Bank of America Company Background.

¶ … Bank of America

COMPANY BACKGROUND.

Company History. Bank of America Corporation was incorporated in 1968 and competes today through its banking and non-banking subsidiaries as a provider of financial services and products throughout the United States and in selected international markets. As of December 31, 2003, the Bank of America (hereinafter "BOA" or alternatively, the "company") operated its banking activities primarily under two charters: 1) Bank of America, National Association, and 2) Bank of America, N.A. (USA).

Milestones/Critical Events. Recent milestones and critical events include a signed agreement and plan of merger on October 27, 2003 between BOA and Fleet Boston Financial Corporation, a diversified financial services company; the merger was completed April 2004. In October 2004, BOA acquired National Processing, Inc., a public company, which is 83% owned by National City Corporation. Other milestones include the introduction of the forerunner of the ubiquitous credit card in 1958 discussed further below.

Size, Markets, Market Share. As of March 31, 2005, Bank of America had $1.2 trillion in assets and approximately 175,000 full-time equivalent employees in 190 countries. In his book, Making it in Public Relations: An Insider's Guide to Career Opportunities, Leonard Mogel (2002) reports that when two already large banks merged in 1998, it created a "giant": "That single entity, the Bank of America, formed in 1998 with the merger of Charlotte, North Carolina-based Nation's Bank and San Francisco-based Bank of America, is, at this writing, the largest geographic retail banking franchise in the United States" (p. 49). The combined organization now employs more than 140,000 associates (the company's term for its employees); by 2000, BOA had become the largest geographic retail banking franchise in the nation, doing business with more than one in three U.S. households in the 23 states in which it operates, and with more than 2 million U.S. businesses.

Locations. Internationally, the bank competes in 190 countries and has offices in 38 of these foreign locations.

Detailed Description of Business, Products and Services. Today, Bank of America manages its operations through four business segments: 1) Consumer and Commercial Banking; 2) Asset Management; 3) Global Corporate and Investment Banking; and, 4) Equity Investment; these segments are described further below.

a. Consumer and Commercial Banking. This business segment is responsible for the provision of a diversified range of products and services to individuals and small businesses through multiple delivery channels; the segment also includes commercial lending and treasury management services primarily to middle-market companies with annual revenues between $10 million and $500 million. The major sub-segments of the Consumer and Commercial Banking segment are: 1) Banking Regions and 2) Consumer Products and Commercial Banking.

According to the company's profile at Yahoo! Finance, the Banking Regions provides services for consumer households and small businesses in 21 states as well as the District of Columbia through a network of 4,277 banking centers, 13,241 automated teller machines (ATMs), telephone and Internet channels (1). This segment is also responsible for the provision of a range of products and services, including: 1) deposit products such as checking accounts, 2) money market savings accounts, time deposits and IRAs (individual retirement arrangements), and 3) debit card products and credit products (such as home equity, mortgage and personal auto loans). The Banking Regions segment is also responsible for the provision of 1) treasury management, 2) credit services, 3) community investment, 4) e-commerce and 5) brokerage services; this segment has almost two million small business relationships throughout the franchise. In addition, this segment includes PremierBanking, a component providing "high-touch banking, which represents more direct contact with the client, and investment solutions to affluent clients."

The company's Commercial Banking segment is responsible for the provision of commercial lending and treasury management services; these are targeted primarily at middle-market companies with annual revenues between $10 million and $500 million. These services are available through relationship manager teams, as well as through alternative channels such as the telephone via the commercial service center and the Internet by accessing Bank of America Direct. Commercial Banking also includes the Real Estate Banking Group, which provides project financing and treasury management to private developers, homebuilders and commercial real estate firms across the United States. Commercial Banking also provides lending and investing services to develop low- and moderate-income communities.

b. Asset Management. This segment provides 1) investment, fiduciary and banking and credit expertise; 2) asset management services to institutional clients, high-net-worth individuals and retail customers; and 3) investment, securities and financial planning services to affluent and high-net-worth individuals. This segment also provides wealth and investment management services through three businesses: 1) the Private Bank (which focuses on high-net-worth individuals and families); 2) Banc of America Investments (which provides investment and financial planning services to individuals), and 3) Banc of America Capital Management (the asset management group providing services for institutional clients, high-net-worth individuals and retail customers).

