bank of america

See also Banc of America Securities, Banc of America Investment Services, Inc.

Bank of America (NYSE: BAC TYO: 8648 ), is the largest commercial bank in the United States as far as deposits, and the third-largest company in the world according to the 2006 Forbes Global 2000. ^{[1] [2]} Bank of America is the largest American company (by market capitalization) that is not part of the Dow Jones Industrial Average. On 17 July 2006, Bank of America reported second quarter 2006 net income of $5.48 billion, surpassing that of Citigroup for the first time.

Corporate History

NationsBank

Before 1998, the Bank of America that exists today was known as NationsBank, based in Charlotte, NC. In 1998, Nationsbank merged with the smaller San Francisco-based BankAmerica. Nationsbank acquired BankAmerica and assumed the new Bank of America name.

Bank of Italy, BankAmerica, & BankAmericard

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, and thus, unlike many other banks, 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.³

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.

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 in which it operated. With the passage of the Bank Holding Company Act of 1956, banks were prohibited from owning non-banking subsidiaries such as insurance companies, and 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 Corp. 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 WWII), resulting in BankAmerica 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, 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 BankAmerica 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 its 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 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 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 the corporate headquarters building in downtown San Francisco to raise capital was a symbolic blow to the bank.

BankAmerica's next big acquisition came in 1992. BankAmerica 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. Bank of America 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, also behind North Carolina's First Union Corp. In 1998, Bank Of America and NationsBank executed a merger-of-equal and changed the headquarter to Charlotte, North Carolina.

Merger of NationsBank and BankAmerica

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, with the renaming of the former entity to Bank of America Corporation, the deal was structured as a merger, and Bank of America NT&SA, changing its name to Bank of America, N.A. was 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 Bank of America.

Following the $64.8 billion acquisition of BankAmerica by NationsBank, the resulting Bank of America had combined assets of $570 billion, and 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.

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- processes one in every six VISA and MasterCard transactions. The company also provides financial solutions for travel and healthcare companies. BA Merchant Services is headquartered in Louisville, Kentucky].

Also in 2004, Bank of America acquired Boston, Massachusetts-based FleetBoston Financial 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 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 June 30, 2003).

On June 30, 2005 the bank 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 December 15, 2005, and the merger closed on January 1, 2006. The combined Bank of America Card Services organization - including the former MBNA - will have more than 40 million U.S. accounts and nearly $140 billion in outstanding balances.

In May 2006, the Bank of America and Banco Itau - (Investimentos Ita S.A.) entered into an acquisition agreement through which the Banco agreed to acquire BankBoston's operations in Brazil. BankBoston's Brazil includes asset management, private banking, a credit card portfolio, and small, middle-market and large corporate segments. It has 66 branches and 203,000 clients in Brazil. BankBoston in Chile has 44 branches and 58,000 clients and in Uruguay it has 15 branches. In addition, there is also a credit card Company, OCA, in Uruguay, which has 23 branches. BankBoston N.A. in Uruguay, together with OCA, jointly serve 372,000 clients. After the merger 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. Itaú also received exclusive rights to purchase BankBoston's operations in Chile and Uruguay. In return, Bank of America has taken about a 6% stake in Itaú. Banco Boston do Brazil had been founded in 1947. With the purchase, the BankBoston name will disappear from Brazil as BankAmerica has retained the rights to the name and in which they can't use the name due to the merger agreements.

Bank of America Today

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.

Bank of America today is comprised of three main divisions.

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.

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, and Banc of America Specialist.

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.

Controversy and Criticism

Raiding Social Security

In 2004, a California jury decided that Bank of America had illegally raided the Social Security benefits of a million customers. The jury awarded damages that could exceed $1 billion. Bank of America had been accused of withholding customers' direct deposit social security benefit payments to cover debts in cases where a debt is owed to the bank by the customer (e.g.: due to an overdrawn account, various service fees, etc.); this practice violates California state law. The suit claims that Bank of America knew about the law and concealed the facts of this law from their customers. Bank of America counters that it only followed standard industry practice of using monthly pre-authorized direct deposits to cover overdrafts and the like. The case is on appeal.

Excessive overdraft fees

In 1999, a class action lawsuit was filed against Bank of America for engaging in the practice of "Biggest Check First" check-clearing. Put simply, the bank clears checks and ATM/debit card transactions in order from biggest to smallest, with less regard to what time they come in during that business day. The lawsuit claimed that this is done on purpose: that the bank is manipulating the order of transactions to trigger more overdraft fees to collect.

