The Wall Street Journal reports that, following the announcement that Bank of America is to acquire FleetBoston, Bank of America's stock has fallen around 11%, eating up much of the 18% gain seen in the bank's shares this year. There are also claims of insider dealing - allegations that a former FleetBoston employee, said to be 'in-the-know' on the deal, and some of his relatives purchased Fleet call options on the quick and saw their investments surge when news of the deal was subsequently announced.
The problem for Bank of America is that it has paid a 43% premium to buy Fleet - the offer price is 43% higher than Fleet was trading immediately before the deal was announced. Investors are concerned that the new combined bank will struggle to avoid diluting future earnings. They question whether revenues can be boosted in the short-term and exactly how costs can be cut by $1.1bn given that the banks have said that they will not be cutting that many jobs.
On the insider-dealing front, US regulator The Securities & Exchange Commission (SEC) has accused a former employee of Fleet's Buenos Aires office of using inside information to rake in profits of up to $1m. Unfortunately for the former employee and his family, their accounts were frozen before the options transactions were concluded. The SEC will now seek to unwind the trades and pursue civil penalties against the alleged lawbreakers.