Bank of America (in 2010) and the New Financial Landscape

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Memo, 12-point font, double-spaced paragraphs, and default Microsoft Word margins

Answer all the case questions

Financial Institutions

Bank of America (in 2010) and the New Financial Landscape

Objectives of the case: to provide students with the opportunities to understand how the operations of Commercial Banks have changed overtime and to understand how banks, such as Bank of America, (BAC) need to adjust to the new financial landscape that includes nonbank financial institutions (i.e. shadow banks).

In addition to discussing BAC’s history and the state of its operations in 2010, the case also provides information about the periods surrounding the 2007-2008 financial crisis. We will be discussing the financial crisis of 2007-2008 throughout the semester. In the current case, we will focus on BAC and think of the financial crisis as the disruption to the bank’s business model. Other details about the financial crisis (e.g. causes, regulations, consequences for bank governance and culture) will be discussed throughout the semester as they pertain to the course material.

Instructions:

The course has cases to be analyzed. Case briefs should NOT exceed two pages of text with no

limit on exhibits. You must use the 12-point font, double-spaced paragraphs, and default Microsoft Word

margins (the table for question 1 and no more than two pages of text) addressing all the questions

Questions and points to consider in your memo.

1. VRIO is a technique (developed by Jay B. Barney, former Fisher chaired MHR faculty member)) that is used by a firm to critically assess its value chain and understand from where the firm’s competitive advantages come. Management can use the assessment to make strategic business decisions. VRIO is an acronym based on the first letters of the names of the dimensions used in the technique:

a. Value – How expensive is the resource to obtain outside the firm?

b. Rareness – How rare or limited is the resource?

c. Imitability – How difficult is it to imitate the resource?

d. Organization – Is the resource supported by the firm and exploited by the firm? Using the table on the next page as a template, perform a VRIO internal analysis for BAC.

2. Based on your VRIO analysis, prepare bullet points that outline your recommendations for Stephanie Miller and her team to help guide BAC’s future business strategy. You will use this for class discussion. Each group is expected to be prepared to discuss and answer questions about their recommendations.

3. Why did Ken Lewis and the Board not disclose to shareholders the losses and bonus payments in the Merrill Lynch acquisition? What do you think were their rationalizations to justify non-disclosure of significant facts?

1

VRIO Internal Analysis for Bank of America

Resource/Area to Consider

Valuable? Y or N

Rare? Y or N

Costly to Imitate? Y or N

Exploited by BAC Y or N

Competitive Advantage?

Temporary, sustained,

parity or disadvantage

Financial Assets

Access to low-interest gov’t loans

Physical locations in the US

International presence

Internal communication & control systems

New management team

M&A knowledge & experience

BAC brand name

Breadth & depth of products and services

Technological Innovation

Merrill Lynch brand equity

Other?

Other?

Other?

2

Stephanie Milner Spent the fall and winter of 2008–2009 like many americans, watching and
reading the dire financial news as it was streamed, blogged, and reported directly from Wall Street.
Milner, however, had an even more personal interest. as a manager in the Global Corporate and
investment Banking (GCiB) division of Bank of america, she worked every day in the middle of the
financial storm. now, as the dark clouds are beginning to part and the recovery gathers steam, she has
been asked to join a committee of managers from throughout the organization who will analyze the
strategic direction of the bank and locate opportunities for growth.

historically, Bank of america has pursued a strategy of growth through acquisition. (See Exhibits 1,
2, and 3 for Bank of america’s historical financial information.) this strategy was evident even at the
height of the financial crisis, when the bank purchased mortgage lending powerhouse Countrywide
Financial in the summer of 2008 and brokerage Merrill lynch in early 2009. (See Exhibit 4 for a list of
important company dates.) these latest acquisitions made Bank of america the largest bank holding
company in the United States by asset value (Exhibits 5 and 6).1 they also led to the absorption of
nearly $100 billion dollars in toxic assets from Merrill and increased the bank’s exposure to potentially
massive losses in the mortgage industry.2

like its competitors, Bank of america had significant problems in late 2008 and was on the verge of
collapse. the U.S. federal government came to its rescue, providing $25 billion and then an additional
$20 billion in tarp funds. the U.S. treasury and the Federal Deposit insurance Corporation (FDiC)
also guaranteed $118 billion to “provide protection against the possibility of unusually large losses”3
(Exhibit 7). Without this cash injection, Bank of america could possibly have received the dubious dis-
tinction of being the largest bankruptcy in U.S. history. instead, that “honor” went to another victim of
the 2008 financial crisis, lehman Brothers, which destroyed more than $40 billion in shareholder value
when it filed for bankruptcy in September 2008.

With economists agreeing that the recession ended in mid-2009, Bank of america has some impor-
tant work to do.4 as Milner enters the conference room, she surveys the scene. the group looks weary,
but optimistic. after greeting several colleagues, she takes a seat and begins to scrawl a few notes on
the questions she feels the committee should address: Where is the bank heading? What can Bank of
america do in the future to prevent such exposure to economic meltdowns? What will the financial
landscape look like as the U.S. economy continues to recover? Where will the bank’s opportunities lie
in the new economy? and most importantly, how should the bank position itself strategically to com-
pete successfully and grow in the future? these questions swirl in Stephanie Milner’s head as the room
quiets and the team gets to work.

Consultant Casey Burt (Gt MBa ’11) of Capgemini and professor Frank t. rothaermel prepared this case from public sources. it is developed for
the purpose of class discussion. it is not intended to be used for any kind of endorsement, source of data or depiction of efficient or inefficient
management. all opinions expressed, all errors and omissions are entirely the authors’. © Burt and rothaermel, 2013.

MH000

7

007764506

5

Bank of America (in 2010) and the New Financial Landscape

CaSey BUrt

Frank t. rothaerMel

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2

Bank of America and the New Financial Landscape

Commercial National Bank and Bank of Ital

y

Bank of america’s history is really the history of two banks on opposite coasts of the United States—
one in north Carolina and the other in San Francisco.5

COMMERCIAL NATIONAL BANK

the foundations of the first bank were laid in 1874 in Charlotte, north Carolina, with the forma-
tion of Commercial national Bank. it grew steadily in the Charlotte area for nearly 85 years. then, in
1958, it purchased Charlotte banking competitor american trust Company and took on the new name
american Commercial Bank. regional expansion continued in 1960 when american Commercial Bank
purchased another local competitor, Securities national Bank, and again renamed itself, this time as
north Carolina national Bank (nCnB).

in 1982, nCnB expanded beyond the borders of north Carolina through the acquisition of First
national Bank of lake City in lake City, Florida. the next year began an era of rapid growth for the
company with the appointment of hugh McColl as chief executive officer. assets swelled to $118 bil-
lion after the purchases of failed Dallas bank, First republic Bank Corporation, from the FDiC in 1988,
and atlanta-based C&S/Sovran Corporation in 1991. Upon completion of the latter acquisition, nCnB
became nationsBank.

