In 2002, FleetBoston paid Gifford a salary of $992,000 and
did not give him a bonus because of the bank’s “disappointing
financial performance.” Gifford declined a request for an
interview, spokesman James Mahoney said.
Potential acquirers may include Citigroup Inc., Bank of
America Corp. and Wells Fargo & Co., according to Robert Morris,
who helps manage $46.6 billion at Lord Abbett & Co., including 11
million FleetBoston shares. Others candidates may include J.P.
Morgan Chase & Co., Wachovia Corp., Royal Bank of Scotland Group
Plc and HSBC Holdings Plc, he said.
While Wells Fargo CEO Richard Kovacevich declined to comment
on specific acquisitions, he said in an interview potential
sellers of financial companies “have wanted prices higher than we
thought the deals were worth.”
Wells Fargo will report tomorrow second-quarter earnings rose
11 percent to 91 cents a share, according to a Thomson Financial
survey of analysts. The fourth-biggest U.S. bank and the largest
mortgage lender benefited as the lowest mortgage rates on record
extended a refinancing boom.
For FleetBoston, scaling back the Latin America and student
loan businesses and closing Robertson Stephens helped earnings and
shares. It’s the fourth-best performer in the KBW Philadelphia
Bank Index after J.P. Morgan Chase & Co., Zions Bancorp and
Citigroup, returning 28 percent this year.
That may give Gifford more time to evaluate whether to sell
the bank, the biggest in New England, or let it stand on its own.
“I don’t think a sale is likely in the near term,” said
Goldberg from Lehman, owner of about 370,000 FleetBoston shares as
of March 31. “It’s a good market and they have good products.
They just have to tie it all together.”
Gifford was named chief executive in December 2001 after net
income that year plunged 76 percent, the largest decline among the
10 biggest U.S. banks.
Gifford needs to boost return on equity, a measure of how
well a company uses reinvested earning, to keep suitors at bay,
said Gerard Cassidy, an analyst at RBC Capital Markets, which
rates Fleet a “strong buy.”
Return on Equity
FleetBoston’s return on equity for the 12 months through the
first quarter was 5.85 percent, compared with an average of 16.19
percent for the 24 members of the KBW Philadelphia Bank Index,
according to Bloomberg data. Only J.P. Morgan Chase & Co. is
lower, at 4.94 percent.
“There’s continued pressure on any large bank in the U.S.
that is not delivering adequate returns,” said Cassidy.
“Management acknowledged that if they can’t achieve adequate
returns measured by return on equity or return on assets that they
will have to consider a sale of the company.”
The company must also avoid future loan losses in Latin
America. FleetBoston had total assets in Argentina of $3.4 billion
in the first quarter of 2003 down from $3.7 billion in the fourth
quarter of last year. It had total assets in Brazil of $9 billion
during the same period down from $9.1 billion in the fourth
quarter.
`Credit Quality’
“There’s still a bit of the exposure to credit quality on
its books,” Betsy Graseck, an analyst Morgan Stanley, who rates
FleetBoston “underweight/cautious.” “I wouldn’t be surprised if
they had more losses in the future.”
By focusing on retail banking, FleetBoston’s deposits rose 3
percent to $129.6 billion in the first quarter from $125.8 billion
at year-end 2002, according to company filings. In contrast, rival
Wachovia Corp.’s deposits rose 2 percent to $195.8 billion in the
first quarter from $191.5 billion at year-end 2002.
Gifford may not have much time to prove to investors that his
turnaround plan is succeeding.
“The market believes they are beginning to solve their
problems,” said Frank Cappiello, president of McCullough Andrews
& Cappiello, a Baltimore-based money manager “If this company
doesn’t work things out, it’s going to be bought.”
Bloomberg News