The assets under management are comprised primarily of mutual funds, equities and bonds, generate fees based on a percentage of their market value. The company reports that its assets under management in 2003 increased $25.4 billion (or 8%); they attributed this to a $33.7 billion, or 41%, increase in equities, led by improved market valuations and sales in assets advised by Marsico, offset by a decline of $13.2 billion (or 8%), in money market assets when compared to 2002. In addition, the company notes that its assets in custody increased $3.3 billion (or 7%), and represent those trust assets being administered for customers. The company's profile also reports that trust assets include a wide range of asset types including real estate, private company ownership interest, personal property and investments.

c. Global Corporate and Investment Banking. The company's penultimate business segment is responsible for the provision of capital-raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for BOA's corporate, commercial and institutional clients, as well as traditional bank deposit and loan products, cash management and payment services to large corporations and institutional clients. This segment also provides a range of financial services to domestic and international corporations, financial institutions and government entities. The company's customers receive support from offices located in 30 countries in four distinct geographic regions: 1) United States and Canada; 2) Asia; 3) Europe, Middle East and Africa, and 4) Latin America. According to its company profile, this business segment's products and services include 1) loan origination, 2) merger and acquisition advisory, 3) debt and equity underwriting and trading, 4) cash management, derivatives, foreign exchange, leasing, leveraged finance, structured finance and trade services.

Global Corporate and Investment Banking offers clients a range of global capabilities through three sub-segments: Global Investment Banking, Global Credit Products and Global Treasury Services. Global Investment Banking includes the Company's investment banking activities and risk management products. Global Investment Banking underwrites and makes markets for its clients in equity and equity-linked securities, high-grade and high-yield corporate debt securities, commercial paper and mortgage-backed and asset-backed securities, and provides correspondent clearing services for other securities broker/dealers and prime brokerage services. Global Credit Products provides credit and lending services for clients with the Company's corporate industry-focused portfolios, which also includes leasing. Global Credit Products is also responsible for actively managing loan and counterparty risk in the Company's large corporate portfolio using available risk mitigation techniques, including credit default swaps. Global Treasury Services provides the technological support, strategies and integrated solutions to assist financial institutions, government agencies and BOA's corporate clients manage their operational cash flows on a local, regional, national and global level.

d. Equity Investments. The final segment includes Principal Investing, comprised of a diversified portfolio of investments in privately held and publicly traded companies at all stages ranging from start-up to buyout. This segment also includes Principal Investing as well as BOA's strategic alliances and investment portfolio. Principal Investing is comprised of a diversified portfolio of investments in privately held and publicly traded companies at all stages, from start-up to buyout. According to its profile, "Investments are made on both a direct and indirect basis in the United States and overseas.

Indirect investments represent passive limited partnership commitments to funds managed by experienced third party private equity investors who act as general partners."

VISION & MISSION. The term "bank" credit card is more accurately labeled a "universal" consumer card today, and this ubiquitous card was the brainchild of Bank of America. According to Robert D. Manning, the credit card as it exists today first emerged in 1958; the author notes that businesses stood to gain from this innovation for several reasons despite the added transaction costs. The universal bank credit card (1) offered a competitive alternative for consumers who shopped with proprietary retail credit cards, (2) lowered the merchants' costs for their own credit programs by reducing bookkeeping expenses, (3) eliminated cash-flow bottlenecks by reimbursing purchases within days, and (4) provided a path to a potentially large customer base that included all of Bank of America's clients. By the summer of 1958, Bank of America mailed out almost 100 million unsolicited credit cards. According to Manning, "This first volley in the money revolution soon swept across an unsuspecting American public and precipitated tremors throughout the U.S. banking industry." By 1974, the card has virtually assumed its contemporary form: "What an amazing transformation has taken place since Bank of America began marketing the precursor to Visa with its 1974 ad campaign 'BankAmericard. Think of it as money.'"

3. GOALS-OBJECTIVES-STRATEGIES. The companies overall strategy can be summed up in terms of its commitment to identifying what its customers want and being there on a "firstest-with-the-mostest" basis. Taken together, the company's various business segments are focused on attracting and deepening client relationships with the ultimate goal of becoming "America's advisor of choice." In this regard, the company recognized the advantages to be realized by providing its customers with online access to as much account information as possible early on. For example, in 2001, BOA began offering its retail and wholesale customers consolidated views of their accounts and financial records using a Web-based customer relationship management (CRM) system. The system was developed by the bank in partnership with Siebel Systems and (for wholesale customers) with YouCentric, Inc., and provided customer service associates and customers a more complete view of their relationship with Bank of America. According to "One-Stop Viewing for Customers," "The interface will help customers find the right product mix to meet their financial needs, let them view transaction and inquiry histories for all of their accounts, and facilitate such administrative requests as change of address, check reorder, and statement mailings."

4.

Business MODEL. The company competes in the Money Center Banks industry and its multinational business model has been based in large part on recognizing its domestic and international consumers needs and identifying more effective ways of delivering products and services to satisfy them. In this regard, BOA has been an industry leader for years. For example, according to James Peterson's report, "What to Do When the Boom Is Over," "Sixty-eight percent of all American families own homes, the most ever, and a notable increase from 64% just ten years ago. And that market is being held aloft by a wealth of refinancings supported by low interest rates." Today, though, there are fully 70% more mortgage transactions than in an average home purchase-driven market and ten times more refinancings than in an average purchase-driven market. "Borrowers are becoming very sophisticated," says Angelo Mozilo, chairman, CEO and president of the national mortgage lender Countrywide Credit Industries Inc. "They're using the internet more and, even when they don't, they are coming to us very well informed. Now that they understand yield spread, they will lock in for a five-year or seven-year mortgage even though the 30-year is still the leader."