Under McColl’s leadership, the asset base of nationsBank more than doubled throughout the
mid-1990s. to further strengthen its presence in the atlanta banking market, nationsBank purchased
BankSouth in an all-stock deal valued at $1.6 billion in 1995. next came the acquisitions of St. louis’s
Boatmen’s Bankshares for $9.6 billion in 1996, and Florida-based Barnett Bank for $15.5 billion in 1997.
these purchases made nationsBank the largest bank in the South, with $284 billion in assets and more
than 2,600 branches stretching as far west as new Mexico.

BANK OF ITALY

thirty years after the founding of Commercial national Bank in Charlotte, italian-american amadeo
Giannini founded Bank of italy in San Francisco. although Giannini first established the bank to cater
to immigrants, he had much larger dreams.

like Commercial national Bank, Bank of italy achieved much of its early growth through acqui-
sitions. in 1922, Giannini purchased Banca dell’italia Meridonale and renamed the combined entity
the Bank of america and italy. Five years later, he increased his holdings again in a merger with the
newly formed liberty Bank of america. the new entity, the Bank of italy national trust & Savings
association, served customers through a network of 276 branches in California. after the completion
of yet another merger, this time with the Bank of america los angeles, in 1930 the Bank of italy was
renamed Bank of america.

Giannini continued throughout the 1930s and 1940s to pursue his vision of creating a national bank.
Bank of america expanded into most of the states surrounding California. it also expanded its service
offerings to include insurance through the formation of a holding company, transamerica Corporation.
however, the 1956 passage of the Bank holding Company act prohibited banks from owning nonbank
subsidiaries, forcing Giannini to spin off transamerica Corp. Bank of america continued its traditional

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This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape

3

banking activities and retained the transamerica name for the insurance arm. additionally, due to new
federal interstate banking regulations, Bank of america’s domestic non-California banks were formed
into a new corporation that would eventually become First interstate Bancorp (which was acquired by
Wells Fargo & Company in 1996).

the 1950s did not represent all bad news for Bank of america’s aspirations. new technology that
allowed credit cards to be directly linked to bank accounts led to the introduction of the Bankamericard
in 1958. the credit card ushered in a new era for the bank as well as for american consumer spending
in general. Bankamericard became Visa in 1975. in response, a consortium of other California banks
joined together to form Master Charge, the forerunner of MasterCard.

During the late 1960s, the regulatory environment changed again. the Bank holding Company act
of 1967 allowed for the establishment of Bankamerica Corporation, to serve as parent company to
Bank of america, its subsidiaries, and any future acquisitions. Growth continued slowly in the ensuing
years until the bank began a new wave of expansion outside of California by acquiring the insolvent
Seattle-based Seafirst Corporation and its subsidiary, Seattle-First national Bank, in 1983.

Bank of america faced a crisis in the mid-1980s due to massive losses on loans made to third-world
nations, particularly those in latin america. as a result, the company replaced then-Ceo Sam armacost
with former Ceo a. W. Clausen, but the damage was already done. Stock price depreciation made
the bank vulnerable to hostile takeover. ironically, one of the attempts was made by First interstate
Bancorp, its former spin-off. Bank of america rebuffed this and other takeover efforts by liquidating
several subsidiaries such as Financeamerica (sold to Chrysler), Charles Schwab and Co. (sold back to
Schwab), and Bank of america and italy (sold to Deutsche Bank).

after the 1987 stock market crash, Bankamerica’s stock rallied strongly. Major acquisitions resumed
in 1992 with the purchase of Security pacific Corporation and the banks owned by its subsidiaries in
California, arizona, idaho, oregon, and Washington. Despite having to liquidate rainier Bank due to
concerns of federal regulators about competition in Washington state, the Security pacific deal was the
largest bank acquisition in history at that time.

in 1994, Bankamerica acquired Continental illinois national Bank & trust Co. Continental had
been run by the federal government for more than 10 years due to insolvency issues stemming from
the same oil-industry exposure suffered by Seafirst in 1983. this transaction allowed Bankamerica to
regain its position as the largest bank in america by total deposits, a title that the company had lost to
nationsBank Corporation in 1997. that was also the year that Bankamerica embarked on a path that
would change the face of the bank forever.

in exchange for running various business units at the bank, Bankamerica loaned $1.4 billion to
hedge fund D. e. Shaw & Company. When russian bonds defaulted in 1998, D. e. Shaw suffered
massive losses, limiting its ability to repay the loans and thereby weakening Bankamerica’s finan-
cial position. this led, later that same year, to the acquisition of Bankamerica by nationsBank for
$64.8 billion, easily the largest bank acquisition to date. the combined bank controlled $570 billion
in assets and operated more than 4,800 branches in 22 states. although technically nationsBank
purchased Bankamerica, the deal was structured as a merger and resulted in the new bank hold-
ing company being named the Bank of america Corporation and the banking subsidiary taking the
name Bank of america, n.a.

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This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

4

Bank of America and the New Financial Landscape

Growth and Financial Meltdown in the New Millennium

the new century brought new leadership, new crises, and the growth of shadow banks.

NEW LEADERSHIP AND NEW CRISES

in 2001, hugh McColl stepped down, and ken lewis succeeded him as Ceo. the change in lead-
ership did little to slow the bank’s growth through strategic acquisition. (See Exhibit 8 for the level
of diversification in 2003.) in 2004, Bank of america purchased FleetBoston Financial (the nation’s
seventh-largest bank) for $47 billion in cash and stock.6 the next year it acquired MBna for $35 bil-
lion in cash and stock, making Bank of america a major credit card issuer both in the United States
and abroad. Shortly thereafter came the purchase of aBn aMro north america and laSalle Bank
Corporation from Dutch giant aBn aMro for $21 billion.7

Despite growing storm clouds on the mortgage horizon, 2007 and 2008 saw a repurchase agreement
and then outright acquisition of Countrywide Financial, giving Bank of america a substantial position
in the mortgage business. the purchase made the newly named Bank of america home loans the larg-
est mortgage originator and servicer in the United States, with a service portfolio valued at $1.4 trillion
at the end of 2007 (representing 20 to 25 percent of the home loan market). Bank of america must have
had at least some suspicions of the developing storm, however: it structured the deal to protect itself in
case Countrywide was forced to declare bankruptcy due to losses on subprime home loans.

8

those potential losses were looking more and more real every day. Beginning in 2007, the U.S. econ-
omy slid into what has been described by many economists as the most serious financial crisis since
the Great Depression.9 Most economists also agree that the cause of this crisis was the housing bubble
that peaked in 2005 or 2006, fueled by the availability of low interest rates on a variety of loans caused
by an influx of foreign capital into the U.S. market (Exhibit 9).

During this time, the debt of the average U.S. consumer rose to unprecedented heights (Exhibit
10).10 Strong historical home value growth (Exhibit 11), combined with easy initial loan terms, incentiv-
ized many americans to take on mortgages they could not afford in the hope that they could refinance
later at more favorable terms. a leveling off and slight decline in home values in some parts of the
country in 2006 and 2007, combined with rising interest rates, caused the bubble to burst. refinancing
became difficult, adjustable-rate mortgage (arM) interest rates reset at higher levels, and a wave of
defaults and foreclosures followed.

