Analysts wonder whether Boston pops BofA's string.

• Author: Speizer, Irwin
• Position: Money Matters

Most Bank of America Corp. investors kept their faith in the state's biggest bank holding company when it said it would set aside $100 million to pay for damage caused by a mutual-fund scandal. What they're less tolerant of, it seems, are big mergers.

BofA (NYSE: BAC) is in hot water with regulators over a scheme that let Canary Capital Partners hedge fund buy shares of BofA-run mutual funds at day-old prices. In exchange, Canary parked millions of dollars in the bank's bond funds.

Shares slipped just 4% after news of the scandal broke in early September. Within two weeks, the price had bounced back.

But after BofA said in October that it was buying FleetBoston Financial for $47 billion in stock, its stock dropped more than 10%, plummeting from $81.86 to $72.45 within a few days. Bargain hunters stepped in to hoist the price, but it was still trading at about $76 two weeks later. Analysts didn't like the high price BofA was paying--a 42% premium--and questioned the $1.1 billion-a-year after-tax savings the bank said it could wring out by 2005.

Doubting Thomases have often criticized BofA, contending that it paid too much for acquisitions and inflated savings estimates. But the company won over many of them by boosting efficiency after mergers and delivering fat earnings--$2.9 billion...