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Bank of America is one of the largest financial services company in the U.S. It is the largest bank by assets, largest commercial bank by deposits and is the second largest by market capitalization in the United States. In the Porter's Five Forces Model, Bank of America's main competitors include JPMorgan Chase, and Wells Fargo. Bank of America does have a lot of key factors working in its favor. The first factor is merely its name. Bank of America's favor are the high capital requirements and the government policies for the financial industry. Paintings, antiques, gold, and yachts are just a few examples of long-term tangible investments that will tie up dollars that could potentially be deposited by customers and then invested by Bank of America. For Bank of America, the main supplier is the Federal Reserve. Buyers of Bank of America products and services include people from a wide variety of walks of life in the American society.
Amadeo Peter Giannini whose parents were Italian immigrants established Bank of Italy in 1904 by in San Francisco, California. 28 deposits totaled $8,780 on the first day, Monday, 17 Oct 1904. Orra Eugene Monnette purchased a controlling interest in the American National Bank of Los Angeles (ANB). In 1909, ANB was merged into Citizens Trust and Savings Bank of Los Angeles. In 1911, Monnette purchased the Broadway Bank & Trust Company, which when merged with the family's other holdings formed the Citizens Bank & Trust Company, of which Orra E. Monnette was Chairman of the Board. Citizens Bank & Trust Company was renamed smaller Bank of America in Los Angeles, CA in 1923. Bank of America was born with the merger in 1929 between Bank of Italy and smaller Bank of America. It was called BankAmerica which was headed by Amadeo Peter Giannini and co-Chaired by Orra Eugene Monette. BankAmerica created the BankAmericard credit card in 1958, which changed the name as the VISA card in 1975. Nations Bank purchased BankAmerica which had asset $64 billion in 1998. The combined asset was $570 billion with 4,800 branches in 22 states and it was renamed as Bank of America. The head quarter moved to Charlotte, North Carolina. Bank of America purchased Boston, Massachusetts-based FleetBoston for $47 billion to set Bank of America's position as the bank in 2004. The combined Bank of America and Fleet have $513 billion asset, 35 million customers, and 5,700 branches in 29 states. Bank of America expanded its business in Brazil Chile and Uruguay in 2006. Bank of America acquired Maryland Bank National Association (MBNA) which has asset $35 billion in 2006. With the merger, Bank of America became third largest bank and first largest credit card provider in America. Bank of America acquired LaSalle Bank Corporation from Netherlands's ABN AMRO for $21 billion in 2007. With this acquisition, Bank of America had 1.7 trillion in assets. Bank of America acquired Merrill Lynch cooperation in a $50 billion all stock transaction in 2008. Bank of America has about 60 million customers, 25 million customers who use online banking services, 20,000 ATMs, and 6,000 branches in all 50 states today. Kenneth D. Lewis, who has served as Chief Executive Officer (CEO) since April 2001, President since July 2004 and Chairman since February 2005, will retire from his position as CEO, President, and Chairman of Bank of America, effective December 31, 2009.
To boost the economic power of the communities in which we do business by providing funds and financial services that will fulfill its needs and impact positively in the long -- term shift bringing measureable success to not only our stakeholders, but also to our business.
To be among the greatest financial institutions in the world able to innovate and create new products that will reach most types of financial needs and gaps in order to maximize our potential and consequently grow our business. We will obtain a competitive advantage in customer service and product offerings. We will measure our success through increases in our overall market share and improved customer satisfaction.
5 forces Model
Michael Porter, a professor at Harvard School of Business, has developed an impressive model that analyzes five key forces and helps a business decide whether or not it should enter an industry. The model revolves around the competitiveness and rivalry within an industry and attempts to portray that if the factors mentioned are relatively high in competitiveness that a business should think twice about entering an industry. The five forces range include rivalry among competing sellers, firms in other industries offering substitute products, buyers, potential new entrants and suppliers. Large amounts of rivalry can account for decreased market share, price wars and a plethora of other scenarios that lead to a decreased profitability. Michael Porter's model helps to shed light on 5 key competitive factors that can drive down profits. In the paragraphs that follow we will look at competitive factors for Bank of America.
Rivalry among competing sellers
Bank of America is one of the largest financial services company in the U.S. It is the largest bank by assets, largest commercial bank by deposits and is the second largest by market capitalization in the United States. However, Bank of America still deals with some rivalry. Bank of America's main competitors include JPMorgan Chase, and Wells Fargo. When there is rivalry in the banking industry, the profitability of individual banks depends on marketing skills, efficient operations, and good risk management. Bank of America has been fairly successful at their marketing efforts and efficient operations but their acquisition of Merrill Lynch hasn't proven their good risk management as it brought their revenue down in the last quarter. Large economies of scale exist in some segments of the industry, which has encouraged industry consolidation. Bank of America also competes with smaller banks and credit unions. Smaller banks can compete successfully in segments where customer service or knowledge of the local market is more important. Bank of America competes in many industries; primarily in the money center banks industry, also in the asset management, investment banking, and lending industries. In all of those industries, Bank of America should watch for rivalry because its competitors are active in making fresh moves to improve their market standing and business performance. The rivals will also have diverse objectives and strategies, maybe by moving some part of their operations in a different country. The rivalry between Bank of America and its competitors will continue to grow stronger because of Bank of America's powerful strategies. JP Morgan Chase and Wells Fargo are the two biggest rivals of BOA. Wells Fargo has recently acquired Wachovia and with that has gained one of the best asset management departments in the industry. Chase has acquired Washington Mutual and Bears Stearns and with that they have gained more expertise in investment banking and a greater share of the consumer banking market. Competition in banking can be looked at effectively by dividing the customers of banks into different markets. One can look at customers that have been with a certain bank for a long period of time, customers that are searching for another bank and customers that are opening their first account. The greatest competition will lie with people looking for a different bank and customers that are opening their first account. There may be a bit of discrepancy about who gains the most customers that are shopping around but for first time customers (primarily college/high school students) BOA is surely in the lead. Their service, and presence as a result of many acquisitions has allowed them to have more accounts than any U.S. bank.
Potential new entrants
Since there are significant barriers to entry and economies of scale required to compete at the state or national level there is not a lot of competition that Bank of America would face from local and regional banks. These banks would possibly offer higher levels of customer service, both in person and on the phone when customers call in about an issue. On the contrary, Bank of America does have a lot of key factors working in its favor. The first factor is merely its name. The American people know and trust the Bank of America name. We have talked with several people that love the level of service that the bank provides as well as the various features that are afforded to them. For example, customers can link their checking and savings accounts together. This can help cut down on overdraft fees to the customer. Good news about the various features and benefits that BOA offers has no doubt spread far and wide. Another dynamic working in Bank of America's favor are the high capital requirements and the government policies for the financial industry. The regulations for capital requirements vary from state to state but California requires six to ten million of initial capital before a bank can be chartered. If a new entrant were brave enough to compete…[continue]
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