Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world.[4][5] Bank of America is the largest American company (by market capitalization) that is not part of the Dow Jones Industrial Average. On July 19, 2006, Bank of America reported second quarter 2006 net income of $5.48 billion,[6] surpassing that of Citigroup for the first time.
Corporate history
Before 1998, the Bank of America that exists today was known as NationsBank, based in Charlotte, NC. In 1998 NationsBank acquired San Francisco based BankAmerica and assumed the Bank of America name.
Pre-1998 history
Bank of Italy
The roots of the pre-1998 Bank of America lie in the American Bank of Italy, founded in San Francisco by Amadeo Giannini in 1904. When the 1906 San Francisco earthquake struck, Giannini was able to get all of the deposits out of the bank building and away from the fires. Thus, unlike many other banks, he retained the confidence of the depositors and also had money to loan to those struck by the disaster.
In the late 1920s, Giannini approached Orra E. Monnette, President and founder of the Los Angeles based Bank of America, Los Angeles about a potential merger between the two entities. The Los Angeles based bank had exhibited strong growth throughout the 1920s, due in part to its success in developing an advanced bank branching system. The merger of the two institutions was completed in early 1929 and took the name Bank of America. The combined company was headed by Giannini with Monnette serving as co-Chair.
While the names of many nationally chartered banks end with the initials 'N.A.' (National Association), Giannini picked a unique ending, National Trust and Savings Association, or 'NT&SA', because he wanted the name to highlight the different functions of the bank. Bank of America was the only NT&SA in the country. Thanks to good management, but also to aggressive development of the branch banking concept, the bank was soon the largest in California.
Growth in California
Giannini also sought to build a national bank, expanding into most of the western states as well as into the insurance industry, under the aegis of his holding company, Transamerica Corporation. Bank of America NT&SA also had banking relationships in international financial markets. Largely out of fear that Giannini would succeed in his efforts to create a nationwide bank, federal legislation prohibited banks from accepting deposits in states where they were not headquartered. This led to the creation of the bank holding company which could own a separate bank in each state.
The passage of the Bank Holding Company Act of 1956, prohibited banks from owning non-banking subsidiaries such as insurance companies. Bank of America and Transamerica were separated, with the latter company continuing in the insurance business. However, federal banking regulators prohibited Bank of America's interstate banking activity, and Bank of America's domestic banks outside of California were forced into a separate company that eventually became First Interstate Bancorp, which was acquired by Wells Fargo and Company in 1996. It was not until the 1980s with a change in federal banking legislation and regulation that Bank of America was again able to expand its domestic consumer banking activity outside of California.
California was the nation's fastest growing state during the post-World War II boom, with the highest use of checking accounts (partially driven by many soldiers being paid via bank accounts during World War II), resulting in Bank of America being swamped by checks. By 1949 , the branches had to close at 2:00pm in order to process the bookkeeping by 5:00 p.m. To cope with the transaction volume, the bank invested heavily in information technology and is generally credited, together with General Electric and SRI International, with inventing modern centralized bank operations, along with a number of financial transaction processing technologies such as automatic check processing, account numbers, and Magnetic Ink Character Recognition. Because of the efficiency of these technologies, the bank had significantly lower administrative costs than other banks and was able to expand until it became the world's largest bank in the early 1970s.
These technologies also enabled credit cards to be linked directly to individual bank accounts. In 1958, the bank invented the bank credit card, the BankAmericard, which changed its name to VISA in 1977. A consortium of other California banks came up with Master Charge (now MasterCard) in order to compete with BankAmericard.
Expansion outside of California
Following passage of the Bank Holding Company Act of 1967, BankAmerica Corporation was established for the purpose of owning Bank of America and its subsidiaries.
BankAmerica expanded outside California in 1983 with its acquisition of Seafirst Corporation of Seattle, Washington, and its wholly owned banking subsidiary, Seattle-First National Bank. Seafirst was at risk of seizure by the federal government after becoming insolvent due to a series of bad loans to the oil industry. BankAmerica continued to operate its new subsidiary as Seafirst rather than Bank of America until the 1998 merger with NationsBank.
