Bank of America

Bank of America (BofA - NYSE:BAC) is the largest bank in the United States of America, in terms of deposits. It is owned by Bank of America Corp., based in Charlotte, North Carolina.

History

Bank of America Corp. was formed by the merger of NationsBank Corp. and BankAmerica Corp. in 1998.

History of NationsBank

Commercial National Bank (CNB), the earliest forerunner of today's Bank of America, opened for business in Charlotte in 1874.

In 1957, CNB's total assets climbed to $234 million after the company acquired Charlotte-based American Trust Company, forming American Commercial Bank (ACB). ACB changed its name to North Carolina National Bank (NCNB) in 1960 after acquiring of Charlotte-based Security National Bank.

NCNB expanded beyond North Carolina for the first time in 1982, when it purchased Lake City, Florida-based First National Bank of Lake City, its first interstate expansion. Hugh McColl becames CEO of NCNB the following year.

In 1988, NCNB's assets grew to $60 billion ($60,000,000,000) after it bought the failed First RepublicBank of Dallas, Texas from the FDIC. NCNB's name was subsequently changed to NCNB Corporation.

NCNB became NationsBank in 1991 after acquiring Atlanta, Georgia-based C&S/Sovran Corp. NationsBank's assets grew to $118 billion following the merger.

In 1996, NationsBank acquired Saint Louis, Missouri-based Boatmen's Bancshares for $9.6 billion. The combined bank became the largest in the American South, with assets of $225 billion, and 2,600 branches stretching from North Carolina to New Mexico.

The following year, NationsBank acquired Florida's largest bank, Jacksonville-based Barnett Bank, for $15.5 billion, growing the company's total assets to $284 billion.

History of BankAmerica

Bank of America was founded in San Francisco in 1904 by Amadeo Giannini as the Bank of Italy. It was founded as a bank for the working class, particularly in the Italian neighborhood of North Beach in San Francisco. The bank survived the San Francisco earthquake and fire of 1906, and was one of the first to offer loans to businesses to help rebuild the city. Giannini expanded the bank throughout his tenure as chairman, which ended with his death in 1949. The bank bought Bank of America of San Pedro, California, in 1929, mostly because Giannini wanted the name. The names of many nationally chartered banks end with the initials N.A. (National Association), but 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. BofA was the only NT&SA in the country. The bank was soon the largest bank in California.

Giannini also sought to build a national bank, expanding into most of the western states and also the insurance industry under the aegis of his holding company, Transamerica. However, federal regulators put a stop to this interstate banking activity, and Bank of America's banks outside California were forced to be spun off into a company that eventually became First Interstate Bancorp, which was acquired by Wells Fargo Corp. in 1996. It was not until the 1980s that BankAmerica would again expand consumer banking outside California. With the passage of the Bank Holding Company Act of 1956, banks were prohibited from owning non-banking subsidiaries like insurance, and Bank of America and Transamerica were separated, with the latter company continuing to be in the insurance business.

California became the fastest growing state after World War II, with the highest use of checking accounts (partially driven by many soldiers being paid via bank accounts during WWII) resulting in BofA 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 GE and SRI, with inventing modern centralized bank operations, with a number of financial transaction processing technologies such as automatic check processing, account numbers, Magnetic Ink Character Recognition (MICR) and, based on these technologies, credit cards linked directly to individual bank accounts. Because of the efficiency of these technologies, the bank had significantly lower administrative costs than other banks and was able to expand further, until it was the world's largest bank by the early 1970s.

In 1958, it invented the bank credit card, the BankAmericard, which changed its name to VISA in 1975. A consortium of other California banks came up with Master Charge (now MasterCard) in order to compete with BankAmericard.

Following passage of the Bank Holding Company Act of 1967, BankAmerica Corp. was established for the purpose of owning Bank of America and its subsidiaries.

BankAmerica expanded outside California in 1983 with its acquisition of Seafirst Corp. of Seattle and its wholly owned banking subsidiary, Seattle-First National Bank. This happened when Seafirst was at risk of being seized by the federal government after becoming insolvent through a series of bad loans to the oil industry. However, BankAmerica continued to operate the banks as Seafirst rather than Bank of America until after the merger with NationsBank.

Bank of America was dealt huge losses in 1986 and 1987 due to bad loans in its Third World lending, 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 been built from banks once owned by BofA), 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 stock market crash in 1987, 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.

BankAmerica's next big acquisition came in 1992. BankAmerica acquired its California rival, Security Pacific Corp. 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 deal in history. Federal regulators nevertheless forced the sale of Security Pacific's Washington subsidiary, Rainier Bank, because the combination of Seafirst and Rainier would give 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 the time outlawed branch banking, so Bank of America Illinois was a single-unit bank until the 21st century. Bank of America moved its national lending department to Chicago in an effort to establish a beachhead there. Even after the later mergers, the Midwest remains the part of the country without other Bank of America branches.

These mergers helped BankAmerica Corp. 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 Corp. and to third in 1998, also behind North Carolina's First Union Corp. The California bank was the largest bank in the country until 1998, when it fell to second place behind First Union National Bank of North Carolina. (This was not because of First Union's market share in North Carolina alone, but because of the technical reason that it consolidated all of its branches into the North Carolina bank while BofA at the time was operating a separate bank in each state where it did business.)

Post-merger history of Bank of America

The merger of NationsBank Corp. and BankAmerica Corp. was the largest bank deal in history to that time. 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 divestures are only required if the combined company will have a larger then 25 percent FDIC deposit market share in a particular state or 10 percent deposit market share overall. Following the $64.8 billion ($64,800,000,000) acquisition of BankAmerica by NationsBank, Bank of America had combined assets of $570 billion, and 4,800 branches in 22 states.

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.

In 2004, Bank of America Corp. acquired Boston, Massachusetts-based FleetBoston for $47 billion 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 2 bank holding company, newly-merged J.P. Morgan Chase-Bank One with $353 billion in deposits and number 3 Wells Fargo & Co. with $228 billion. (Deposits as of June 30, 2003.) The combined Bank of America and Fleet have 5,700 branches serving 35 million customers in 29 states. After the merger with FleetBoston Financial, roughly 1 out of every 10 dollars on deposit in a commercial bank and savings and loan were deposits of Bank of America.

Although Bank of America Corp. and Bank of America and both much larger than their nearest rivals in terms of deposit share, other finacial services companies are larger on the basis of assets, profits, market capitalisation.

References

Bonadio, Felice A. A.P. Giannini: Banker of America. Berkeley, Calif.: University of California Press, 1994.
Hector, Gary. Breaking the Bank: The Decline of BankAmerica. Boston: Little, Brown, 1988.
James, Marquie and Bessie. Biography of a Bank: The Story of Bank of America N.T.&S.A. New York: Harper and Brothers, 1954.
Johnston, Moira. Roller Coaster: The Bank of America and the Future of American Banking. New York: Ticknor & Fields, 1990.
Lampert, Hope. Behind Closed Doors: Wheeling and Dealing in the Banking World. New York: Atheneum, 1986.
Nash, Gerald G. A.P. Giannini and the Bank of America. Norman, Okla.: University of Oklahoma Press, 1992.
Yockey, Ross. McColl: The Man with America's Money. Atlanta: Longstreet Press, 1999.

External Links

Bank of America (http://www.bofa.com)
For more information about bank market share, see the FDIC's web site (http://www2.fdic.gov/sod/index.asp), which includes historical data