1

1

as the number of mortgage loans (as well as credit card balances and automobile loans) increased,
so did the popularity of a financial instrument known as asset-backed securities, or aBS (Exhibit 12).
asset-backed securities are financial instruments securitized by the underlying assets on which they
are based. the underlying assets provide a stream of capital from payments made on those assets.
in the case of housing, for example, this stream is comprised of homeowners’ mortgage payments.12
Banks packaged mortgages and other debt into tranches that were given debt ratings and sold to inves-
tors around the world who wanted to invest in the U.S. real estate market.

Collateralized debt obligations, or CDos, are a special form of asset-backed security pioneered by
Drexel Burnham lambert in 1987. like other asset-backed securities, CDos carry a credit rating that
is based on the fundamental strength of their underlying components—in this case, investment-grade
fixed-income assets. these investments appeal to investors because they offer higher returns than simi-
larly rated corporate bonds and allow the buyer to customize their level of risk through diversifica-
tion. Because of these benefits, the popularity of CDos skyrocketed: From 2004 to 2007, the compound

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This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
5

annual growth rate of global CDo issuance volume was 45 percent. issuances rose from $157.4 billion
to $481.6 billion in value over this same period.

When home prices began to decline and foreclosures rose, however, the value of asset-backed securi-
ties fell sharply. Mass exodus from the CDo market followed, causing the 2008 issue value to drop to
$61.9 billion (Exhibit 13).13 From the standpoint of the CDo and aBS issuers, the precipitous drop in
prices, combined with the recent installation of mark-to-market accounting standards, caused massive
losses for banks as they were forced to write down the value of assets on their balance sheets.

THE SHADOW BANKS

the financial crisis had a particularly large effect on the U.S. shadow banking system. Shadow banks
are nonbank financial institutions (for example, investment banks, hedge funds, pension funds) that
lend corporations the capital necessary to operate, most notably through the use of commercial paper.
What differentiated members of this system from traditional banks was their inability to accept depos-
its, which meant they were not subject to the same regulations as traditional banking institutions. For
example, investment banks were not required to maintain minimum capital levels to protect against
potential losses. they also did not have the ability to draw on federally insured customer deposits or
borrow directly from the federal government in times of financial need. By early 2007, the shadow
banking system had grown to roughly the same size as the traditional banking system in terms of
assets—more than $10 trillion.

14

Several investment banks and hedge funds had significantly increased their leverage in the aBS
market in the years leading up to the financial crisis. they were therefore especially vulnerable to aBS
devaluation.15 these shadow institutions used funds from the sale of commercial paper to invest in
asset-backed securities, either directly or through structured investment vehicles which they spon-
sored. as those securities lost value, concerns mounted about the investment banks’ ability to repay
their debt obligations. the result was a virtual freezing of the commercial paper markets. to encourage
lending, central banks around the world felt they had to inject capital into their respective markets.
according to timothy Geithner, then president of the new york Federal reserve Bank, the size and
importance of the shadow banking system, combined with the lack of strict regulation, “made the crisis
more difficult to manage.”1

6

ironically, the first major U.S. casualty was the venerable investment bank and securitization pioneer
Bear Stearns. in March 2008, the Federal reserve Bank of new york furnished Bear Stearns with an
emergency loan to prevent its sudden collapse, but the writing was on the wall. later that same month,
JpMorgan Chase purchased the firm for a fraction of its previous market value.17

Meanwhile, the clock was ticking at lehman Brothers. in September 2007, lehman Brothers hold ing
inc. had closed BnC Mortgage, its subprime mortgage lender, amid deteriorating market conditions.
however, the bank was left in an exposed position due to billions of dollars worth of mortgage-backed
securities that remained on its books. on September 15, 2008, lehman Brothers holdings inc. filed for
Chapter 11 bankruptcy protection after revealing it had become insolvent. it had bank debt of $613 bil-
lion and bond debt of $155 billion while assets totaled only $639 billion.

18

like its peers, brokerage house Merrill lynch also suffered substantial losses due to unhedged sub-
prime mortgage exposure. Despite the removal of Ceo e. Stanley o’neal for approaching Wachovia
Bank about a merger without board approval,19 Merrill lynch lost $19.2 billion between July 2007 and
July 2008 (an astounding $52 million per day).20 new Ceo John thain attempted to bail out the com-
pany by selling its commercial finance division to General electric and selling stock and select hedge

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This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

6
Bank of America and the New Financial Landscape

funds to Singapore investment group, temasek holdings, but the bank remained near collapse.21 on
September 15, the same day that lehman Brothers filed for bankruptcy, Bank of america announced
its intent to purchase Merrill lynch for $50 billion, a 38 percent premium over current book value. (See
Exhibit 14 for the level of diversification in 2009 after the Merrill lynch acquisition.)22

The U.S. Financial Industry after the Meltdown

in the midst of the financial meltdown, Federal reserve Chairman Ben Bernanke and treasury
Secretary hank paulson were essentially left with two choices, and neither was a good option. on the
one hand, they could allow several more of the largest financial institutions in the world to fail, risking
a global market collapse. thousands of working americans would lose their jobs, pensions, and invest-
ments, leading to a dramatic increase in unemployment as the failures rippled through the broader
economy. riots would have been likely in some of the larger U.S. cities, necessitating activation of the
national Guard. if Wall Street tanked, repercussions on Main Street would be severe; this clearly was
not an attractive choice.

or, the U.S. government could bail out the banks and work toward tighter regulatory controls in the
future. this was more in line with Chairman Bernanke’s promise to himself that he would not preside
over a second Great Depression.

GOVERNMENT OWNERSHIP

While Main Street strongly opposed a “Wall Street bailout,” it did support tighter bank regulations.
thus, during a seven-day period in early September 2008, the federal government took mortgage lend-
ers Fannie Mae and Freddie Mac into conservatorship, which equates to national securitization. the
financial markets viewed the move negatively, and financial stocks dropped 31 percent. Stocks fell fur-
ther in october when president George W. Bush signed the $700 billion troubled asset relief program
(tarp) into law. tarp was designed to stabilize the balance sheets of large financial institutions and
to increase liquidity in short-term funding markets. the government’s first action under tarp’s capi-
tal purchase program was to buy $81 billion of preferred shares in seven banks (including Bank of
america). over the next five weeks, financial stocks collapsed, shedding 46 percent of their market
value.23 Many have since asked whether the bailout was necessary. By socializing losses while priva-
tizing profits, was the government creating a moral hazard that promoted or even incentivized risk?

the U.S. government did not see itself as a long-term investor in bank equities, which helped to ease
criticism of government ownership of financial institutions.24 thus in april 2010, the U.S. treasury
announced plans for the sale of 7.7 billion shares of common stock in Citigroup. (it had previously
exchanged its $25 billion in preferred stock for common stock at a price of $3.25 per share.)25 Many
similar announcements followed throughout the rest of the year. in March 2011, after three more finan-
cial institutions repaid a total of $7.4 billion in borrowed funds, the treasury announced that the tarp
program had turned a profit.

