BofA loses rank as nation’s biggest bank


Bank of America Corp. lost its title as the nation’s biggest bank, and the mission for its beleaguered chief executive now is to convince Wall Street that it’s better off for it.

Brian Moynihan is tasked with turning around the company’s struggling consumer empire just as rival JPMorgan Chase & Co. surpassed BofA’s $2.2 trillion in assets. It marks the end of an era for a bank known for a near-obsessive zeal for acquisitions and growth, and the start of a new chapter in which the bank hopes to slim down to raise profitability.

“We don’t have to be the biggest company out there; we have to be the best,” Moynihan has been telling his employees, investors and analysts. He believes the strategy will revive the company, which on Tuesday reported that revenue fell during the third quarter in five of its six main business lines.


But, there was one bright spot in BofA’s results that investors cheered: No new blowups in its troubled mortgage business. Investors responded by sending shares up 10% to $6.64.

“In the end, the results weren’t as bad as feared,” said RBC Capital Markets analyst Joe Morford. “They still have a lot of work to do, but they’re making progress.”

In a report tangled by the effects of asset sales and unusual accounting charges, BofA earned $6.23 billion, or 56 cents a share, compared with a $7.3-billion loss, or 77 cents a share, a year earlier.

Revenue jumped 6% to $28.7 billion. But the results were inflated by the $8.3-billion sale of BofA’s stake in a Chinese bank, part of a downsizing that includes the sale of several foreign credit card operations and the closure of a mortgage division that had bought loans from other lenders.

Analysts said another factor was short sellers, investors who make money when a stock price declines, cashing out negative bets on BofA.

“If you were counting on the bank to fail — and many of the shorts were — the fact that this bank could post these numbers and show the balance sheet strength it demonstrated was a shock,” said Rochdale Securities analyst Richard X. Bove.


During a call with analysts, Moynihan also addressed the latest controversy over plans to charge customers $5 a month to use their debit cards. He seemed confident during the call that BofA would find plenty of consumers willing to avoid the fee by taking out a BofA mortgage or depositing $20,000 in total with the bank or its Merrill Lynch & Co. brokerage.

It’s bad business, he said, to allow consumers to pay nothing for use of the bank’s huge branch and ATM system, mobile banking and debit-card systems and then to shop elsewhere for important services.

“The fees are to get people bring more relationships,” he said. “We’re comfortable that we’ll end up in a good dynamic there.”

Right now, BofA has a comfortable lead in deposits, more than $1 trillion compared to $895 million at Wells Fargo & Co. But Wells has had more branches for several years. Even Citigroup Inc., which like BofA needed two doses of federal bailout funds to stay afloat, has a bigger stock market value.

That has left Moynihan, who became CEO nearly two years ago, to justify his vision of shrinking his way to profit at a time when consumers are rebelling against fees, protesters are occupying bank offices, and his stockholders have seen their shares tumble 50% this year even after Tuesday’s big gain.

Can he actually reward loyal customers, as he promises, while he’s busy hacking away 30,000 jobs, closing 750 branches and selling off businesses left and right?

“We need to get a sense that things are under control, in spite of this constant cascade of distracting news,” said Nancy Bush, an independent analyst and contributing editor of SNL Financial.

Control seemed to slip a notch late last month, when BofA disclosed plans to charge consumers if they use debit cards to make purchases.

While some analysts agreed with Moynihan that the fee would cost BofA only some unprofitable customers, the reaction from many consumers and politicians including President Obama seemed overwhelmingly negative, especially when Moynihan said customers would “understand we have a right to make a profit.”

Even some banking executives suggested that Moynihan was hurting the company at a time of high unemployment, declining incomes and cities echoing with protests against perceived corporate greed and arrogance.

“Why would you want to piss off 50 million customers when you’re already lying in the dirt?” said Robert H. Smith, 75, who was chairman of L.A.’s Security Pacific Corp., then the nation’s fifth-largest bank, when it stumbled and was acquired in 1992 — by Bank of America.

Bank of America, founded in 1904 to serve Italian immigrants in San Francisco, became the nation’s largest bank and master of the California banking universe by acquiring Security Pacific, giving it twice as many deposits as Wells Fargo at the time.

It was in turn taken over by NationsBank Corp. of Charlotte, which, having kept the BofA name, went on an acquisition rampage late last decade. Under Moynihan predecessor Ken Lewis, BofA took over big banks in Florida and Illinois and the giant MBNA credit-card franchise. Then, as the financial crisis set in, it bought Countrywide Financial and Wall Street’s Merrill Lynch.

Critics say the acquisitions spree caused it to become distracted by growth, enabling competitors to gain traction. In California, Wells Fargo has more branches than BofA, and Chase has plans to overtake both of them.

“Bank of America seemed to lose interest in California, which was a big mistake,” Smith said. “With all its problems, California still has a lot of wealth, so you ought to be concentrating here.”

BofA remains the leader in total deposits, with nearly 25.6% market share in the state and 13% nationally, compared with Wells Fargo’s share of 19.4% in California and 9.6% nationally, according to the Federal Deposit Insurance Corp.

But other banks are bent on horning in, such as JPMorgan Chase, which took the lead in assets Sept. 30 with $2.29 trillion.

Chase, which stormed into California by taking over failed Washington Mutual Bank in 2008, soon will have more Golden State branches than BofA as it promotes its expertise in business lending and managing wealth for affluent customers.

Chase had 852 California offices compared with 981 for BofA as of June 30, according to the FDIC. But Chase retail executives say they plan to add hundreds of branches in the state while BofA will close an undisclosed number.

Wells Fargo had 1,059 California offices at June 30, the FDIC says.

Other banks have taken to promoting their no-fee debit cards. It’s a chance for regional powerhouses like City National, along with larger credit unions and community banks, to poach customers.

“We believe we will gain share as consumers search for value,” said Gregory Mitchell, chief executive of PacTrust Bank, an expanding San Diego County community bank that charges nothing for basic checking accounts and use of its debit cards. “For a bank our size, every customer counts.”