BankAmerica was dealt huge losses in 1986 and 1987 due to the placement of a series of bad loans in the Third World, particularly in Latin America. The company fired its CEO, Sam Armacost, although Armacost blamed the problems on his predecessor, A.W. (Tom) Clausen, who was then appointed to replace Armacost. The losses resulted in a huge decline of BankAmerica stock, making it vulnerable to a hostile takeover. First Interstate Bancorp of Los Angeles (which had originated from banks once owned by BankAmerica), launched such a bid in the fall of 1986, although BankAmerica rebuffed it, mostly by selling its FinanceAmerica subsidiary to Chrysler, and by selling the brokerage firm Charles Schwab and Co. back to Mr. Schwab. On the day of the 1987 stock market crash, BankAmerica was trading at $8 per share, although by 1992 it had rebounded mightily to become one of the biggest gainers of that half-decade. The selling of its trophy corporate headquarters Bank of America Center building in San Francisco to raise capital was a symbolic blow to the bank.[citation needed]
BankAmerica's next big acquisition came in 1992. The company acquired its California rival, Security Pacific Corporation and its subsidiary Security Pacific National Bank in California and other banks in Arizona, Idaho, Oregon and Washington (which Security Pacific had acquired in a series of acquisitions in the late 1980s). This was, at the time, the biggest bank acquisition in history. Federal regulators nevertheless forced the sale of Security Pacific's Washington subsidiary, Rainier Bank, because the combination of Seafirst and Rainier would have given BankAmerica too large a share of the market in that state. Later that year, BankAmerica expanded into Nevada by acquiring Valley Bank of Nevada.
In 1994 , BankAmerica acquired the Continental Illinois National Bank and Trust Co. of Chicago, which had become federally owned as part of the same oil industry debacle that had brought down Seafirst. At the time, no bank had the resources to bail out Continental, so the federal government operated the bank for nearly a decade. Illinois at that time regulated branch banking extremely heavily, so Bank of America Illinois was a single-unit bank until the 21st century. BankAmerica moved its national lending department to Chicago in an effort to establish a financial beachhead in the region.
These mergers helped BankAmerica Corporation once again become the largest U.S. bank holding company in terms of deposits, but the company fell to second place in 1997 behind fast-growing NationsBank Corporation, and to third in 1998 behind North Carolina's First Union Corp. In 1998, BankAmerica was purchased by NC-based NationsBank, and changed the headquarters to Charlotte, North Carolina.
Merger of NationsBank and BankAmerica
In 1997, BankAmerica lent D.E. Shaw & Co., a large hedge fund, $1.4bn so that the hedge fund would run various businesses for the bank. However, D.E. Shaw suffered significant loss after 1998 Russia bond default. BankAmerica was later acquired by NationsBank that year.
The purchase of BankAmerica Corp. by the NationsBank Corporation was the largest bank acquisition in history at that time. While the deal was technically a purchase of BankAmerica Corporation by NationsBank, the deal was structured as merger with NationsBank renamed to Bank of America Corporation, and Bank of America NT&SA, changing its name to Bank of America, N.A. as the remaining legal bank entity. The bank still operates under Federal Charter 13044 which was granted to Giannini's Bank of Italy on March 1, 1927. However, SEC filings before 1998 are listed under NationsBank, not BankAmerica.
Following the US$64.8 billion acquisition of BankAmerica by NationsBank, the resulting Bank of America had combined assets of US$570 billion, as well as 4,800 branches in 22 states. Despite the mammoth size of the two companies, federal regulators insisted only upon the divestiture of 13 branches in New Mexico, in towns that would be left with only a single bank following the combination. This is because branch divestitures are only required if the combined company will have a larger than 25 percent FDIC deposit market share in a particular state or 10 percent deposit market share overall.
History since 1998
In 2001 , Bank of America CEO and chairman Hugh McColl stepped down and named Ken Lewis as his successor. Lewis's greater focus on financial discipline and efficiency contrasted greatly with the expansionary mergers and acquisition strategy of his predecessor.