26

“NO MORE SHADOWS”

in order to receive assistance under tarp, several of the remaining large investment banks, includ-
ing Goldman Sachs and Morgan Stanley, as well as other shadow institutions like american express,
Cit Group, and General Motors acceptance Corporation (GMaC), were forced to reorganize as bank
holding companies.27 as a result, tarp fundamentally altered the shadow banking system that had

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This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
7

contributed so forcefully to the financial crisis. these firms now fall under the regulation of the Federal
reserve and therefore have a more limited exposure to risk. they are also now permitted to take con-
sumer deposits.

THE END OF THE RECESSION

the national Bureau of economic research (nBer) defines a recession as “a significant decline in
economic activity spread across the economy, lasting more than a few months, normally visible in real
GDp, real income, employment, industrial production, and wholesale-retail sales. a recession begins
just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between
trough and peak, the economy is in an expansion.”28 according to the nBer’s business-cycle dating
committee, the peak of the most recent recession occurred in December 2007 and concluded with a
trough in June 2009, lasting for a total of 18 months. it was the longest recession experienced by the
United States since World War ii.2

9

nBer based its assessment on several statistics, including higher productivity, lower production
costs, and increasing factor orders.23 after bottoming out in June 2009, U.S. GDp grew 2.2 percent in
the third quarter and increased at an annualized rate of 5.7 percent in the fourth quarter of 2009. GDp
growth during the fourth quarter reflected an acceleration in private inventory investment, a decelera-
tion in imports, and increased nonresidential investment. however, it was partially offset by decelera-
tions in federal government spending and in personal consumption expenditures. in addition, the third
quarter of 2009 saw worker productivity (amount of output per hour worked) increase at its highest
rate (annualized 8.1 percent) in six years, beating labor Department estimates, while labor costs shrunk
by an annualized 2.5 percent. Meanwhile, the Commerce Department reported that factory orders for
July 2009 increased for the fifth time in six months, gaining 1.3 percent. this gain was led by the strong
performance of durable goods, in particular transportation goods, which surged 18.5 percent at least
partially due to the federal government’s Cash for Clunkers incentive program.30

Unemployment took somewhat longer to improve, reaching a high of 10.1 percent in october 2009
and hovering between 9 and 10 percent through the end of 2010 (Exhibit 15). then, after several con-
secutive monthly drops, the national unemployment rate fell to a two-year low of 8.8 percent in March
2011. Most of the 216,000 jobs created that month were in the private sector, offsetting job cuts by local
governments, which were still experiencing financial difficulties.31

BANKS AS A LAGGING INDICATOR

even as other indicators showed signs of recovery, the U.S. banking sector continued to lag. Just
three banks were forced to close in 2007, compared with 25 in 2008. in 2009, an astonishing 140 banks
were shuttered, leaving the FDiC’s insurance fund at its lowest point in more than 15 years. Such a
large number of bank failures had not occurred since the savings and loan crisis of the early 1990s.

at the time the recession technically ended (second quarter 2009), the FDiC had 416 banks on its
“problem list,” meaning they were undercapitalized or deficient in some way. experts predicted
another 100 to 300 banks, particularly small ones, could fail while the crisis ran its course.24 in fact, con-
ditions grew even worse in 2010 with 157 closures, and remained elevated through first quarter 2011,
during which 26 bank failures occurred (Exhibit 16).

Unfortunately for many regional banks, the mantra “too big to fail” did not apply. they were too
small to be bailed out, and thus became mass casualties of the financial meltdown. one of the most
noteworthy failures was the regional commercial real-estate lending giant Colonial Bank, based in

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8
Bank of America and the New Financial Landscape

Montgomery, alabama. With total deposits of $20 billion and assets of $22 billion as of mid-august
2009, Colonial was the sixth-largest bank failure in U.S. history. its assets and deposits, along with
its 346 branches, were sold to BB&t.32 overall, the dramatic rise in bank failures was attributed to
defaults on commercial loans given to developers, many of whom simply walked away from projects
as demand dried up. another potent contributor was rising default rates on traditional prime mort-
gages, driven by the increase in unemployment.

Bank of America after the Crisi

s

as the financial situation regained its footing, Bank of america’s senior management came under
heavy fire for decisions made during the crisis. Serious questions were raised regarding the role played
by the Federal reserve in Bank of america’s acquisition of Merrill lynch.

CRISIS CLEAN-UP

an april 2009 report by new york attorney General andrew Cuomo alleged that federal officials,
namely former treasury Secretary hank paulson and Federal reserve Chairman Ben Bernanke, pres-
sured Ceo ken lewis into proceeding with the merger without disclosing significant losses the broker-
age was carrying on its books. lewis’s concerns proved to be valid when it was ultimately revealed that
Merrill lynch’s fourth-quarter losses topped $15 billion.33 Concerned about the viability and value of
the merger, stockholders voted (narrowly) to replace ken lewis as chairman of the board of directors,
but allowed him to remain as Ceo for the time being.

outraged Bank of america shareholders also questioned the large bonus pool paid at Merrill lynch,
despite the $27.6 billion in losses incurred by the firm in 2008. in all, the Merrill lynch compensation
committee approved $3.6 billion in bonus payments only three days after Bank of america sharehold-
ers approved the merger. Bonus payments were made just one day prior to the deal becoming effec-
tive.34 Under questioning from federal investigators, former Merrill lynch Ceo John thain claimed
that Bank of america, and ken lewis in particular, were fully aware of the incentive-compensation
plan in place when the bank purchased the floundering brokerage firm, effective January 1, 2009. this
contradicted lewis’s testimony to the house Financial Services Committee on February 11, 2009, when
he claimed to have very little involvement in the Merrill lynch bonus plan.

the SeC also took notice and launched an investigation to determine whether Bank of america’s
management misled shareholders prior to the December 2008 meeting in which the merger was
approved. in august 2009, the SeC filed a civil suit in U.S. District Court for the Southern District of
new york, claiming that proxy documents mailed to shareholders failed to disclose Bank of america’s
prior agreement with Merrill lynch authorizing the payment of billions of dollars in year-end bonuses
prior to the close of the merger. then in January 2010, the SeC filed a second charge that Bank of
america failed to disclose to shareholders the extraordinary losses incurred by Merrill lynch in the
fourth quarter of 2008.

