Bank of New York Co. is close to selling about 300 branch offices to J.P. Morgan Chase & Co. in a deal that could be worth $4 billion, CNBC reported Thursday.
Spokesmen for Bank of New York and J.P. Morgan, the third-largest U.S. bank, declined to comment.
Bank of New York is one of the largest retail banks in the New York metropolitan area with 342 branches and about 700,000 households.
But collecting deposits and making loans to consumers for more than a decade has been a sideline to its primary business: selling securities services to mutual funds and other institutional investors.
Bank of New York’s retail banking generated $895 million in revenue last year, roughly 10 percent of its total revenue.
A possible deal “makes an enormous amount of sense,” said Punk, Ziegel & Co. analyst Richard Bove. “It’s something Bank of New York should do and it’s something J.P. Morgan should do. Everyone agrees it would be a win-win.”
Ryan Beck & Co. analyst Jacqueline Reeves noted if the branches fetch $4 billion, that would represent about a 26 percent premium on the bank’s deposits. For a straight branch transaction, “that’s on the higher side,” she said.
Capital One Financial Corp.’s announced $14.6 billion acquisition of North Fork Bancorp Inc., a Long Island-based regional bank, represents a 34 percent deposit premium, Reeves said.
The venerable bank, founded in 1784 by Alexander Hamilton, for many years has been under pressure to exit the retail banking business, which is subject to interest rate swings and is less profitable than securities processing.
Last week Prudential Equity Group analyst Mike Mayo said Bank of New York should spin off its retail bank. Mayo said the bank had “neglected” the business, which dragged down overall results, and used it as a “cash cow.”
Mayo valued the retail bank at $4 billion.
Reeves said a $4 billion deal “would be great,” with Bank of New York using the freed-up capital for stock buybacks or to acquire more securities-processing businesses.
But Bank of New York has been adamant over the years that the branches helped attract cheap deposits and lucrative business customers. Most of the country’s largest banks are investing to expand their retail banking businesses.
J.P. Morgan, on its end, would benefit by adding deposits and customers and then slashing costs by shutting down hundreds of redundant branches.
Morgan’s retail finance services comprised roughly 14 percent of the company’s $10.5 billion in operating earnings last year.
Chase has 2,641 branches across the United States, bolstered by its July 2004 takeover of Bank One.