Message Font: Serif | Sans-Serif
No. of Recommendations: 11
As you should be able to tell by now, I work for BofA, so all my posts are bias. I try to keep personal opinion to myself as I am able, but my glass, along with Jim Hance's, will always be half full.

James H. Hance Jr.
Vice Chairman and Chief Financial Officer, Bank of America
"The State of the Bank" (excerpts)
February 16, 2000

Consider our financial performance last year.

Operating earnings increased by 27 percent to more than $8.2 billion.

Despite the deliberate targeted downsizing in such business lines as foreign lending, revenue rose 6 percent.

Expenses were reduced by 4 percent as we began to reap the benefits of our merger.

Loan losses were $500 million lower than the year before, allowing us to reduce the provision for potential loan losses.
Consider our operational performance:

We successfully integrated most of our business lines with a minimum of client disruption. The merger transition is largely behind us.

We rebuilt and expanded our investment banking platform. As a result, investment banking revenue was 38 percent higher in the second half of last year than the first half and should continue to increase this year.

We continued to invest in our future through such innovations as a nationwide wholesale lockbox using Internet technology and the only large-scale deployment of digital certificate technology in wholesale banking.
But as we all painfully know. Our stock price didn't reflect that record. The price fell 17 percent in 1999 and has continued to drift downward this year. The question is why?

I think there are two sets of reasons - one particular to our industry and one to our company.

First, let's put the stock performance in context. The stock market separated into two groups last year: The technology stocks and pretty much everybody else. In particular, it was a bad year for bank stocks.

Our 17 percent decline compared to an average 13 percent drop among the largest 25 banking companies. In fact, the shares of only 7 of those companies appreciated in 1999, and only two of those registered double digit gains.

Why? I'd suggest several factors:

Rising interest rates which are perceived to hurt the banking business by squeezing margins and ultimately leading to a recession and credit problems.

Concern about revenue growth prospects in the face of intensifying competition and a rapidly changing environment.

And, I'd add, concerns that banks are this century's buggy whip makers. A portion of the investment community sees us as a mature industry that must change dynamically in order to compete in the so-called New Economy. They're not sure who in the industry can do it.

What about concerns specific to Bank of America?

In addition to those for the industry as a whole, investor concerns include worries that our merger integration still could face problems. In particular, they are waiting to see us successfully convert the retail systems in California next year.

To be very honest, there is also some disappointment that we haven't made as much money as Wall Street had hoped when we first announced the BankAmerica/NationsBank merger. To put that in perspective, the consensus in April of 1998 was that we would make $10 billion this year. The consensus today is that we will earn about $9 billion.

Finally, there is even some skepticism that we can make that number, given our difficulty in recent quarters in maintaining our profit margin in key lending businesses.
We start with many advantages:

The reach, scale and capital of our company is unmatched.

We have the ability to invest in technology at a rate that few can match. You see this in our Internet offerings and you will continue to see this impact in that and other areas.

Because of our client list, we are the partner of choice for many firms seeking alliances or joint ventures. This gives us first pick of those possibilities to advance our business and change to meet the requirements of the New Digital Economy.

Our size and scope gives us a variety of other advantages - from the ability to attract the best people because of the diverse opportunities within the company - to the opportunity to establish the first truly nationwide bank brand. Our national retail brand advertising campaign began this week and will run through May.
Our company is experiencing a major paradigm shift. The old paradigm included industry consolidation - mergers and acquisitions of other banks - and a focus on product performance. We managed using product silos. The new paradigm puts the client in the center of the organizational chart. To be successful we must study the entire client relationship, forecasting needs and most importantly, working smoothly across business units to execute seamlessly our financial solutions to those needs. The new paradigm, then, focuses on not just the ability to sell, but the ability to work as a team and to understand the client. We can't continue to think in terms of our own product stovepipes and win as a company unless we take this broader, client-focused view. To use an analogy, in sports it isn't always the team with the best players that wins. It's often the team that plays together best. That's what we're trying to do at Bank of America.
Perhaps the biggest differences today are in a) where the competition comes from and b) in the kinds of services and delivery that technological innovation is making possible.

First the competition. New competitors - from mutual fund companies to technology firms - have transformed the traditional game of checkers into a three-level playing board. We continue to compete with banks on one level. But there are others coming at our clients offering a different approach. In competing against these competitors, Bank of America has important advantages. Our reach and capabilities surpass those of all but a few banks. And the importance of the banking payment system continues to be a major advantage when competing with nonbanks. When it comes to the transfer of value, banks have the safeguards and the regulations that a technology or software company doesn't have.

That said, we can't continue to earn business merely based on trust. We must - and we are - developing the technological tools to help our clients do business in ways they only dreamed of a decade ago.

Bank of America has deployed digital certificates to more than 6,000 users. Bank of America Direct has the largest web-enabled treasury management user base with more than 2,000 clients. FX Wire and Draft is the only service of its kind with more than 200 corporate users.

Our bank is committed to staying on the cutting edge of new technology. Last week, we named Jim Dixon to a new position designed to help us see where we need to go on the Internet, in terms of products, services and potential alliances and joint ventures.
Bank of America is the undisputed leader in market penetration and share of U.S. revenue, according to the latest Greenwich studies. As importantly, the Greenwich survey noted that we are number one in advisory relationships, ahead of Chase and Citibank.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.