Acquisition of National Processing Company
In 2004 , Bank of America purchased Louisville, Kentucky-based National Processing Company for $1.4 billion from National City Corp. The renamed company—BA Merchant Services—has been processing one in every five VISA and MasterCard transactions. The company also has been providing financial solutions for travel and healthcare companies. BA Merchant Services has been headquartered in Louisville.
FleetBoston Financial merger
Also in 2004, Bank of America acquired Boston, Massachusetts-based FleetBoston Financial for $47 billion in an all-stock deal to solidify Bank of America's position as the bank with the largest FDIC-rated deposit market share in the United States with $513 billion in deposits, well ahead of the number two bank holding company, newly-merged JPMorgan Chase-Bank One with $353 billion in deposits and number three Wells Fargo & Co. with $228 billion (as of 30 June 2003). This acquisition gave Bank of America access to the northeastern market.
Purchase of MBNA
On 30 June 2005, Bank of America announced it would purchase credit card giant MBNA for $35 billion in cash and stock. The Federal Reserve Board gave final approval to the merger on 15 December 2005, and the merger closed on 1 January 2006. The acquisition of MBNA provided Bank of America a leading credit card issuer at home and abroad. The combined Bank of America Card Services organization, FIA Card Services—including the former MBNA—will have more than 40 million U.S. accounts and nearly $140 billion in outstanding balances.
Divestiture of operations in Brazil, Chile and Uruguay
In May 2006, the Bank of America and Banco Itau (Investimentos Ita S.A.) entered into an acquisition agreement through which Itaú agreed to acquire BankBoston's operations in Brazil and was granted an exclusive right to purchase Bank of America's operations in Chile and Uruguay. A deal was signed in August 2006 under which Itaú agreed to purchase Bank of America's operations in Chile and Uruguay. Prior to the transaction, BankBoston's Brazilian operations included asset management, private banking, a credit card portfolio, and small, middle-market, and large corporate segments. It had 66 branches and 203,000 clients in Brazil. BankBoston in Chile had 44 branches and 58,000 clients and in Uruguay it had 15 branches. In addition, there was a credit card company, OCA, in Uruguay, which had 23 branches. BankBoston N.A. in Uruguay, together with OCA, jointly served 372,000 clients. While the BankBoston name and trademarks were not part of the transaction, as part of the sale agreement, they cannot be used by Bank of America in Brazil, Chile or Uruguay following the transactions. Hence, the BankBoston name has disappeared from Brazil, Chile and Uruguay. The Itaú stock received by Bank of America in the transactions has allowed Bank of America's stake in Itaú to reach 11.51%. Banco Boston do Brazil had been founded in 1947.
Purchase of US Trust
On 20 November 2006, Bank of America announced the purchase of The United States Trust Company for $3.3 billion, from the Charles Schwab Corporation. US Trust had about $100 billion of AUM and over 150 years of experience. The deal closed 1 July 2007.[7]
Plans to acquire LaSalle Bank
On April 23, 2007, Bank of America announced plans to acquire LaSalle Bank Corporation from ABN AMRO for $21 billion.[8][9] However, on May 3, 2007 a Dutch court blocked the sale until it can be approved by shareholders of ABN AMRO as part of a larger merger discussion involving Barclays Bank and Royal Bank of Scotland(RBS). RBS has made a competing $24.5 billion bid for LaSalle Bank.[10] Both ABN AMRO and Bank of America appealed to the decision of the Dutch court.
On June 26, the Advocate-General advised to the highest Dutch court to destroy the regulation which blocked the sale, saying approval of the shareholders isn't necessary. On Friday, July 13, 2007, the Dutch Supreme Court overturned the lower-court ruling that ABN could not sale LaSalle Bank without first obtaining shareholder approval.[11] The sale is expected to close in late 2007 or early 2008.[9] The LaSalle acquisition would put Bank of America just above the 10% mandated limit imposed by the Federal government of the total bank deposits in the country.[12] The deal will result in an increase in Bank of America's presence in Illinois, Michigan, and Indiana by 411 branches, 17,000 commercial bank clients, 1.4 million retail customers and 1,500 ATMs. Bank of America is also expected to thereby become the largest bank in the Chicago market with 197 offices and 14% of the deposit share, passing up JPMorgan Chase.
