Bank of America (NYSE:BAC) has inked a deal to sell 29 of its branches across four American states along with the corresponding customer deposits and some of the loans to the Fayetteville-based Arvest Bank. ((Arvest to Acquire 29 Banking Locations in Four States, Arvest Blog, Dec 13 2012)) The branches spread across the states of Arkansas, Missouri, Oklahoma and Kansas had most likely been earmarked for an exit by Bank of America, as part of its Project New BAC plan to improve the efficiency of its extensive business in the country.
We maintain a $10 price estimate for Bank of America’s stock, which is about 5% below current market prices.
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Bank of America became the first consumer bank to have a coast-to-coast presence in the U.S., thanks to the long list of acquisitions it undertook in the last two decades of the 20th century.  But the strategy of inorganic growth back-fired for the bank in the wake of the global economic downturn, as the wide network turned out to be a liability ending up as a drag on the bottom line.
The bank outlined the possibility of selling some of its branches to raise quick cash to the Federal Reserve earlier this year, and finding ready takers for some of its branches among regional banks, it went ahead with a series of branch sales over the year. The bank targets shutting about 750 of its less profitable branches in sparsely populated regions over the next few years. And according to its latest quarterly SEC filing, it has already achieved about a quarter of its goal, as the number of branches at the end of September 2012 was 5,540 compared to 5,715 branches a year ago – a reduction in 175 branches.
Like all the other branch sale deals, the Arvest deal will result in a reduction in Bank of America’s deposit base, along with a small reduction in the size of outstanding loans. But the bigger advantage comes in a way of improvement in margins for the overall consumer banking division.Notes:
- BofA told Fed it could sell branches in emergency: source, Reuters, Jan 13 2012 [↩]