Bank of america denied any wrongdoing but agreed to a settlement that stipulated payment of $150
million to shareholders harmed by the disclosure violations. the bank also had to promise to adhere for
the next three years to a series of remedial actions designed to improve its corporate governance with
respect to executive compensation and financial transparency.35

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
9

EXECUTIVE SHAKEUP

the year following the Merrill lynch merger saw a massive shakeup of the executive leadership at
Bank of america. Starting in early august, several members of the guiding team left and were replaced
by fresh faces. according to the official press release, the changes were meant to “enhance future suc-
cess at the company.”36 Brian Moynihan, former head of Global Corporate and investment Banking
(GCiB) replaced liam McGee, a 20-year Bank of america veteran, as head of Consumer Banking. tom
Montag took over responsibility for GCiB from Moynihan in addition to his role as head of Global
Markets.

the largest news-grabber, however, was the addition of Sallie krawcheck as head of Global Wealth
and investment Management. Ms. krawcheck has a long and accomplished resume and is widely
regarded as one of the most powerful women in business. Before moving to Bank of america, she
rose from her position as an equity analyst to Ceo of research firm Sanford C. Bernstein & Co. She
subsequently served as CFo and head of strategy for Citigroup. Most recently, she served as Ceo in
charge of Smith Barney and the Citi private Bank, Citigroup’s wealth-management businesses. Bank of
america expected big things from the addition of Ms. krawcheck. Upon her hiring, ken lewis stated,
“She is acknowledged to be one of the premier executives in the wealth-management industry. her
experience and perspective will lead that business to the next level.”31

the biggest change came at the end of September 2009 when Ceo lewis announced that he would
leave the company at the end of the year.37 those close to the decision said that lewis had grown weary
of the criticism surrounding the Merrill lynch acquisition. those sources said the decision was solely
lewis’s and that he was under no pressure from the board of directors or government officials. “the
Merrill lynch and Countrywide integrations are on track and returning value already,” said lewis in
his official statement. “our board of directors and our senior management include more talent, and
more diversity of talent, than at any time in this company’s history. We are in position to begin to repay
the federal government’s tarp investments. For these reasons, i decided now is the time to begin to
transition to the next generation of leadership at Bank of america.” in January 2010, the bank’s board
named Brian Moynihan as lewis’s successor as Ceo. Moynihan inherited a bank with 280,000 employ-
ees that was active in more than 180 countries across the globe.

TARP FUNDS

in June 2009, 10 banks repurchased a combined $68 billion worth of preferred stock that the govern-
ment had purchased from the banks under tarp to inject capital into the banking system. included
among the ten were major rivals JpMorgan Chase, Morgan Stanley, and Goldman Sachs Group. the
repayment was in direct response to government “stress tests” of 19 of the nation’s largest financial
institutions, a test that large banks like Wells Fargo, Citigroup, and Bank of america failed.38

eager to restore some luster to its tarnished image, Bank of america announced the complete repay-
ment of its own $45 million in tarp funds on December 9, 2009. Despite the fact that the bank lagged
behind several of its major competitors in this regard, Ceo lewis looked positively toward the future:
“We owe taxpayers our thanks for making these funds available to the nation’s financial system and
to our company during a very difficult time,” said lewis. “now that we have cleared this significant
hurdle, which demonstrates the strength of our company, we look forward to continuing to play a key
role in the economic recovery and helping to meet the changing needs of our customers and clients.”39

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

1

0

Bank of America and the New Financial Landscape

Critics were a bit less optimistic, however. an analyst cited by huffingtonpost.com argued that the
timing was too soon, given the number of delinquent loans that were likely to default in the near
future. Using $26 billion in extra cash to pay back tarp funds at the same time the Federal reserve was
in the process of withdrawing other subsidies for large banks was also likely to leave Bank of america
in a weak cash position.40 others argued that the payback was a mere sleight of hand designed to
allow lewis to take a “victory lap” 41 before stepping down as Ceo. Bank of america continued to take
advantage of low-interest loans from the federal government that did not have any of the restrictions
that tarp funds did.42

BUSINESS OUTLOOK

in 2008, analysts estimated that U.S. property owners lost $3.3 trillion in housing value and that one
in six americans owed more than their homes were worth.43 Unfortunately for homeowners and the
banks holding their mortgages, the real estate market continued to struggle even after the technical end
of the recession in June 2009. Due to its acquisition of mortgage-lending giant Countrywide Financial,
Bank of america had become the leading servicer of mortgages in the United States. this left the bank
vulnerable as struggling homeowners continued to abandon their properties at unprecedented rates.

in July 2009, Bank of america reached a settlement with the attorneys General of 40 states to start
three programs aimed at relieving homeowners’ financial distress. the Foreclosure relief program
provided $150 million in assistance for certain borrowers who experienced a foreclosure, short sale,
or deed-in-lieu of foreclosure on mortgages originated by Countrywide. the second initiative, the
national homeownership retention program, was aimed at creating affordable and sustainable mort-
gage payments for 400,000 homebuyers who financed their purchases with subprime or adjustable-rate
mortgages serviced by Countrywide. the third component provided cash assistance for individuals
subject to a foreclosure sale who vacated their property voluntarily.

in its 2010 annual report, Bank of america reported that it had modified nearly 775,000 mortgages
since January 2008. it had also reached an agreement to pay $2.8 billion to Freddie Mac and Fannie Mae
to resolve claims related to mortgages they had purchased from Countrywide and its affiliates. Despite
these positive steps, Bank of america was not yet out of the “mortgage woods”: the housing market
remained weak throughout 2010, with house prices showing a downward trend in the second half of
the year.44

however, the Merrill lynch acquisition was starting to look up. according to an april 2010 article in
The Economist magazine, attrition at Bank of america and Merrill lynch’s combined investment bank-
ing operations had slowed considerably.45 new management that was brought in to refresh the firm
seemed to be having the desired effect. overall the bank earned $3.2 billion in the first quarter of 2010,
driven mostly by a reduction in provisions for credit losses and strength in the capital markets. thus,
while some things were improving, Bank of america still had a long way to go toward full financial
recovery.

Management’s Challenge

in Stephanie Milner’s conference room, consensus is easy to achieve on one point: executive man-
agement is ready to get the bank back on track to profitability. however, many obstacles stand in the
way. First and foremost are the many challenges that come with the merging of any large organizations.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
11

Bank of america’s case is even more complicated because it is integrating two distinct entities at the
same time, both of which were failing when the bank assumed control. each has a significant amount
of “baggage” that needs to be sorted through in order to clear a path toward a better future. Bank of
america’s home retention program represents a significant effort to undo the negative aspects of
Countrywide’s legacy, but how much longer will the past continue to haunt the bank’s financial state-
ments? Major competitors like JpMorgan Chase and Morgan Stanley were able to pay back their tarp
funds and put the financial crisis behind them much more quickly. Bank of america cannot afford to
fall behind. (See Exhibit 17 for a revenue and net income comparison among major competitors.)

then there is the question of what integration should look like—which activities should stay, which
should be spun off, and what redundancies should be eliminated? the longer it takes Bank of america
to sort out these issues, the more likely it is to lose star talent to other firms, especially as the financial
sector perks back up. Should the bank go with a single brand and image, or take advantage of the
equity that remains in the Merrill lynch name? (letting go of Countrywide seems to be a foregone
conclusion.) one of the attractive aspects of Merrill lynch is its international presence and the promise
it holds for global expansion. Will foreign countries embrace the bank as readily if it renames Merrill
lynch’s worldwide operations as Bank of america?

as the bank continues to grow in the future, what competencies should it rely on? historically,
Bank of america has been known for its willingness to innovate and push the boundaries of banking
technology. the bank led the way in online banking, including advanced bill-payment options for cus-
tomers, mobile-banking applications for smartphones, and atM technology that can accept deposits
without envelopes, scan and recognize checks, and count cash. Bank of america has also developed a
reputation for developing class-leading, customer-oriented promotions and services, such as its “keep
the Change” and “privacy assist” programs (see Exhibits 18 and 19). Should innovation and service
continue to be the building blocks of its future competitive advantage, or have the changes brought
about by the financial crisis rendered them less effective going forward? how could these strengths be
combined with what Merrill lynch and Countrywide have to offer?

