Bank of America Corporation

I

Introduction

Bank of America Corporation, holding company for Bank of America, one of the largest banks in the United States. Bank of America offers a broad range of financial services to consumers and corporations, including domestic and international banking, investment and funds management, administration of trusts, and purchasing loans that are secured by real estate. Originally named BankAmerica Corporation and based in San Francisco, California, the holding company merged in 1998 with NationsBank Corporation of Charlotte, North Carolina, creating the first U.S. coast-to-coast bank. The combined company moved its headquarters to Charlotte and later took the name Bank of America Corporation. It has branches throughout the United States and business customers in more than 30 countries. In 2008, as part of the financial crisis that devastated many firms, Bank of America acquired the well-known Wall Street firm Merrill Lynch.

II

Bank of America’s Early History

The massive Bank of America traces its roots to the Bank of Italy, known as the “little fellows bank,” founded by A. P. Giannini in 1904. Giannini, a produce merchant in San Francisco, inherited a seat on the board of directors of a savings bank in the city’s Italian neighborhood from his father-in-law. Believing that the local banks excluded working-class consumers seeking smaller loans, Giannini resigned from the board and opened his own bank. By making loans as small as $25, selling stock to a small group of loyal investors, and going door-to-door to solicit customers, Giannini launched what became the first network of branch banks serving local communities in San Francisco.

After the devastating earthquake and fire that struck San Francisco in 1906, Giannini’s bank was the first to open for business. Three years later Bank of Italy purchased San Jose Bank, beginning a process of acquisitions and expansion. By 1918 Bank of Italy had 24 branches. In 1921 Giannini purchased the Bank of America of Los Angeles, with its 21 branches. In this way Giannini sidestepped the order of the Federal Reserve Board prohibiting member banks from opening new branches (see Federal Reserve System). After the U.S. Congress relaxed the restrictions on branch banking in 1927, Giannini established Bank of America branches in several western states.

In 1928 Giannini formed the TransAmerica holding company. In 1930, under the TransAmerica umbrella, he consolidated Bank of Italy and Bank of America as the Bank of America National Trust and Savings Association. Giannini retired and traveled to Europe in 1931, but he returned to regain control of TransAmerica that same year after he learned that his successor had begun selling off the company’s assets.

---

---

Bank of America survived the Great Depression of the 1930s, when massive unemployment led to reduced deposits and large numbers of unpaid loans, and by 1936 ranked as the fourth largest financial institution and the second largest savings bank in the United States, with assets exceeding $2.1 billion. In the wake of the nation’s banking system crisis during the depression, in 1937 the federal government forced TransAmerica to divest (sell) its majority interest in Bank of America.

III

Growth and Innovation

During World War II (1939-1945) Bank of America doubled in size and surpassed Chase Manhattan as the world’s largest bank. The bank continued to grow after the war, when the expansion of the defense industry stimulated California’s economy. In the late 1950s the federal government forced Bank of America to divest its banking operations located outside of California and to separate completely from TransAmerica. Bank of America then decentralized operations and expanded internationally. By 1960 the bank’s assets had reached nearly $12 billion. The BankAmerica Corporation holding company was formed in 1968.

Bank of America was the first bank to electronically manage its records, and by 1961 the bank had computerized all operations. In 1958 the company introduced a bank credit card known as the BankAmericard (BankAmerica sold the bank card system in 1970 and it was later renamed Visa).

Although the bank’s rapid growth continued through the 1970s, it made numerous high-risk loans. During the 1980s the company lost billions on loans to farmers and real estate developers in the United States and to the governments of Latin American countries. Bank of America also suffered from the decline in interest rates and its stock price plummeted. In response, the company overhauled its operations, closed subsidiaries and corporate accounts, and laid off employees for the first time.

IV

Recent Developments

Following the restructuring, Bank of America shifted its focus to the domestic market, concentrating on California. After reducing costs and luring new customers through improved services such as automatic teller machines (ATMs), in 1988 the company earned its first profit in three years. By 1990 Bank of America’s revenues exceeded $1 billion. During the 1990s Bank of America opened hundreds of bank branches in supermarkets and began providing banking services over the Internet.

In the largest bank merger up to that time, Bank of America joined with its California rival Security Pacific Corporation in 1992. Two years later the company acquired Chicago-based Continental Bank Corporation. Bank of America purchased the Robertson Stephens investment banking group of San Francisco in 1997.

The following year NationsBank announced it would acquire BankAmerica Corporation for approximately $60 billion. NationsBank began in 1874 as Commercial National Bank in Charlotte, North Carolina. It merged with many financial institutions throughout the years and changed its name several times. In 1968 it formed a holding company called North Carolina National Bank Corporation. During the 1980s the company began to acquire out-of-state banks in the southern United States. In 1991 it changed its name to NationsBank. During the 1990s the company began to diversify its holdings and bought companies that provided other financial services, such as Montgomery Securities, an investment firm based in San Francisco, California. In 1998 federal regulators approved the merger of NationsBank and BankAmerica to form a combined company worth $570 billion in assets. The company later took the name Bank of America Corporation.

In 2003 Bank of America announced plans to acquire FleetBoston Financial Corporation, a merger that would make Bank of America the second or third largest bank in the United States in assets. The combined bank would have 9.8 percent of the nation’s bank deposits, making it the country’s largest consumer bank. The merger signaled a trend in the banking industry toward a greater focus on consumer—as opposed to corporate—business. In March 2004 federal regulators and shareholders approved the merger, with an effective date of April 1. See also Banking.

Bank of America Corporation and FleetBoston were implicated in the mutual fund scandal that began to unravel in 2003 and early 2004. In March 2004 Bank of America agreed to pay $375 million in fines and fee cuts to settle civil fraud charges brought by the Securities and Exchange Commission (SEC) and the New York State attorney general’s office. FleetBoston agreed to pay $300 million. In agreeing to the settlements, neither company admitted or denied wrongdoing. Both were accused of allowing favored investors in their mutual funds to engage in market timing, a practice that allows some investors to trade shares rapidly at the expense of investors who hold mutual fund shares for the long term.

In June 2005 Bank of America announced plans to purchase MBNA Corp., a leading issuer of credit cards, for about $35 billion. Bank of America thus became the largest issuer of credit cards in the United States.

In 2008 Bank of America acquired the Wall Street firm Merrill Lynch for $50 billion and the mortgage lender Countrywide Financial. As a result Bank of America became the nation’s largest brokerage house and consumer banking franchise.

	More from Encarta
	•  Important Notice: MSN Encarta to be discontinued. Learn more. •  Presidential Myths Quiz •  Coffee break: Recharge your brain