Bank of America

• 1. Introduction

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  Bank of America began not in a gleaming tower but in a converted storefront in San Francisco, where on the 17th of October 1904, a man named Amadeo Giannini opened the Bank of Italy to serve Italian immigrants who had been turned away by other banks. Over the next century, that small institution would grow into the second-largest banking operation on Earth by market capitalization, a status it holds today behind only JPMorgan Chase. It now handles roughly ten percent of all American bank deposits and employs enough people to fill a mid-sized city. But the path from Giannini's immigrant-friendly branch to a $313.5 billion corporation runs through a story of extraordinary ambition, catastrophic risk, government rescue, and legal reckoning on a scale rarely seen in American financial history. How did a bank founded to serve a community others had rejected become one of the most powerful financial institutions in the world? And what did that ascent cost?

• 2. Giannini's Vision

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  Amadeo Pietro Giannini founded the Bank of Italy in San Francisco at a moment when American banking largely ignored working-class customers. His target market was the Italian immigrant community, people who faced discrimination at established banks and had nowhere to turn. He believed in branch banking at a time when most banks operated from a single location. California's 1909 legislation permitted branch banking in the state, and Giannini moved quickly. That same year, he opened the bank's first branch outside San Francisco, in San Jose. By 1929, the bank had 453 banking offices in California with aggregate resources of more than $1.4 billion. A replica of that original 1909 San Jose branch still stands in History Park in the city. Giannini's ambitions stretched beyond California. Under his holding company, Transamerica Corporation, he pushed into most western states and into the insurance industry. In 1922, he helped establish the Bank of America, Los Angeles, as a minority investor. Six years later, he merged his Bank of Italy with that institution, and by 1930 the combined entity was renamed Bank of America National Trust and Savings Association. It was the only bank in the country with that designated status. The renamed institution was co-chaired by Giannini and Orra E. Monnette, who had led the Bank of America in Los Angeles. Regulators eventually moved to constrain Giannini's expansion. In 1953, they forced the separation of Transamerica Corporation and Bank of America under the Clayton Antitrust Act. The Bank Holding Company Act of 1956 went further, barring banks from owning non-banking subsidiaries such as insurance companies. Federal regulators also blocked interstate banking, forcing Bank of America's domestic branches outside California into a separate company that eventually became First Interstate Bancorp, later acquired by Wells Fargo in 1996.

• 3. The Credit Card Invention

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  In 1958, Bank of America introduced an instrument that would reshape how Americans spent money: the BankAmericard. At the time, credit and banking were largely separate worlds. Linking them through a card attached to an individual bank account was a new idea. By 1966, a coalition of regional banks had launched a competing product called Interbank, which later became Master Charge and eventually Mastercard in 1979. The BankAmericard itself was renamed Visa in 1977. Both major card networks that today underpin trillions of dollars in global transactions trace their competitive origins to this rivalry. The period of the bank's California expansion was not without turbulence. From February 1970 through September 1971, Bank of America branches in California faced 66 attacks, including 53 bombings or fire-bombings and 13 arson fires. The property damage cost approximately $500,000, with 80 percent of that figure coming from the burning of the Isla Vista branch during a February 1970 riot. The bank weathered those years and in the 1980s, with a relaxation of federal banking regulation, was finally permitted to expand its domestic consumer banking operations outside California again.

• 4. Near-Collapse and Reinvention

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  By the mid-1980s, Bank of America, then operating as BankAmerica Corporation, was in serious trouble. Massive losses in 1986 and 1987, caused by a series of bad loans to developing nations, sent the company's stock price tumbling. The board fired CEO Sam Armacost in 1986 and replaced him with A. W. Clausen, even as Armacost blamed Clausen's earlier tenure for the problems. BankAmerica's stock fell so far that it invited a hostile takeover bid from First Interstate Bancorp of Los Angeles in the fall of 1986. The company fought off the bid largely by selling assets. It sold its FinanceAmerica subsidiary to Chrysler, returned the brokerage firm Charles Schwab and Co. to its founder, and sold its Italian banking operations to Deutsche Bank. By the time of the 1987 stock-market crash, BankAmerica's share price had sunk to $8. Yet by 1992 it had rebounded sharply to become one of the biggest stock gainers of that half-decade. Recovery gave the company room to acquire. In 1992, BankAmerica purchased Security Pacific Corporation and its California, Arizona, Idaho, Oregon, and Washington banking subsidiaries. It was, at that moment, the largest bank acquisition in history. Federal regulators forced the sale of roughly half of Security Pacific's Washington operations, dividing those branches between West One Bancorp and KeyBank. In 1994, BankAmerica added Continental Illinois National Bank and Trust Co. of Chicago to its portfolio, an institution the federal government had been operating for nearly a decade because no private bank had the resources to rescue it. By 1997, BankAmerica also spent $540 million to acquire Robertson Stephens, a San Francisco-based investment bank specializing in high-technology clients.

• 5. The NationsBank Merger

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  NationsBank of Charlotte, North Carolina, had itself been assembled through a series of mergers. Its history traces to 1874, when the Commercial National Bank was founded in Charlotte. That institution combined over the following decades with other banks, eventually becoming NationsBank in 1991 after merging with C&S/Sovran Corporation. By 1997, NationsBank had surpassed BankAmerica to become the largest U.S. bank holding company by deposits. The opportunity for a defining combination came when BankAmerica lent $1.4 billion to investment management firm D. E. Shaw and Co. to run various businesses. D. E. Shaw then suffered significant losses during the 1998 Russian financial crisis, exposing BankAmerica to severe damage. NationsBank acquired BankAmerica in 1998 for $62 billion, in what was then the largest bank acquisition in history. Though NationsBank was technically the acquiring party, the combined institution took the more recognizable name of Bank of America. The Bank of America Corporation was thus headquartered in Charlotte, not San Francisco, and it retained NationsBank's pre-1998 stock price history. All SEC filings before 1998 are still listed under NationsBank. NationsBank's president, chairman, and CEO Hugh McColl took on the same roles at the merged entity. At the time the deal closed, Bank of America held combined assets of $570 billion and operated 4,800 branches across 22 states. Federal regulators required the divestiture of only 13 branches, all in New Mexico, sold to BOK Financial Corporation, which operates them as Bank of Albuquerque. The combined bank operates under Federal Charter 13044, which was originally granted to Giannini's Bank of Italy on the 1st of March 1927.