Investment in Countrywide Financial Corporation
On August 23, 2007 the company announced a $2 billion dollar repurchase agreement for Countrywide Financial Corporation. This purchase of preferred stock is arranged to provide a return on investment of 7.25% per annum and can be converted into common stock at a price of $18 per share.[13]
Bank of America divisions
Bank of America generates 90% of its revenues in its domestic market and continues to buy businesses in the US. The core of Bank of America’s strategy is to be the number one bank in its domestic market. It has achieved this through key acquisitions. [14] As a result of its mergers and acquisitions, Bank of America is now the largest issuer of credit, debit and prepaid cards in the world based on total purchase volume, as well as the largest consumer and small business bank in the United States.
Consumer
Global Consumer and Small Business Banking is the largest division in the company, and deals primarily with consumer banking and credit card issuance. The acquisition of FleetBoston and MBNA significantly expanded its size and range of services, resulting in about 51% of the company's total revenue in 2005. It competes directly with the retail banking divisions of Citigroup and JPMorgan Chase. The GC&SBB organization includes over 5,700 retail branches and over 17,000 ATMs across the United States.
Bank of America is a member of the Global ATM Alliance, a joint venture of several major international banks that allows customers of the banks to use their ATM card or check card at another bank within the Global ATM Alliance with no fees when traveling internationally. Other participating banks are Barclays (United Kingdom), BNP Paribas (France), China Construction Bank (China), Deutsche Bank (Germany), Santander Serfin (Mexico), Scotiabank (Canada) and Westpac (Australia and New Zealand).[15]
Corporate
Global Corporate and Investment Banking, also known as Banc of America Securities, provides mergers and acquisitions advisory, underwriting, as well as trading in fixed income and equities markets. Its strongest groups include Leveraged Finance, Syndicated Loans, and mortgage-backed securities. It also has one of the largest research teams on Wall Street.
Investment Management
Global Wealth and Investment Management manages assets of institutions and individuals. It is among the 10 largest U.S. wealth managers (ranked by private banking assets under management in accounts of $1 million or more as of June 30, 2005). In July 2006, Chairman Ken Lewis announced that GWIM's total assets under management exceeded $500,000,000,000. GWIM has five primary lines of business: Premier Banking & Investments (including Banc of America Investment Services, Inc.), The Private Bank, Family Wealth Advisors, Columbia Management Group, and Banc of America Specialist.
Bank of America has recently spent $675 million building its US investment banking business and are looking to become one of the top five investment banks worldwide. "Bank of America already has excellent relationships with the corporate and financial institutions world. Its clients include 98% of the Fortune 500 companies in the US and 79% of the Global Fortune 500. These relationships, as well as a balance sheet that most banks would kill for, are the foundations for a lofty ambition."[16]
Bank of America is currently constructing a massive new headquarters for its New York City operations. The skyscaper will be located on 42nd Street and Avenue of the Americas, at Bryant Park, and will feature state of the art, environmentally-friendly technology throughout its 1.2 million square feet (111,484 m²) of office space. The building will be the headquarters for the company's investment banking division, and will also host most of Bank of America's New York-based staff.
International operations
In 2005, Bank of America acquired a 9% stake in China Construction Bank, China's second largest bank, for $3 billion.[17] It represented the company's largest foray into China's growing banking sector. Bank of America currently has offices in Hong Kong, Shanghai, and Guangzhou and is looking to greatly expand its Chinese business as a result of this deal. Bank of America has also invested in opening new branches in India, particularly Mumbai.
Bank of America operated under the name BankBoston in many other Latin American countries, including Brazil. In 2006, Bank of America sold all BankBoston's operations to Brazilian bank Banco Itaú, in exchange for Itaú shares. The BankBoston name and trademarks were not part of the transaction and, as part of the sale agreement, cannot be used by Bank of America. That, in practical terms, deemed the definite extinction of the BankBoston brand.