Customers cannot avoid these fees by avoiding use of written checks; the bank employs the same practice for ATM and debit card transactions. Compounding the issue, the bank authorizes transactions in such a way that one debit card purchase - with funds that were available at the time of purchase - can trigger multiple overdraft fees.

When customers make debit card purchases through any modern bank, the charge is immediately deducted from their available balance. Technically, this is just a hold on the funds; the charge is not deducted from the actual, current or posted balance until the merchant settles the transaction with the bank. At Bank of America, if the merchant does not settle within three business days, the funds are once again made available for spending. Thus, the same money can be spent twice. When the merchant does settle the transaction, these funds are again deducted, even if this overdraws the account, which can result in an overdraft fee.

Here's an example: A customer has $100 in her account. On Tuesday, using her debit card, she buys coffee for $3, a small amount of gas for $15, and $25 worth of groceries. The $43 she spent is immediately deducted, and her available balance decreases to $57. If the merchants with whom the customer made the Tuesday purchases fail to settle the transactions before Friday, the $43 shows up on the account as available, bringing her account back to $100. On Saturday she withdraws the $100 from an ATM. As of Sunday night, her account shows exactly $0 remaining available. On Monday evening, all of the merchants with whom she has made purchases the prior week settle their transactions.

When the customer checks her statement Tuesday morning, she finds three overdraft charges, for the three purchases on the prior Tuesday. The customer is naturally confused, as she had not overdrawn her account for any of these transactions when she made them on that day. However, because all four transactions clear on Monday, and the bank clears biggest items first, Tuesday's purchases are all listed after the $100 ATM withdrawal that occurred four days later. The customer is charged three overdraft charges total, instead of one or none.

BofA's response is that their online banking and ATM systems should not be used to determine balance; customers should keep a written account register to be sure of their actual balance.

Bank representatives claim that "Biggest Check First" insulates the Bank from undue risk. By paying the largest items first, the Bank ensures that no loss is incurred on the largest items, and most risky items. Smaller items pose less liability to the Bank, and are therefore paid last. Also, the order in which checks are presented doesn't always correlate with their post time, because their negotiation can happen in a number of ways.

Bank representatives also claim that this benefits customers: larger transactions typically represent more important items on a customer's account such as a mortgage or rent payment, car payment, etc. By paying these items first, the bank helps insure that the customer's most important transactions go through.

The "Biggest Check First" policy is not unique to Bank of America, and is common among other large U.S. banks, such as JP Morgan Chase, Citibank, and Wachovia. It was this policy, in conjunction with the other practices listed above, that prompted the lawsuit. BofA paid a $9M settlement and the lawsuit was dismissed without an admission of fault; BofA continues to process transactions from highest to lowest amounts.

BofA has increased the length of time [debit card] authorizations are listed as pending in online banking from 1 business day to 3 business days to reduce confusion over the actual available balance.

Online Bill Pay

Another relatively new policy Bank of America has implemented is the sending of automated bill payments without available funds -- and the related charging of fees. If previous Fleet or BankBoston customers had an automated bill payment set up but either scheduled the payment for the wrong day or else didn't deposit necessary funds in time, the bank would attempt to make the payments for three days until the money was available, before cancelling the payment attempt. As no money would be transferred unless funding was available, no fees were charged.

Bank of America, however, changed their policy to send the payments even with a zero balance, even electronic payments where it is clear the funds do not exist. They then charge customers up to $35 per scheduled payment. They also do not then cancel the payments, but continue to re-attempt the payments one more time, meaning that if customers do not deposit funds immediately into their account, they can be charged up to $35 per mistakenly scheduled payment, for up to two mistaken payments, or $35 per incident, where their previous banks would have charged nothing.

In February 2006 Bank of America also changed their online bill pay policy to send customers' automated bill payments without debiting the payments from their account until the day after they are processed by the payees' bank. This differs from most online banking customers' previous experience with having the funds immediately debited from their account, making online bill pay more in line with mailing out a paper check. Funds are deducted from a customer's account when the payee processes the payment rather than on the day the payment is sent out. This ensures funds are available longer to the customer and not tied up "in limbo" while waiting for processing to occur.

Closing accounts without cause or warning

When opening a deposit account at Bank of America, the customer signs a signature card which also acts as an agreement between the customer and Bank of America. The signature card states "the written information we give you is part of this agreement and tells you the current terms of our deposit accounts" and that the agreement can be changed at any time. ^{[3] [4]} Although it is Bank of America's policy to provide the other "written information" whenever a customer opens an account, the new customer may or may not receive this other information, depending on whether the Bank of America employee remembers to provide a copy. As a result, a new customer may enter into a contract with Bank of America, without ever having read the agreement or knowing its terms. Contained in the other, unnamed document is language which purports to give Bank of America the right to seize a customer's funds without cause and without warning.