• 6. The Crisis Acquisitions

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  Ken Lewis, who succeeded Hugh McColl as CEO in 2001, oversaw two acquisitions during the subprime mortgage crisis that would define the bank for years. The first was Countrywide Financial. On the 11th of January 2008, Bank of America announced it would buy Countrywide for $4.1 billion. Countrywide at that point serviced nine million mortgages valued at $1.4 trillion as of the 31st of December 2007. The purchase made Bank of America the leading mortgage originator and servicer in the United States, controlling between 20 and 25 percent of the home loan market. The FBI was investigating Countrywide for possible fraud at the time, though that did not halt the deal. In December 2011, the Justice Department announced a $335 million settlement with Bank of America over discriminatory lending practices at Countrywide, with Attorney General Eric Holder stating that minority borrowers who qualified for prime loans had been steered into higher-cost subprime loans from 2004 to 2008. The second acquisition was Merrill Lynch. On the 14th of September 2008, the same day Lehman Brothers filed for bankruptcy, Bank of America announced a deal to buy Merrill Lynch for approximately $50 billion in stock. Merrill was within days of collapse. By January 2009, Merrill's fourth-quarter operating loss was disclosed at $21.5 billion, mostly from its sales and trading operations. Bank of America's stock fell to $7.18, its lowest level in 17 years. The market capitalization of the combined institution dropped $108 billion from the announcement. CEO Lewis later testified before Congress that federal officials had pressured him to complete the deal or face losing his job. Internal emails, including one from Richmond Federal Reserve President Jeffrey Lacker, threatened that if the acquisition failed and Bank of America later needed federal assistance, management would be removed. Lewis said he did not recall requesting a government letter stating he had been ordered to proceed. Merrill Lynch recorded massive losses in its first quarter as a Bank of America subsidiary but generated $3.7 billion of Bank of America's $4.2 billion in profit by the end of the first quarter of 2009.

• 7. Federal Rescue and Legal Reckoning

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  On the 16th of January 2009, Bank of America received $20 billion in additional funds from the federal Troubled Asset Relief Program, along with a guarantee covering $118 billion in potential losses. This came on top of $25 billion the bank had already received through TARP in fall 2008. The bank also received an additional $5.2 billion in government bailout money through the rescue of American International Group. In December 2009, Bank of America announced it would repay the entire $45 billion in TARP funds. The repayment was completed on the 9th of December 2009, using $26.2 billion in excess liquidity and $18.6 billion raised through capital securities. The legal consequences of the crisis years were extensive. In August 2009, the bank agreed to pay a $33 million fine to the SEC over its failure to disclose to shareholders that it had approved up to $5.8 billion in bonuses for Merrill Lynch employees before the merger closed. Federal Judge Jed Rakoff refused to approve that settlement, calling it a fine paid by shareholders who were themselves the injured parties. He later approved a revised $150 million settlement in February 2010, describing it as "half-baked justice at best". In August 2014, the bank agreed to a settlement of nearly $17 billion with the Justice Department over the sale of toxic mortgage-backed securities, believed at the time to be the largest settlement in U.S. corporate history between a single company and the federal government. Three whistleblowers provided critical information for the government's case: Shareef Abdou, a senior vice president at the bank; Robert Madsen, a professional appraiser employed by a bank subsidiary; and Edward O'Donnell, a Fannie Mae official. The three men collectively received $170 million in whistleblower awards. In 2023, the Consumer Financial Protection Bureau levied $250 million in fines and compensation against the bank for practices including double-charging insufficient funds fees, withholding credit card rewards, and opening accounts without customer knowledge or permission.

• 8. Scale and Reach Today

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  Bank of America generates roughly 90 percent of its revenues in the United States. Its consumer banking division, the largest of its four main divisions, served 46 million consumer and small-business relationships through 4,600 banking centers and 16,000 ATMs as of recent counts. By 2018, the bank had 25.3 million mobile users. Its Global Wealth and Investment Management division, which includes Merrill Lynch and U.S. Trust, manages more than $2.5 trillion in client balances. As of 2018, the investment bank held a place in the so-called bulge bracket as the world's third-largest investment bank. The wealth management unit managed $1.08 trillion in assets under management, second in the world only to UBS. The bank was ranked 25th on the 2020 Fortune 500 and 6th on Forbes's 2023 Global 2000. Euromoney named it "World's Best Bank" in its 2018 Awards for Excellence. The bank's reach extends to more than 40 countries, though it does not maintain retail branches everywhere it operates. Through its acquisition of LaSalle Bank Corporation, completed on the 1st of October 2007, it also came to own the Chicago Marathon, a sponsorship ABN AMRO had held since 1996. Bank of America took over the race starting with the 2007 event. On the labor side, the company announced in April 2019 that it would raise its minimum wage to $17 an hour beginning the 1st of May 2019, with a goal of reaching $20 an hour by 2021. The oldest branch of the Bank of America franchise traces to 1784 and the Massachusetts Bank, the first federally chartered joint-stock-owned bank in the United States, which eventually became FleetBoston, acquired by Bank of America in 2004 for $47 billion.