Bank of America's Global Corporate and Investment Banking spans the Globe with divisions in United States, Europe and Asia. The U.S. headquarters are located in New York, European headquarters are based in London and Asia's headquarters are split between Singapore & Hong Kong.
Social responsibility
In the mid 2000s, Bank of America began accentuating its charitable side. In addition to its new eco-friendly office tower in Manhattan, Bank of America has pledged to spend billions on commercial lending and investment banking for projects that it considers "green." The corporation, which already supplied all of its employees with cash incentives to buy hybrid vehicles, is also helping its customers be eco-friendly by rolling out a new credit card program in 2007 that would donate money to helping the environment, as well as providing mortgage loan breaks for customers whose homes qualified as energy efficient.[18]
In addition to trying to help the environment, Bank of America has also donated money to help health centers in Massachusetts[19] and made donations to help homeless shelters in Miami.[20]
Diversity
Bank of America was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine. Furthermore, Amy Woods Brinkley, the Bank's Global Risk Executive, and Barbara Desoer, the Bank's Global Technology and Service Fulfillment Executive, were named two of the most powerful women in Banking by US Banker magazine, and were among the "top 50 most powerful women in business," as ranked by Fortune.
Controversies
Main article: Bank of America controversies
Bank of America has been involved in a number of controversial issues. Many of its policies, such as "biggest check first" check clearing, overdraft fee policies, credit cards to Illegal Immigrants, and early account closures, have become heavily criticized. Bank of America controversies details some of the more notable and public issues.
By action dated August 20, 2007, a Committee previously appointed by the Board of Directors of the Registrant approved the public offering of $1,500,000,000 in aggregate principal amount of the Registrant's 6.00% Senior Notes, due September 2017 to Banc of America Securities LLC, Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc., Muriel Siebert & Co., Inc. and Samuel A. Ramirez & Co., Incorporated and otherwise established the terms and conditions of the Notes and the sale thereof. On August 31, 2007 the bank ammended its disclaimers as thus:
• Are Not FDIC Insured • Are Not Bank Guaranteed • May Lose Value • Are Not Deposits • Are Not Insured by Any Federal Government Agency • Are Not a Condition to Any Banking Service or Activity. The Banks credit rating is under review due to the loss of liquidity in their paper which needs to be restructured and revalued. The Wall Street estimates place the value of the repurchased debt at 70% current market value.
Bank of America Tower (Miami)
The Bank of America Tower (formerly the CenTrust Tower) is a 47-story, landmark office tower in Miami, Florida. Built for CenTrust Savings & Loan in 1987, the 47-story building ranks in the top ten tallest skyscrapers in Miami and in Florida at a height of 625 feet (191 m) and is known for its elaborate night-time illuminations and its dramatic three glass tiers. Designed the by Pei Cobb Freed & Partners architectural firm, the tower consists of two separate structures: A 10-story parking garage owned by the city and the 37-story office tower built upon the air rights of the garage. Preliminary planning for the tower began in February 1980; construction on the garage began by November. The garage was completed in February 1983 and the tower began construction a year later. In August 1984, while the tower was under construction, a 5-alarm fire began on the ninth floor; construction was subsequently delayed for several weeks. On December 15, 1985, the tower was lit for the first time in Miami Dolphins aqua and snowflakes.
By February 1987, the complex was complete and it featured the world's only elevated metro station in a skyscraper (Knight Center station). It also gained notoriety for its luxurious interiors, including a skylobby on the 11th floor covered in marble and gold and a 10,000 sq ft (1,000 m²). (929 m²) outdoor terrace. Also its indoor gym features mahogany cabinets. The tower is connected to the James L. Knight Center by a pedestrian walkway and on the first floor is a retail spine covered with green marble. The tower contains 1.16 million square feet with 503,000 square feet (47,000 square m) of office space and a 535,000 square foot (50,000 square m), 1,500 space parking garage.
The roof of the building was the set of Gloria Estefan's 1994 video for "Turn The Beat Around". The building is also one of many featured on the backdrop of the stage on The Tonight Show.
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