Bank of America (US)

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Bank of America has become one of the biggest financial institutions in the US as a result of a string of acquisitions which turned what was originally a small regional player into a national giant. It is arguably the country's leading retail bank, the #1 in consumer deposits, and one of the top two in credit card lending and small business banking. However several of its acquisitions during the 2000s also loaded the business with significant problems. These caused it to lose its position as the overall #1 US bank in 2011 to more stable rival JP Morgan Chase. The two most significant purchases were bolted on in 2008 as the economy slid from bad to worse. The group stepped in to acquire struggling mortgage lender Countrywide Financial, becoming America's #1 in that sector, but also the overseer of thousands of toxic home loans which should never have been issued in the first place. Then, in its boldest deal to-date, it agreed to rescue ailing investment giant Merrill Lynch for $50bn in stock. That controversial merger, completed at the very beginning of 2009, established BofA as the undisputed leader in retail brokerage and wealth management. Yet it also generated a public dispute over the quality of its due diligence when the bank was forced to make substantial additional writedowns in connection with Merrill's soaring liabilities. It took almost another four years for BofA to regain its pre-2008 stability.

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Adbrands Weekly Update 19th Oct 2017: US banks mostly had a great quarter, as consumer and business lending offset generally lacklustre trading and investment results. JPMorgan Chase led the pack as usual with profits up 7% to $6.7bn on revenues up 3% to $26.2bn, well ahead of expectations. That was despite a shock 21% fall in trading revenues. Bank of America too beat expectations, with net profit of $5.6bn on revenues of $21.8bn. Citi delivered profit of $4.1bn on revenues of $18.2bn. Morgan Stanley also beat predictions as a result of strong performance in wealth management. Perhaps surprisingly, even Goldman Sachs - which has minimal exposure to consumer lending - also did well, with revenues ahead of expectations despite the trading downturn and profits exactly as predicted. The big disappointment - again - was Wells Fargo, still struggling with the fallout from its sales practises scandal. Given its business profile, it should have been the bank most likely to benefit from rises in lending, but actually total loans slipped by 1% year-on-year, compared to gains of 2% to 3% at the other lenders; consumer loans alone were down 3%. Revenues slipped back to $21.9bn - lower than analysts had been anticipating and putting the bank at risk of losing its second place position to BofA - while net profits slumped by 19% year-on-year to $4.6bn as a result of a $1bn charge against regulatory investigations.

Adbrands Weekly Update 20th Jul 2017: Investors had been expecting a weak set of results from the big US banks, with predictions of a sharp slowdown in performance as the initial "Trump Bump" lifting the markets fizzled out during 2Q. In fact, that wasn't the case at all, as a long-awaited surge in consumer and commercial lending, and higher short-term interest rates, offset declines in non-equity investment trading. JP Morgan Chase led the charge with record quarterly profits of over $7bn, up 13% against the year ago period, while revenues topped $26.4bn, well above expectations. Citigroup continued its positive streak with a 2% lift in revenues to $17.9bn as a result of what it called "broad-based" growth in loans across regions and products. Net income slipped 3% as a result of the pullback in currency, stocks and bonds trading but was still better than had been feared at $3.9bn. Wells Fargo continued to put the sales practises scandal behind it with better than expected earnings of $5.8bn, the first increase for almost two years. However revenues were slightly weaker than predicted at $22.2bn. Bank of America delivered a 10% increase in net income to $5.3bn on revenues up 7% to $22.8bn; both figures were higher than consensus expectations. Investment and wealth specialist Morgan Stanley also beat expectations in all its divisions, with revenues of $9.5bn and net income of $1.8bn. The biggest disappointment was Goldman Sachs, the bank most exposed to fixed income and currency trading, and with the lowest consumer and commercial exposure. It reported a second consecutive weak quarter, with fixed income trading revenues plunging by a shock 40%, while its commodities trading unit suffered its worst quarter for at least 17 years. Traditional rival Morgan Stanley - which has long languished in Goldman's shadow - outpaced its competitor for the second straight quarter. Those metrics overshadowed what were otherwise better than expected revenues and net income from Goldman, prompting a sharp sell-off of its shares and renewed concern over the famed investment bank's strategy.

