Bank of America Corp.'s pain could be community banks' branching gain.
Now that the troubled megabank plans to slash 30,000 jobs and $5 billion of costs in its consumer operations over the next few years, it is expected to start unloading hundreds of branches.
They are one of the few resources where B of A's cup runneth over. It operated about 5,900 offices nationwide as of June 30, second only to Wells Fargo & Co.
Many B of A branches occupy prime real estate and would be attractive to community banks looking to expand, bankers and consultants said.
The B of A branch sale will start soon, predicted John Koelmel, president and chief executive of First Niagara Financial Group Inc. of Buffalo, N.Y.
"I've been very public over the last couple of years that the larger banks need to rightsize their business model and balance sheets, and they need to shed some assets," said Koelmel, whose bank has $31 billion of assets. "Organizations like ours that are focused on creating scale will have an opportunity to play off that."
Since taking over last year, CEO Brian Moynihan has embarked on a streamlining campaign, selling off nearly $40 billion of assets to boost B of A's capital level, including its credit card business in Canada and half its stake in a Chinese bank.
Moynihan said during an analysts' conference call last month that B of A will close about 750 branches nationwide. It has not publicly put the offices on the auction block, and it is unclear what portion of the branches are leased space and what will be packaged with them.
But logic dictates that B of A will sell the real estate as well as the assets and liabilities attached to those branches, said Rochdale Securities analyst Richard Bove.
"Selling these branches with their deposits and loans makes a hell of a lot of sense," Bove said. "Bank of America doesn't need the cash, but they need to shrink the size of their balance sheet."
Other executives besides Koelmel have their antennae raised.
"I'm sure it will be a great opportunity for growth for some community banks," said Ray Davis, president and chief executive of Umpqua Holdings Corp., which has $11.5 billion of assets.
Davis added that he has not yet examined a possible acquisition of B of A's branches, but said, "if there is an opportunity, then we would look at it."
Umpqua may covet Bank of America's position in Umpqua's hometown of Portland, Ore., as it has the leading retail deposit market share in the state's largest city, with a 21.5% share.
Of course, B of A is the king of the hill in plenty of U.S. cities, including Los Angeles, Dallas and Boston.
Most small to midsize banks would be more interested in acquiring leases from Bank of America than in the real estate itself, said Derek Cunningham, a managing director with investment bank Commerce Street Capital.
"If you put money into real estate, then it just sits there," Cunningham said.
Some of the company's offices are owned and some are leased, Bank of America spokeswoman Tara Burke said.
She did not provide specifics about when branches might be put up for sale or possible locations.
Some community banks that tried to expand into new markets by opening their own branches had to put those plans on hold when the recession hit, Cunningham said.
Now that B of A is likely to put branches up for sale, some of those community banks may be able to take those plans out of mothballs.
Alternatively, a big bank, such as a U.S. Bancorp, might try to buy all Bank of America's branches in a specific city in order to gain access to a new market, Cunningham said.
Bank of America does not need the offices it has slated for closure, nor the deposits that come with the branches, Bove said.
As of June 30, B of A's ratio of net loans and leases to deposits stood at 68.34%.
It has plenty of liquidity to meet the potential cost of legal settlements concerning Countrywide subprime mortgages and other matters. But what the company needs is a stronger capital position, he said.
"They can't reduce their capital and maintain their standing with various regulatory authorities, so they have to reduce risk-weighted assets," Bove said.
Bank of America's vast real estate holdings underscore its systemic standing.
The Charlotte, N.C., bank owns or leases roughly 120 million square feet — equal to 43 Empire State Buildings — in 26,910 locations globally.
The holdings include approximately 112 million square feet in the 50 U.S. states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico, according to its annual filing with the Securities and Exchange Commission.