Further, how should the company grow in the future? in the past, Bank of america has displayed a
steady appetite for acquisitions, making it the mammoth financial institution it is today. But how big is
too big, and how can a firm know when it has reached that threshold? With the number of annual bank
failures still quite high, plenty of acquisition targets exist, but do their discounted prices merit taking
on even more financial distress? how healthy does Bank of america have to be in order to consider
additional purchases?

Finally, in order to avoid repeating previous mistakes, Bank of america needs to understand how
Merrill lynch and Countrywide got themselves into such precarious financial positions in the first
place. What risk-management mechanisms were in place to prevent such massive losses, and why
were they ineffective? Was the financial crisis created by good people making bad decisions at an inop-
portune time? or were the people themselves to blame? to what extent did corporate strategy and
compensation incentives promote unnecessary risk-taking? and most importantly, how can situations
like the 2008 financial crisis be avoided in the future?

Stephanie Milner and the rest of the team must assess all of these issues and draft a set of rec-
ommendations to help guide future strategy development. their recommendations need to address
weaknesses in past strategy that may have contributed to the crisis at each firm (Bank of america,
Countrywide, and Merrill lynch). in addition, they need to discuss how Bank of america can harness
the inherent strengths of the legacy firms and build a stronger, more financially secure organization.
the group begins to work.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

12

Bank of America and the New Financial Landscape

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For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
13

EXHIBIT 2 Bank of america Corporation Consolidated Statement of income (in millions)

2010 2009 2008 2007 2006 2005

Revenue

Net interest income $ 51,523 $ 47,109 $ 45,360 $34,441 $34,594 $30,737

Non-interest income 58,697 72,534 27,422 32,392 38,182 26,438

Total Revenue, Net of Interest
Expense

110,220 119,643 72,782 66,833 72,776 57,175

Expenses

Provision for credit losses 28,435 48,570 26,825 8,385 5,010 4,014

Noninterest expense, before merger
and restructuring charges

81,288 63,992 40,594 37,114 34,988 28,269

Merger and restructuring charges 1,820 2,721 935 410 805 412

Total Expenses 111,543 115,283 68,354 45,909 40,803 32,695

Income before Income Taxes (1,323) 4,360 4,428 20,924 31,973 24,480

Income tax expense (benefit) 915 (1,916) 420 5,942 10,840 8,015

Net Income (Loss) $ (2,238) $ 6,276 $ 4,008 $14,982 $21,133 $16,465

Source: Bank of america Corporation annual reports.

EXHIBIT 3 other Financial Data and ratios

2010 2009 2008 2007 2006 2005

Performance Ratios

Return on average assets N/M 0.26% 0.22% 0.94% 1.44% 1.3

0%

Return on average common shareholders’ equity N/M N/M 1.80% 11.08% 16.27% 16.51%

Return on average tangible common
shareholders’ equity

N/M N/M
4.72% 26.19% 38.23% 31.80%

Return on average tangible shareholders’ equity N/M 4.18% 5.19% 25.13% 37.80% 31.67%

Total ending equity to total ending assets 10.08 10.38 9.74 8.56 9.27 7.86

Total average equity to total average assets 9.56 10.01 8.94 8.53 8.90 7.86

Dividend payout N/M N/M N/M $72.26 $45.66 $46.61

Per Common Share Data

Earnings (loss) $ (0.37) $ (0.29) $ 0.54 $ 3.32 $ 4.63 $ 4.08

Diluted earnings (loss) $ (0.37) $ (0.29) $ 0.54 $ 3.29 $ 4.58 $ 4.02

Dividends paid $ 0.04 $ 0.04 $ 2.24 $ 2.40 $ 2.12 $ 1.90

Book value $20.99 $21.48 $27.77 $32.09 $29.70 $25.32

Tangible book value $12.98 $11.94 $10.11 $12.71 $13.26 $13.51

Market Price per Share of Common Stock

Closing $13.34 $15.06 $14.08 $41.26 $53.39 $46.15

High closing $19.48 $18.59 $45.03 $54.05 $54.90 $47.08

Low closing $10.95 $ 3.14 $11.25 $41.10 $43.09 $41.57

(continued)

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

14
Bank of America and the New Financial Landscape

EXHIBIT 3 other Financial Data and ratios (continued)

Source: Compiled from Bank of america Corporation annual reports.

2010 2009 2008 2007 2006 2005

Market capitalization $134,536 $130,273 $70,645 $183,107 $238,021 $184,586

Asset Quality

Allowance for credit losses ($M) $ 43,073 $ 38,687 $23,492 $ 12,106 $ 9,413 $ 8,440

Nonperforming loans, leases, and fore closed
properties ($M) $ 32,664 $ 35,747 $18,212 $ 5,948 $ 1,856 $ 1,603

Allowance for loan and lease losses (% of total
loans) 4.47% 4.16% 2.49% 1.33% 1.28% 1.40%

Net charge-offs $ 34,334 $ 33,688 $16,231 $6,480 $ 4,539 $ 4,562

Net charge-offs (% of total loans) 3.60% 3.58% 1.79% 0.84% 0.70% 0.85%

Nonperforming loans (% of total loans) 3.27% 3.75% 1.77% 0.64% 0.25% 0.26%

Ratio of the allowance for loan and lease losses 1.22 1.1 1.42 1.79 1.99 1.76

Year Event

1874 Commercial National Bank was founded in Charlotte, North Carolina

1904 Amadeo Giannini founds the Bank of Italy in San Francisco, California

1922 Bank of Italy purchases Banca dell’Italia Meridonale and rebrands as Bank of America and Italy

1927 Bank of America and Italy merges with Liberty Bank of America to form Bank of Italy National Trust & Savings
Association

1930 Bank of Italy National Trust & Savings Association merges with Bank of America Los Angelas and rebrands as Bank
of America

1958 Commercial National Bank purchases Charlotte competitor American Trust Company and rebrands as American
Commercial Bank

1958 Bank of America issues the first BankAmericard, ushering in the era of credit cards

1960 American Commercial Bank purchases Securities National Bank and rebrands as North Carolina National Bank
(NCNB)

1967 The Bank Holding Company Act of 1967

1975 The BankAmericard association rebrands as Visa

1982 NCNB exbands beyond North Carolina by purchasing First National Bank of Lake City in Lake City, Florida

1983 Hugh McColl becomes CEO of NCNB

1983 BankAmerica Corporation purchases Seattle, Washington–based Seattle First National Bank

1986 Large BankAmerica losses due to third-world lending lead to unsuccesful takeover attempt by First Interstate Bancorp

1991 NCNB rebrands as NationsBank after the purchase of Atlanta, Georgia–based C&S/Sovran Corpoation

1992 Bank America Corporation purchases Security Pacific Corporation and gains a foothold in all major West Coast
markets

EXHIBIT 4 key Dates in the history of Bank of america

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
15

Source: Bank of america (www.bankofamerica.com).