Adbrands Weekly Update 20th Apr 2017: Most US banks continued to enjoy a strong boost from soaring post-election markets, aided by weak comps from the year ago quarter. JP Morgan Chase and Citigroup both reported a 17% jump in profits for 1Q, well ahead of expectations. Investment trading and modest recent upticks in lending rates both contributed to growth. JP Morgan's revenues rose 6% and Citi's by almost 3%, also both ahead of consensus forecasts. Bank of America did even better, with profit soaring by 40% on a 7% lift in revenues, while Morgan Stanley enjoyed a spectacular near-71% jump in profits and a 25% surge in revenues. However, there are always losers as well as winners. News from Wells Fargo, still struggling to repair its reputation after the sales practises scandal, was less positive. Revenues dipped slightly and profits were flat, though still above expectations. The big surprise was Goldman Sachs, whose focus on investment banking should have guaranteed strong gains. In fact, results came in well below analysts' expectations, even if they were up strongly against a dismal year-ago quarter. Unlike rival banks, Goldman's revenues from bond and equity trading actually fell year-on-year. "We didn't navigate the quarter well," said newly appointed CFO Martin Chavez.

Adbrands Weekly Update 18th Jan 2017: Here come the 4Qs! As usual it was the US banks who kicked off the reporting season. Most appear to have enjoyed a strong boost from the extraordinary market rally which followed President-elect Trump's selection in early November. JP Morgan Chase reported a 24% jump in 4Q profits, driving up the full-year figure to a record $24.7bn, around 1% higher than the year before. Net income from investment banking for the year was up by more than a third. The biggest lift came from fixed income trading, offsetting a slight decline in the consumer retail banking division. Revenues edged up 2% to $95.7bn. Bank of America also enjoyed a lift, though analysts were disappointed that it wasn't as high as they'd hoped for in the final quarter. Nevertheless, a 13% uptick in net income for the year to $17.9bn was BofA's best result since 2006, on revenues up 1% to $83.7bn. Morgan Stanley and Goldman Sachs also reported stellar results. As expected, Wells Fargo reported a disappointing quarter, its first since the sales tactics scandal erupted in September. Full year net income slipped 4% to $21.94bn despite a 3% increase in revenues to $88.27bn. Despite a much-improved final quarter, Citigroup was even weaker for the year as a whole, with net income slumping 14% to $14.9bn and revenues down 8% at $69.9bn, as a result of higher provisions for credit losses and further eliminations of non-core businesses.

Adbrands Weekly Update 22nd Dec 2016: Lloyds Banking Group secured a deal to acquire Bank of America's UK credit card division MBNA for £1.9bn. That business has assets of around £7bn, and will increase revenues in Lloyds' already substantial credit card business by around £650m a year. Though MBNA will be kept as a separate operating unit, it will increase Lloyds' overall share of the UK credit card market by 11% to 26%, narrowly behind Barclaycard at around 28%.


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Background

Free for all users | see full profile for current activities: The modern Bank of America Corporation was founded in 1998 by the merger of BankAmerica Corporation with the fast-growing NationsBank of North Carolina. The resulting business became the country's first truly national banking institution, with a network of branch offices which then stretched from coast to coast, through 22 states.

For much of the first half of the 20th century, the first Bank of America dominated the country's banking industry, and put in place many of the systems which we now take for granted. Full credit for this goes to its founder, Amadeo Giannini, one of the first titans of the US financial services industry, who pioneered not only the concept of branch banking, but also diversification into other financial services, and above all the the idea of serving the needs of ordinary Americans rather than simply the wealthy.

The son of Italian immigrants, Giannini became part-owner of his stepfather's grocery store in San Francisco in his 20s, and through hard work, shrewd investments in property, and marriage into an independently wealthy family, was able to retire from that business in his 30s. He inherited from his father-in-law the directorship of a local savings bank, but resigned from that institution when his fellow directors refused to extend loans to ordinary working class families. At the time, this sort of risk was unheard of among traditional banks, who lent only to commercial entities or the wealthy. Instead, Giannini established his own institution, which he called the Bank of Italy, to manage savings and make loans to other immigrant families from the old country. Because these "little people" had no understanding of what a bank did, he promoted deposits and loans in person by ringing doorbells and buttonholing people on the street. However, business was slow until the catastrophic earthquake of 1906, which brought devastation to San Francisco but secured Giannini's future. When the earthquake struck, Giannini was quick-thinking enough to rescue around $2m of deposits from his company's safe in person. Hiding it under a bed of vegetables on a borrowed wagon, he took it back home for safekeeping. While other banks chose to remain closed until their safes could be rescued from the city's rubble, Giannini began trading again immediately, initially from a makeshift plank-and-barrel counter on the city's waterfront. Famously he offered loans to individuals and small businesses to rebuild their livelihoods on the strength of a handshake, and later claimed with pride that every loan he made on that basis had been repaid in full. 

