Research Paper: Bank of America a Leader in the Banking Industry

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Bank of America is a bank and financial holding company and one of the largest financial institutions in the United States. The company's history dates to 1904 when it was founded as the Bank of Italy in San Francisco to lend to Italian immigrants who were unable to borrow at other banks. By 1927 this bank merged with the Liberty Bank of America and the Bank of America name was adopted in 1929. The bank remained a California-only concern until 1983 when it began its path towards nation-wide expansion. A series of high-profile acquisitions in the 1990s and 2000s brought BoA to its current size. While the economic downturn hurt the Bank of America, it merely reduced profits rather than eliminated them. Net income declined to $4 billion in 2008 from nearly $15 billion in 2007 (MSN Moneycentral, 2010). Last year, the company made $6.3 billion but after accounting for the costs of preferred dividends and exiting TARP the company lost $2.2 billion for its common shareholders (2009 Annual Report). This paper will outline the company today including its human resource development, its growth strategy and its reach around the world.

Human Resource Development

Bank of America's leadership is headed up by CEO and President Brian Moynihan, and Chairman Walter Massey. Moynihan was President until the end of 2009 when then-CEO Kenneth Lewis retired. Moynihan's era has been marked by dramatic changes already, such as the reduction of banking fees and indications that the company expects to be moving in the Chinese market (Chu, 2010).

Bank of America's organizational structure is based around seven product-oriented business segments: deposits, global card services, home loans & insurance; global banking; global markets; global wealth & investment management and other. Of these, global card services is the largest with revenues of $29.3 billion. Aside from other (not a real business segment), deposits was the lowest in revenue with $14 billion. Global markets delivered the best net income at $7.2 billion. Two reporting segments lost money -- Global Card Services ($5.6 billion) and Home Loans & Insurance ($3.8 billion). This organizational structure reflects that products are more important than geography -- although three of the product lines are "global" indicating that a version of the matrix structure may be in use at Bank of America. Within these segments, there may be independent business, such as Merrill Lynch.

Bank of America addresses ethics in two ways. The first is that it has policies with regards to corporate governance. These policies deal with issues such as political contributions, excessive luxury spending by staff, compensation principles and standards for directorial independence. Just five of the 15 directors are internal, lending the board significant independence. In addition, the board has at least six independent members with financial service industry experience, capable of lending adequate oversight to the Bank's financial dealings. The composition of the compensation committee is split between bankers and non-bankers (Bank of America Investor Relations website, 2010).

The other way in which Bank of America addresses ethics is through the company's Code of Ethics. This code is lengthy and specific, covering in fair detail the following subjects: governance and administration; conflicts of interest; confidentiality, privacy and information security; Bank of America assets; financial responsibility; compliance with the law; and restrictions on trading in securities or financial instruments & prohibition against misuse of material nonpublic information. For a code of ethics to be effective it must be specific, offer clear guidance and cover the most likely ethical situations that may arise in the normal course of business. Bank of America's code of ethics is relatively good on these measures.

Career development at Bank of America is fostered through an internal system that allows employees to find opportunities anywhere within the company. The company adheres to an employment opportunity and affirmative action statement as well. The company has been recognized as one of the best companies for Hispanics, working mothers, for diversity in general and for supplier diversity (CareerBuilder.com, no date). The Bank has a hierarchical structure so that career development is a progressive process that takes place over an entire lifetime. The bank is active with on-campus recruiting of new talent and maintains offices at many universities.

The Bank uses a wide range of motivational tools. At its merchant banking/investing arms, bonuses are used as an incentive. For most of its operations, the incentives are basic and largely intrinsic in nature. The company does not offer specific financial incentive to the vast majority of its employees.

As mentioned, Bank of America scores well in diversity programs. The company's program begins with a declaration that all candidates are treated equal regardless of race, religion, color, sex, sexual orientation, age, national origin, ancestry, citizenship, veteran or disability status, or any factor prohibited by law (CareerBuilder.com, no date). The company is committed to diversity even with groups not always given special consideration (LGBT, Native Americans, military). Diversity training takes place not only in person but also online with the company's web-based diversity learning system (Diversity Inc., 2010). This policy has yielded the company numerous awards for its diversity.

Bank of America has affinity groups to help promote diversity in the workplace. The current CEO, for example, has chaired the company's Global Diversity and Inclusion Council and has been an executive champion of the Disabilities Affinity Group (Bank of America press release, no date). According to Diversity Inc. (2010) the Bank of America has affinity groups for Native Americans, military and ex-military, disabled employees in addition to a Multicultural Leadership Network. Organizational commitment to these groups is high with thirty-nine percent of employees belonging to an affinity group.

Growth Strategy

Most of the success last year for the Bank of America was on trading at Merrill Lynch, which it acquired at the beginning of the year. Merrill is a key component of the growth expectations at Bank of America, representing diversification into a lucrative business that can earn substantial returns on the bank's assets. Retail banking is another area where the company believes that it can continue to grow, both domestically and abroad.

One of the first moves that Moynihan made after taking over the company was to reduce retail bank fees. Fees on deposit accounts are already the smallest component of the company's income, and this move was done to take advantage of the leeway the firm has in reducing these fees in order to increase deposit market share. Increasing deposits will give the bank more money with which to lend or invest, so there is significant economic incentive to reduce deposit fees, even if it means a reduction in deposit income. Also with respect to products, Bank of America acquired in 2008 Countrywide Financial Corporation, which gives the bank enhance capability in mortgages, putting Bank of America to the front of that market (2009 Annual Report). In terms of organic growth of retail banking, Bank of America faces a mature market. Despite this, the bank is fighting for whatever growth is left in the marketplace, locating banking centers in twelve of the fifteen fastest-growing states, and placing leadership positions in eight of those states.

While technology is nowhere near the top of Bank of America's priorities -- the economy and regulatory environments are given specific attention in the annual report while technology is not -- the Bank does make investments in technology. These technologies in recent years have not been game-changers. One recent initiative, for example, focuses on an in-store solution for cash handling. This initiative is part of a three-pronged solution that the Bank hopes will drive increased revenue from commercial customers (Bank of America, 2009). The company has also has technology to manage funds on corporate-purchasing cards in real time, something it hopes will add value for corporate clients (New Mexico Business Weekly, 2008).

The company has also in recent years focused on the development of value-added technologies such as online banking, although such technologies have proven easily imitable by competitors and therefore have not resulted in competitive advantage. The company also has invested continually in back office and customer service technology in order to reduce costs associated with these functions.

Another growth thrust -- and a critical one for Bank of America -- is growth through mergers and acquisitions. The bulk of the company's 2009 profits came from its acquisition of Merrill Lynch. The bulk of the bank's growth came from merger and acquisition activity. M&a will also help Bank of America with its upcoming international growth strategy.

The company first expanded outside of the California market in 1983 and within 25 years became a national bank with some type of relationship with one out of every two Americans (2009 Annual Report). This rapid expansion and growth was made possible by a successive string of mergers and acquisitions. This expansion strategy came about as the result of loosening of interstate banking rules by the federal government. The first acquisition was Seafirst, a Seattle-based bank. The acquisition of Security Pacific in 1992 gave Bank of America a broader… [END OF PREVIEW]

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