updated 11/20/2006 8:36:08 AM ET 2006-11-20T13:36:08

Bank of America Corp., the No. 2 U.S. bank, on Monday said it agreed to buy U.S. Trust Corp., the private banking unit of Charles Schwab Corp. , for $3.3 billion to expand in the lucrative business of managing money for wealthy people.

The purchase would create the largest U.S. private banking business, with $261 billion of assets under management, Bank of America said. Bank of America has about $167 billion of assets under management, ranking second, while U.S. Trust has $94 billion, ranking fourth, the companies said.

Adding U.S. Trust “enhances our credibility in this market (and) adds scale,” Bank of America Chief Executive Kenneth Lewis said in a statement.

Charlotte, North Carolina-based Bank of America is using its size and distribution network, including 5,722 branches, to expand in areas where it has not traditionally been dominant.

For Schwab, the deal frees up cash as intensifying competition among brokerages for market share, including from Bank of America, drives commissions lower.

Bank of America last month introduced free online stock trades for many customers, causing shares of discount rivals such as Schwab to fall.

Schwab expects to receive $2.5 billion of after-tax proceeds from the transaction, and realize a $1.9 billion pre-tax gain. It acquired U.S. Trust for $2.9 billion in 2000.

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