This quickly established the Bank of Italy's reputation for trustworthiness and fair dealing, and led to a rapid growth in the business. Quickly Giannini came to realise that a bank which conducted business throughout the state would be less vulnerable to regional difficulties (such as earthquakes), and therefore would always be strong enough to lend to local communities when their need was greatest. To save his ordinary working customers the time and expense of having to travel across the city to visit the bank, Giannini established additional branch offices in and around San Francisco, the first bank in America to do so, and then began its presence into neighbouring cities. By 1920, Giannini's Bank of Italy had become California's biggest, but his ideas were frowned upon by more traditional rivals, whose business had begun to suffer from the expansion of the Bank of Italy's network. The creation of the Federal Reserve in 1917 and lobbying by other banks led to a ban on the creation of new branch offices, so Giannini sidestepped the regulators by acquiring or establishing new banks in other cities. When the restrictions on branch banking were lifted by the state of California in 1927, Giannini merged his various interests to form what he grandly titled the Bank of America. It was the first to establish a presence throughout the state of California, and played a major part in the development of the state's film and wine industries. Among other investments, Bank of Italy funded the launch of the United Artists movie studio in 1923, and loaned Disney the money to complete Snow White. In the 1930s, it was virtually the only bank to invest in the construction of San Francisco's Golden Gate Bridge.

Giannini's dream now was to establish the country's first national bank, and he set out to acquire or establish a series of other banks in neighbouring Western states. This created a new clash with federal regulators, so he established a holding company, Transamerica Corporation, in 1928 to control his various banking businesses as separate subsidiaries. He also diversified into other areas, acquiring insurance company Occidental Life in 1930, and launching another new innovation in 1936, time-plan instalment loans to let customers make capital purchases such as cars, household appliances or home improvements. The rapid expansion of California's population during World War II brought enormous benefits to the business and when Giannini finally retired in 1945, Bank of America had become the nation's biggest bank with assets of over $5bn. However its founder's consistent flouting of banking traditions, and his criticism of parochial interests and the grandees of Wall Street, led to repeated attempts by the financial establishment to curb Transamerica's development.

Nevertheless, the group's growth continued after Giannini's death in 1949, and by 1956 it controlled 23 banks in 11 Western states. That year, however, the company's opponents were finally successful in forcing the break-up of the business. The Bank Holding Company Act of 1956 prohibited banks from owning non-banking businesses as well as branches outside their own home state. This led to the separation a year later of Bank of America and Transamerica, as well as the spin-off of the latter's other banking subsidiaries to form what later became First Interstate Bancorp. However even restricted to its home state, Bank of America had established itself as not just the country's but the world's largest bank by establishing branch offices to serve virtually all corners of California. 

The new laws didn't stop the group from innovating. Bank of America was the first bank to fund a small business investment company; and the first to adopt computerised record-keeping. In 1958, it was also the first bank to offer flexible credit on purchases to its customers with the launch of BankAmericard, the world's first credit card. After initial tests in the city of Fresno, the card was extended to the whole of California in 1959, and Bank of America subsequently established licensing agreements with other regional lenders to expand the Americard system nationally. This network was eventually spun off as a separate in entity in 1970 to become Visa (see separate profile).

At around the same time, BankAmerica Corporation was established as a holding company for the operating business, which expanded rapidly over the course of the next decade, using its size and financial strength to establish operations around the globe. Under CEO Tom Clausen, the bank moved aggressively into new areas such as commercial banking, especially outside the US, and assets grew by an average of 15% every year for most of the 1970s, outperforming every other major US financial institution. However that diversification turned sour in the recession of the 1980s as those loans to third world countries, as well as to US farmers and other high risk customers turned sour. Added to that were the huge costs of running the country's biggest branch network. At first the group attempted to trade out this downturn, and accelerated a move into retail brokerage with the purchase of Charles Schwab & Co in 1983. However these financial problems accelerated the following year, and the bank was forced to take more drastic action. Despite a huge restructuring programme, which including the shedding of almost a third of its commercial banking clients and the elimination of several hundred branch offices, BankAmerica's share price plunged, and the company came close to collapse. In 1986 it was targeted for a hostile takeover by none other than First Interstate, the banking group spun off by Transamerica several years earlier. Tom Clausen, who had left the group to run the World Bank, was reappointed as CEO to fight the takeover, and was able to secure the support of BankAmerica's shareholders.

Clausen made further changes to BankAmerica's structure, floating off the Charles Schwab business as well as its retail banking subsidiary in Italy, and introduced new customer services in California such as extended opening hours and more sophisticated ATMs. After three years of heavy losses, the group returned to profit in 1988, and promptly launched a new expansion drive to secure its operations in the US, acquiring a string of banks in Nevada, Washington, Oregon and Arizona, and moving back into international markets. In 1990, its revenues broke the $1bn barrier for the first time, and the reinvigorated group overtook Chase Manhattan to become the country's second biggest banking business behind Citicorp. The acquisition of Californian rival Security Pacific in 1992 was at the time the biggest merger in banking history, and by the end of that year, BankAmerica offered consumer banking services in ten western states, trust and financial services across the entire country, and commercial and corporate banking operations in 35 countries around the globe. In 1993 it was the first American bank to be granted permission to open a full-service branch in mainland China. Further deregulation of the US financial services industry in 1997 allowed the group to move into the securities industry for the first time with the acquisition of investment bank Robertson Stephens & Co. In 1998, the same year that Citicorp merged with Travelers to form the giant Citigroup, BankAmerica kept pace with its rival by agreeing to merge with NationsBank of North Carolina. 