Year Event

1994 BankAmerica purchases Continental Illinois National Bank & Trust Co. and overtakes NationsBank as the largest bank
in America

1995 NationsBank purchases BankSouth for $1.6 billion

1996 NationsBank purchases St. Louis’s Boatmen’s Bankshares for $9.6 billion

1997 NationsBank purchases Florida-based Barnett Bank for $15.5 billion

1997 BankAmerica loans hedge fund D.E. Shaw $1.4 billion in exchange for services

1998 Russian bond defaults cripple D.E. Shaw and weaken BankAmerica

1998 NationsBank purchases BankAmerica for $64.8 billion and rebrands as the Bank of America Corporation

2001 Hugh McColl steps down as CEO of Bank of America and is succeeded by Ken Lewis

2004 Bank of America Corporation purchases FleetBoston Financial for $47 billion

2005 Bank of America Corporation purchases MBNA for $35 billion

2005 Bank of America Corporation purchases ABN AMRO North America and LaSalle Bank from ABN AMRO for $21 billion

2008 Bank of America Corporation purchases Countrywide Financial and rebrands the firm as Bank of America Home Loans

2008 Bank of America Corporation purchases Merrill Lynch for $50 billion

2008 Bank of America Corporation recieves $25 billion in federal TARP funds

2009 Bank of America Corporation receives an additional $20 billion in TARP funds, plus $118 billion in guarantees against
Merrill Lynch losses from the FDIC

EXHIBIT 4 (continued)

EXHIBIT 5 Bank of america–total assets ($M)

2010

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

20052006200720082009

Source: Compiled from Bank of america 10-k filings.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

16
Bank of America and the New Financial Landscape

JPMorgan
Chase

Bank of
America

Citibank U.S. Bank PNC BankWells
Far

go

$2,00,000

$4,00,000

$6,00,000

$8,00,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$0

EXHIBIT 6 total assets of largest U.S. Bank holding Companies

Source: Federal reserve Board, national information Center, www.federalreserve.gov/releases/lbr/current/default.htm.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
17

A.I
.G.

Cit
igr

ou
p,

Inc
.

Ba
nk

of
Am

eri
ca

Co
rpo

rat
ion

We
lls

Fa
rgo

&
Co

mp
an

y

JP
M

org
an

Ch
as

e &
Co

mp
an
y

Th
e G

old
ma

n S
ac

hs
Gr

ou
p,
Inc
.

Mo
rga

n S
tan

ley

U.S
. H

om
eo

wn
ers

Au
tom

ak
ers

, G
MA

C
$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

EXHIBIT 7 largest recipients of tarp Funds

Source: “tracking the $700 Billion Bailout,” The New York Times, www.nytimes.com/packages/html/national/200904_
CreDitCriSiS/recipients.html.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

18
Bank of America and the New Financial Landscape

Ju
n ’

03

Ja
n ’

04

Au
g ’

04

Ma
r ’0

5

Oc
t ’0

5

Ma
y ’

06

De
c ’

06
Ju

l ’0
7

Fe
b ’

08

Se
p ’

08

Ap
r ’0

9

No
v ’

09
Ju
n ’
10
Ja
n ’

11
0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

30-Year-FRM 15-Year-FRM 30-Year-1-ARM

EXHIBIT 9 historic Mortgage rates, June 2003–January 2011

EXHIBIT 8 Bank of america’s Diversification Strategy in 2003

Percent of Revenue

Consumer &
Commercial

Banking

69%

Asset
Manage–

ment

7%
Global &

Corporate
Investment

Banking

2

4%

Source: Blamely, r. S., S. Griffin, Q. Makins, B. rule, and D. thompson (2010), “a strategic perspective on Bank of america,”
Georgia institute of technology.

Source: www.hsh.com/mtghst.html.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
19

EXHIBIT 10 U.S. household Debt outstanding 1979–2010 (in billions)

Source: www.federalreserve.gov/releases/z1/current/z1r-2 .

19
79

19
81

19
83

19
85

19
87

19
89

19
91

19
93

19
95

19
97

19
99

20
01

20
03

20
05

20
07

20
09

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Home Mortgage Consumer Credit Total

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

20
Bank of America and the New Financial Landscape

EXHIBIT 11 historical U.S. home price indices

Source: www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDt-type&blobcol=urldocumentfile&blobtable
=SpComSecureDocument&blobheadervalue2=inline%3B+filename%3Ddownload &blobheadername2=Content-Dis
position&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=
content-type&blobwhere=1245301368714&blobheadervalue3=abinary%3B+charset%3DUtF-8&blobnocache=true.

1988
2

24%

2

20%

21

8%

2

12%

28%

24%

Pe
rc

en
t c

ha
ng

e,
y

ea
r a

go
0%
4%
8%
12%

16%

20%
24%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2006 2010

S&P/Case-Shiller Home Price Indices
24%

20%
16%
12%
8%
4%
0%
24%
28%

212%

216%

220%

224%

Percent change, year ago

10-City Composite 20-City Composite

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
21

EXHIBIT 12 total issuance of asset-Backed Securities

EXHIBIT 13 Global CDo issuance (in millions)

Source: the Securities industry and Financial Markets association, www.sifma.org/research/item.aspx?id=23319.

Source: Securities industry and Financial Markets association, http://search.sifma.org/search?q=CDo+issuance&submit=Go
&site=SiFMa&client=SiFMa&proxystylesheet=SiFMa&output=xml_no_dtd.

2001
0

100

200

300

400

500

600

700

800
$

Bi
lli

on
s

2002 2003 2004 2005 2006 2007 2008 2009 2010

$0

$50,000

$1,00,000

$1,50,000

$2,00,000

$3,00,000

$3,50,000

$4,00,000

$4,50,000

$5,00,000

$2,50,000

2010 2011
YTD

200520042003200220012000 2006

2007 2008 2009

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

22
Bank of America and the New Financial Landscape

Global
Banking

19%

Global Card
Services

24%

Deposits

11%
Home Loans

14%

Global
Wealth

15%

Percent of Revenue

Global
Markets

17%

4.0

Ma
r-0

9

Ju
n-0

9

Se
p-0

9

De
c-0

9

Ma
r-1

0

Ju
n-1

0

Se
p-1

0

De
c-1

0
Ma
r-1
1
Ma
r-0
9
Ju
n-0
9
Se
p-0
9
De
c-0
9
Ma
r-1
0
Ju
n-0
9
Se
p-1
0
De
c-1
0
Ma
r-1
1

5.0

6.0

7.0

8.0

9.0

10.0

11.0 600

Th
ou

sa
nd

s
400
200
0

2200

2400

2600

2800

21000

Pe
rc

en
t

EXHIBIT 14 Bank of america’s Diversification Strategy in 2009

EXHIBIT 15 Seasonally adjusted Unemployment rates and non-Farm payroll
employment Change (Month over Month)

Source: U.S. Bureau of labor Statistics, www.bls.gov/news.release/pdf/empsit .

