Bank of America Corp. (BAC) on Monday said it will buy U.S. Trust Corp., the private banking unit of Charles Schwab Corp.(SCHW), for $3.3 billion to expand in the lucrative business of managing money for wealthy people.

The all-cash transaction will vault Bank of America ahead of JPMorgan Chase & Co. to create the largest U.S. private banking business, with $261 billion of assets under management, Bank of America said.

Bank of America ranks second with $167 billion, while U.S. Trust ranks fourth with $94 billion. Adding U.S. Trust "enhances our credibility" in wealth management, Bank of America Chief Executive Kenneth Lewis said in a statement.

Charlotte, North Carolina-based Bank of America, the No. 2 U.S. bank, is using its size and distribution network, including 5,722 branches, to expand in areas where it has not traditionally been dominant.

It will combine U.S. Trust with its private banking unit under the direction of Peter Scaturro, U.S. Trust's chief executive. He will report to Brian Moynihan, Bank of America's wealth and investment management chief. Private banking generates about one-tenth of Bank of America's profit and revenue.

"The idea is to build a dominant wealth-management franchise," Scaturro said on a conference call. "The U.S. is a big place with a lot of money."

The purchase values U.S. Trust at 2.5 times book value and may add 1 cent per share to Bank of America's earnings by 2008, Bank of America said. It expects the deal to close around March 31.

PRICEY?

Analysts viewed the transaction as pricey. Schwab acquired U.S. Trust for $2.9 billion in May 2000, just after the peak of a bull market in equities.

"By any metric, particularly 33 times (annual earnings), Schwab is getting a robust price, likely reflecting the potential for the buyer to gain expense and revenue synergies that never really materialized for Schwab," wrote David Trone, an analyst for Fox-Pitt Kelton Inc.

The combined business will employ about 4,400 people. Moynihan expects some cost-cutting in back-office operations, and "relatively modest" attrition among U.S. Trust customers.

For Schwab, the deal frees up cash to focus on individual investors as intense competition among brokerages drives commissions lower.

Bank of America last month started to roll out free online stock trading for customers who deposit $25,000 with the bank, causing shares of discount rivals such as Schwab to fall.

Schwab expects to receive $2.5 billion after taxes from the deal, and realize a $1.9 billion pre-tax gain.

Charles Schwab, who runs his namesake firm, said he plans to remain a U.S. Trust client. He was not immediately available for further comment.

In morning trading, Schwab shares rose 27 cents to $18.83, while Bank of America rose 2 cents to $54.87.

ADVISER TO THE RICH

U.S. Trust is one of the best-known wealth management names, famed for handling money of families like the Astors.

The firm was founded in 1853 by industrialist Peter Cooper, railroad developer Erastus Corning, dry goods merchant Marshall Field, and others.

Bank of America said adding U.S. Trust's $9 billion of deposits will not cause it to breach U.S. regulatory limits on deposits. The bank, which has more than 9 percent of all U.S. bank deposits, cannot make a purchase that sends it above 10 percent.

The purchase could help Bank of America surpass Citigroup Inc. to become the world's largest bank by market value. Citigroup's market capitalization was $249.6 billion on Friday, while Bank of America's was $246.3 billion, Reuters data show.

Northern Trust Corp. ranks third in U.S. private banking, while Citigroup ranks sixth, Bank of America said.

For Scaturro, the merger is a vindication of sorts. Citigroup ousted him in 2004 in an ethics scandal involving its Japanese private bank, without accusing him of wrongdoing. He will now compete directly with his former employer.

Schwab itself was bought by Bank of America in 1983 but split off in 1987 in a $280 million management-led buyout.