NationsBank was itself already one of the country's top five financial institutions as a result of growth even more dramatic than BankAmerica's, under CEO Hugh McColl. Something of a maverick in the upscale banking industry of the time, this tough Southern-born ex-marine made a worthy successor to Amadeo Giannini. NationsBank was itself the product of almost 100 years of mergers and consolidations between banks located mainly in the southern states of North Carolina, Georgia and Virgina. The starting point was the Commercial National Bank of Charlotte, North Carolina, founded in 1874. A series of mergers with other North Carolina financial institutions led eventually to the creation of North Carolina National Bank (NCNB) in 1960. Yet despite further purchases, NCNB was by 1980 still a comparatively modest institution, a one-state bank with a small network of 170 branches across North Carolina. Hugh McColl was appointed as CEO and embarked on aggressive expansion to help NCNB escape from the shadow of its traditional state rival Wachovia. Almost immediately, he acquired a series of small regional banks in Florida, the first-out-of-state bank to do so, and subsequently moved into other neighbouring states. By the end of the decade NCNB operated statewide banks in North Carolina, South Carolina and Texas, and also owned banks in Atlanta, Baltimore and northern Virginia. It was also the first US bank to open a branch in London; the first to operate a full-service securities company; and the first to list its shares on the Tokyo Exchange. 

In 1991 it launched a takeover of another Southern-based banking group, C&S/Sovran. In a bid to strip out the political concerns inherent in an amalgamation of banks strongly rooted in the rival states of North Carolina and Virginia, McColl proposed a more grandly patriotic title as the NationsBank. Although the two partners had ranked respectively as the 10th and 12th biggest banks in the US, the merged group was propelled into the national top three with more domestic deposits than New York's Citibank, a market capitalization to rival JP Morgan, and what was now the second-largest branch network in the US after BofA. McColl expanded NationsBank still further with a series of additional acquisitions including Boatmen's Bancshares in 1996 and Barnett Banks of Florida a year later. The merger with Bank of America was an inevitable next step for two groups whose ambitions to become the country's national bank were reflected in both their names. 

The deal between BankAmerica and NationsBank was billed at first as a "union of equals". But despite its new name as Bank of America Corporation, it quickly became apparent that NationsBank would be the dominant partner, with Hugh McColl taking the role of chairman & CEO in the enlarged group, which retained NationsBank's base in Charlotte, North Carolina as its HQ. BankAmerica's David Coulter left unexpectedly three weeks after completion of the deal. In fact the integration of the two giant companies proved far more difficult than McColl had anticipated, and BofA's financial results over the next couple of years were well below expectations, although the company put the blame on bad loans and credit problems. At the same time, McColl initiated a huge restructuring cutting some 10,000 jobs, before retiring in 2001. His protege Ken Lewis took his place as chairman & CEO, and placed a new emphasis on delivering disciplined organic growth, consolidating the bank's existing resources and renewing its commitment to additional services and customer satisfaction. That approach quickly regained the confidence of investors, and allowed BofA's share price to soar.

In 2004, Lewis began looking at acquisitions again. The purchase of FleetBoston Financial Corp that year for a very generous $48bn in shares ranked as the 3rd biggest deal in banking history after the Citicorp-Travelers merger, and the deal which had created BofA in 1998. However it successfully extended the group's franchise throughout the northeast and gave improved access to wealthy customers in the New England area. This was followed by the purchase of a 9% stake in China Construction Bank in 2005, and the acquisition of MBNA at the beginning of 2006, a deal which established a leadership position for BofA in North American credit cards. In 2007, BofA acquired US Trust, one of the largest and most highly respected wealth management firms. Later the same year, Bank of America gave its support to an attempt by Barclays of the UK to acquire Dutch giant ABN Amro by agreeing a side deal to take over ABN's US subsidiary, the Boston-based LaSalle Bank, for $21bn. The latter was one of the main businesses being targeted by Royal Bank of Scotland, the leader of a European consortium that had mounted a rival bid for ABN Amro. Despite a legal challenge by the consortium to block Bank of America's purchase of LaSalle, the deal was eventually approved by Dutch courts despite the consortium's successful bid for the rest of ABN Amro. See full profile for current activities


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