Some have criticized this procedure, since there is no verification that the customer received the information. In 2000 a customer in California successfully sued Bank of America and recovered over a quarter of a million dollars for loss of reputation after the bank closed his accounts without advanced warning and returned several checks marked "insufficient funds" or "account closed." The plaintiff successfully argued that Bank of America had harmed his business reputation by leading the check recipients to believe he had written bad checks, when in fact it was Bank of America's conduct that prevented the checks from clearing. Bank of America defended on the basis that the "written information" gave it the right to act as it did, but the court ruled that Bank of America failed to prove that the customer had ever been given that information. ^[5]

Online banking security

Website redirection weakness

In April 2005, Wells was the target of a phishing scheme that exploited a flaw in the Wells online banking website. Normally, a phishing link that accesses an illegitimate website can be detected by carefully reading the URL in the web browser. One URL for the Bank of America website allowed a second URL to be passed to the Bank of America website for redirection. This allowed the phishing link to access an illegitimate website through the Bank of America website and thereby display a "real" Bank of America URL while accessing the illegitimate site. ^[6]

SiteKey

Announced in May of 2005, SiteKey, provided by Passmark Security, is an additional login step added to the Bank of America online banking website. If the Bank of America system recognizes the user's computer it displays a small image and a text token previously selected by the user. If the user does not recognize the image the user is instructed to not log in and call a phone number for "Electronic Banking Services." If the Bank of America system does not recognize the user's computer the user is asked one of three security questions that had previously been selected and answered by the user. The bank claims this as an added security measure to help reduce the likelihood of phishing attacks by allowing users to easily verify the authenticity of the server to which they are connected.

Though SiteKey will by no means render Bank of America customers immune to phishing attacks, it is a step in the right direction since it demands a two-way exchange of authenticating information: The Web server presents the user its credentials (your chosen image and text) as a means of proving they really are the bank. Only after seeing the image they have chosen, the bank instructs its users, should they, in turn, present their credentials (user ID and passcode).

Customer account numbers may be subject to exposure via brute force attacks. When a user enters any valid bank account number, Sitekey prompts for the selection of the correct Sitekey. Thus it is possible to confirm the existence of a valid account by inspecting the format of a valid account number, cleverly tuning guesses of account numbers, and repeatedly submitting the numbers.

While the two-way authentication is currently an uncommon function among the consumer banking industry, the recognition of the user's computer, or more accurately, their browser, is still done in the normal way using HTTP cookies. Additionally, an Adobe Flash Local Shared Object is added to the user's computer that stores identifying details of customers, such as log-ins, in a way that is said to prevent most customers from finding or deleting them.

International operations

In 2005, Bank of America acquired a 9% stake in China Construction Bank, China's second largest bank, for $3 billion. 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 to 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.

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.

Major sponsorships

Bank of America owns the naming rights of several venues in the sports world.

• Bank of America Stadium, Charlotte - Carolina Panthers, NFL.
• Bank of America Arena, Seattle, Wash. - University of Washington men's and women's basketball
• Bank of America 500, a NASCAR race that is hosted annually at Lowe's Motor Speedway.
• Bank of America Colonial, a PGA Tour golf tournament.

Official bank of

• • United States Olympic Team
  • NASCAR
  • Major League Baseball
  • Minor League Baseball
  • Little League
  • New England Patriots, a NFL team
  • New England Revolution, a MLS team.
  • Carolina Panthers, a NFL team

Ad campaigns that run during the Little League World Series and the World Series use the slogan "The Official Bank of Baseball."

Footnotes

• 1 See Above
• 2 See Above
• 3 BankAmerica, Los Angeles, was created in 1923 following a series of Los Angeles financial institution mergers and acquisitions beginning in 1910. The mergers and acquisitions were conducted by Orra E. Monnette and his father Mervin J. Monnette. Following the merger of the Bank of Italy (San Francisco) with Bank of America, Los Angeles, Orra E. Monnette was named co-chair of resulting Bank of America corporation, a seat that he held until his death in Los Angeles in 1936. Orra Monnette also served as the chairman of the Los Angeles (California) Public Library from the mid 1920s until his death. (Sources: Los Angeles Public Library; Los Angeles Times Obituary February 24, 1936).