BankAmerica to Acquire Continental Bank : Mergers: BofA’s parent agrees to pay $1.9 billion for Chicago institution. California customers are unlikely to be affected.

Consumer banking giant BankAmerica Corp. on Friday took a cross-country leap to expand its corporate banking business by agreeing to buy Continental Bank Corp. of Chicago for $1.9 billion in cash and stock.

San Francisco-based BankAmerica is the parent of Bank of America and, with $187 billion in assets and 2,000 branches in 10 states, the nation’s second-largest bank holding company, behind New York-based Citicorp, which has assets exceeding $221 billion.

Continental, whose $22.6 billion in assets place it 33rd among U.S. banks, is Chicago’s oldest bank. But it does not operate retail branches, focusing instead on providing financing for medium-sized and large corporations, particularly in the Midwest.

As a result, the merger is expected to have little or no impact on BankAmerica’s millions of retail customers in California and elsewhere who have checking accounts, credit cards and loans with the bank.

“If you’re a BofA customer, you’re not going to feel a thing,” said Bert Ely, a banking consultant in Alexandria, Va.

In corporate banking circles, however, the union could give BankAmerica a major competitive lift.

The merger “may cause the people in New York to quit referring to BofA as a regional bank,” said Stephen McLin, a former BankAmerica executive who is now president of America First Financial Corp. in San Francisco.

If so, the deal would be the latest feather in the cap of BankAmerica’s feisty chairman, Richard M. Rosenberg, who led BankAmerica’s own recovery from near ruin in the late 1980s and turned it into an enormous financial powerhouse.

His previous biggest move was BankAmerica’s blockbuster purchase two years ago of California rival Security Pacific Corp. for $5 billion.

The Continental merger was also actively pursued by Lewis W. Coleman, BankAmerica’s vice chairman, an odds-on favorite to eventually succeed Rosenberg and a longtime friend of Continental Bank Chairman Thomas C. Theobald, according to sources close to the banks who asked not to be identified.

Although this merger would not require the massive layoffs seen after BankAmerica bought Security Pacific, the companies said their marriage would eliminate between 500 and 800 jobs over the next two years. BankAmerica employs 96,400 people worldwide; Continental has 4,200 in several U.S. and Latin American cities and in London and Tokyo.

Among those leaving would be Theobald, who said he would resign after the merger. Continental would be renamed Bank of America Illinois and would be headed by a Continental vice chairman, William M. Goodyear.

Under the agreement, BankAmerica said, it would acquire Continental for 21.25 million shares of its common stock and $939 million in cash, giving the deal a current indicated value of $35.80 per Continental share.

After the announcement, Continental’s stock soared $6.125 a share to $34, while BankAmerica slipped $.375 cents to $45.375, both in New York Stock Exchange composite trading.

While the merger represents a shift for BankAmerica, which has generally aimed at expanding its base in the West, it would also be only the latest step in the industry’s overall migration toward interstate banking.

Owing to a glut of financial institutions and relaxing interstate banking regulations, BankAmerica and several other big banks have been rapidly buying financial institutions to enhance their competitive positions nationwide.

But unlike most of the previous big mergers, BankAmerica’s purchase of Continental would not involve the task of blending two banks’ multi-state networks of branch offices.

BankAmerica’s purchase would also come after Continental achieved a remarkable comeback from a decade ago. Then called Continental Illinois Corp., the bank nearly collapsed under a mountain of bad loans in 1984 and required a multibillion-dollar bailout by the federal government that was not completed until 1991.

By instantly gaining Continental’s foothold in the Midwest, BankAmerica would bolster its share of a corporate lending market that includes such other “super-regional” banking companies as Banc One and NationsBank, which have also been aggressively buying other banks.

The Continental deal would also help BankAmerica’s competitive stature against the likes of venerable New York-based banks Morgan Guaranty Trust Co. and Bankers Trust New York Corp., which are leading specialists in providing corporations with financing.

Among Continental’s California-based customers are Vons Cos. and Unocal Corp.; its Midwest clients include Illinois Power Co. and UAL Corp., the parent of United Airlines.

Barry Rubens, president of California Research Corp., a consulting firm in Santa Monica, said another benefit of the merger is that it “makes BofA’s profits less dependent on California’s economy. The Midwest is doing super now, but it could take three or four years for California’s economy to turn around.”

But others questioned how well BankAmerica’s corporate bankers can work with their new Midwest colleagues.

“It will be interesting to see how those cultures will be able to merge,” said William C. Ferguson, president of the bank research firm Ferguson & Co. in Irving, Tex.

In a nod toward Continental’s recovery, BankAmerica said that after the merger it would move its corporate banking arm from San Francisco to Chicago and merge it with Continental’s.

Although BankAmerica stressed that it doesn’t plan to break into consumer banking in the Midwest, some analysts said it could change its mind.

“The bank might wait a year or so to digest this merger, but I wouldn’t be surprised if they buy a retail bank here in the future,” said Tom Mair, an analyst with Kemper Securities Inc. in Chicago.

Times staff writer David W. Myers contributed to this story.