Source: Blamely, r. S., S. Griffin, Q. Makins, B. rule, and D. thompson (2010), “a strategic perspective on Bank of america,”
Georgia institute of technology.
For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
23

EXHIBIT 16 yearly Bank Failures, 2000–2011

2010 201120042003200220012000
0

20

40

60
80
100

120

140

160

180

2007 2008 2009

EXHIBIT 17 revenue and net income of Major U.S. Banks, 2005–2009

$(40,000)

$(20,000)

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$0

Citigroup Revenue
Wells Fargo Revenue

Chase Revenue
Bank of America Revenue

Chase Net Income
Bank of America Net Income

Citigroup Net Income
Wells Fargo Net Income

2005 2006 2007 2008 2009

Source: FDiC, www2.fdic.gov/hsob/hsobrpt.asp.

Source: Blamely, r. S., S. Griffin, Q. Makins, B. rule, and D. thompson (2010), “a strategic perspective on Bank of america,”
Georgia institute of technology.
For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

24
Bank of America and the New Financial Landscape

6.69

6.53

6.53

6.38

6.03

5.63

4.89

JPMorgan Chase

Credit Suisse Group2

4
5
6
7
2

1 Bank of America

Wells Fargo

Deutsche Bank

ING Group

BNP Paribas

Overall ScoreCompanyRank

Innovation 1

1
1
2
2
2
4
4
10

Nine Key Attributes of
Industry Reputation Rank

Social responsibility

Quality of products/services

People management

Quality of management

Long term investment 

Use of corporate assets

Financial soundness

Global competitiveness

EXHIBIT 18 Bank of america’s ranking in the Fortune 500

EXHIBIT 19 Bank of america’s Fortune 500 ranking by attribute

Source: Blamely, r. S., S. Griffin, Q. Makins, B. rule, and D. thompson (2010), “a strategic perspective on Bank of america,”
Georgia institute of technology.

Source: Blamely, r. S., S. Griffin, Q. Makins, B. rule, and D. thompson (2010). “a strategic perspective on Bank of america,”
Georgia institute of technology.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

Bank of America and the New Financial Landscape
25

Endnotes

1. “top 50 Bank holding Companies,” United States Federal reserve System, national information Center.

2. Dash, e., l. Story, and a. r. Sorkin (2009), “Bank of america to receive additional $20 billion,” The New York
Times, January 15.

3. Board of Governors of the Federal reserve Board System, press release, January 16, 2009, www.federalre-
serve.gov/newsevents/press/bcreg/20090116a.htm.

4. robb, G. (2009), “Bernanke declares ‘recession is very likely over,’” MarketWatch, The Wall Street Journal,
September 15.

5. Bank of america online heritage Center; http://newsroom.bankofamerica.com/heritagecenter/.

6. “U.S. banking mega-merger unveiled,” BBC World news. october 27, 2003.

7. henderson, t. (2008), “Boa to ‘paint the town red’ with laSalle name change,” Crain’s Detroit Business, april
14.

8. Bauerlein, V, and J. r. hagerty (2008), “Behind Bank of america’s big gamble,” The Wall Street Journal, January
12.

9. “three top economists agree 2009 worst financial crisis since Great Depression; risks increase if right steps are
not taken,” reuters, February 27.

10. krugman, p. (2009), “revenge of the glut,” The New York Times, March 1.

11. Steverman, B, and D. Bogoslaw (2008), “the financial crisis blame game,” BusinessWeek.com, october 18.

12. asset-Backed Security, www.investopedia.com.

13. Mongoose, D., “Collateralized debt obligations: from boon to burden,” Investopedia.com.

14. Barr, a. (2008), “Brokers threatened by run on shadow bank system,” MarketWatch, The Wall Street Journal,
June 20.

15. Greenspan, a. (2009), “We need a better cushion against risk,” Financial Times, March 26.

16. Barr, a. (2008), “Brokers threatened by run on shadow bank system.”

17. onaran, y. (2008), “Fed aided Bear Stearns as firm faced Chapter 11, Bernanke says,” Bloomberg.com, april 2.

18. Mamudi, S. (2008), “lehman folds with record $613 billion debt,” MarketWatch, The Wall Street Journal,
September 15.

19. anderson, J., and l. thomas Jr. (2007), “nySe chief is chosen to lead Merrill lynch,” The New York Times,
november 15.

20. Story, l. (2008), “Chief struggles to revive Merrill lynch,” The New York Times, July 18.

21. Dash, e. (2007), “Merrill lynch sells stake to Singapore firm,” The New York Times, December 25.

22. Moyer, l. (2008), “they all fall down,” Newsweek, September 15.

23. reynolds, a. (2009), “the government’s influence on the stock market,” Forbes.com, March 25.

24. Crutsinger, M. (2010), “treasury plans first Citigroup stock sale,” Washingtontimes.com, april 26.

25. www.treasury.gov/press-center/press-releases/pages/tg660.aspx.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

26
Bank of America and the New Financial Landscape

26. www.treasury.gov/press-center/press-releases/pages/tg1121.aspx.

27. “Fed approves GMaC bank request in boost for GM,” aFp, December 24, 2008.

28. Business Cycle Dating Committee, nBer, www.nber.org/cycles/recessions.html.

29. www.nber.org/cycles/sept2010.html.

30. “Who needs more workers?” The Economist, September 3, 2009.

31. www.bbc.co.uk/news/business-12935003.

32. pepitone, J. (2009), “Bank failures stack up: now 106 for 2009,” CNNMoney.com, october 23.

33. Wingfield, B. (2009), “Did Bernanke bully B of a?” Forbes.com, april 23.

34. Fitzpatrick, D. and k. Scannell (2009), “B of a denies misleading its investors on bonuses,” The Wall Street
Journal, august 25.

35. www.sec.gov/litigation/litreleases/2010/lr21407.htm.

36. Bank of america online newsroom, august 3, 2009, http://newsroom.bankofamerica.com.

37. “ken lewis announces his retirement,” Nasdaq.com, prnewswire September 30, 2009.

38. “ten banks allowed to repay $68 billion to the tarp fund,” CnBC, June 9, 2009.

39. http://mediaroom.bankofamerica.com/phoenix.
zhtml?c=234503&p=irol-newsarticle&iD=1390319&highlight=.

40. www.huffingtonpost.com/2009/12/04/bank-of-america-tarp-repa_n_380776.html.

41. ibid.

42. http://consumerist.com/2009/12/why-bank-of-americas-tarp-payback-is-bad-news.html.

43. levy, D. (2009), “U.S. property owners lost $3.3 trillion in home value,” Bloomberg.com, February 3.

44. 2010 annual report, http://media.corporate-ir.net/media_files/irol/71/71595/reports/2010_ar .

45. “Might the most controversial deal of the financial crisis pay off after all?” The Economist, april 14, 2010.

For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in Financial Institutions spring 2020 taught by ROBERT FULLER, The Ohio State University from Dec 2019 to Jun 2020.

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