While the mortgage industry has been defying gravity, it also has been going through a big transition that the good times have made barely noticeable. Between 1985 and 1995, the third-party mortgage broker segment has grown from 10% to 50% of all home loans. According to Doug Naidus, the CEO of the national mortgage lender MortgageIT in New York, "The mortgage brokerage business really captured the origination channels. The small cottage mom and pop industry has evolved into the dominant origination platform." Likewise, Kevin Shannon, president of consumer real estate at Bank of America reports that, "The business is in transition all the time. Since Sept. 11 [2001], we've seen three refi[nancing] booms and we might be facing another. We're also seeing some real changes in how customers view mortgages and in how they view their homes as a financing source. At the same time, technology has made lending easier, consumers shrewder and competition fiercer, and outsourcing has become a true profit booster."

COMPANY PERFORMANCE. The company has enjoyed robust growth and profitability across all measures in recent years as shown in Table 1 below; a bar graph of these respective metrics is provided in Appendix B and C. respectively. According to the Reuters Abridged Financial Summary for BOA, for the 3-month period ended March 31, 2005, interest income increased 54% to $13.15 billion; the company's net interest income after LLP also increased 41% to $7.29 billion. In addition, BOA's net income (applicable to Common) increased 75% to $4.69 billion. Finally, Reuters notes that BOA's net interest income reflected higher earning asset balances which were partially offset by higher deposits (3).

PERIOD ENDING

31-Dec-02

31-Dec-03

31-Dec-04

Total Revenue

Cost of Revenue

Gross Profit

Source: Yahoo! Finance, 2005.

Table 2. Operating Income or Loss - December 31, 2002 - December 31, 2004.

PERIOD ENDING

31-Dec-02

31-Dec-03

31-Dec-04

Operating Income or Loss

Income from Continuing Operations

Total Other Income/Expenses Net

Earnings Before Interest and Taxes

Interest Expense

Income Before Tax

Income Tax Expense

Minority Interest

Net Income From Continuing Ops

Source: Yahoo! Finance, 2005

The company's stock performance vs. The a&P 500 for the past five years to date and its performance in the Money Center Banks industry in which it competes are provided graphically at Appendix a.

6.

Management CHARACTERISTICS. The company enjoys a highly experienced, skilled and trusted management team comprised of the following key executives as shown Table 2 below:

Table 2. Bank of America Key Executives.

Executive Name, Age, Title

Pay

Kenneth Lewis, 57

Chairman, Pres, Chief Exec. Officer 19.25M

Marc Oken, 58

Chief Financial Officer

Alvaro De Molina, 46

Pres, Global Capital Markets and Investment Banking

6.52M

Liam McGee, 50

Pres of Consumer Banking

7.04M

Brian Moynihan, 46

Pres of Global Wealth & Investment Management

10.26M

Source: Yahoo! Finance, 2005

Not mentioned in the above, but clearly contributing the company's success, is Dorothy Brothers, Director of Supplier Diversity & Development. According to the recent essay, "Bank of America," the company's success has been largely attributable to the commitment of its senior management, including Dorothy Brothers, its, to increase the diversity of the suppliers that bid for the bank's products and services. "Diversity of supply allows us to increase competition, maintain the highest quality and get the best price. We view our support of supplier diversity not as a duty, nor as a charity, but as good business" Brothers said. Further, "Nor do the suppliers who own the companies with which we do business view our support as duty or charity," she added. "They view their relationships with us as good business -- a chance to build their enterprises, pursue their dreams and be rewarded for their hard work." In fact, to date, Bank of America has invested more than $1 billion as part of its Supplier Diversity & Development (SD&D) program, which was established in 1990. The company's programs have been effective as well; according to "Bank of America," the company increased its expenditures with minority-, women- and disabled-owned businesses from $11 million in 1990 to more than $400 million in 2002; there were more than 2,500 companies in 45 states involved. Because the company has an enormous amount of clout with its vendors and suppliers, it was also able to communicate these business goals throughout the country and around the world. Even when it was not the popular thing to do, Bank of America established an ambitious goal early on of spending 15% of its total procurement budget with minority- and women-owned businesses; however, BOA went further by also mandating that all companies doing business with the bank spend at least 15% of their own purchase dollars with minority- and women-owned suppliers. Brothers added that, "It's been an ongoing challenge to continue to raise the bar. But when your name is Bank of America you must aspire to the ideals of America. We welcome the challenge (emphasis added)."