Bank of America Corporation

Over the last decade, Bank of America transformed itself from a regional institution into the nation's largest brokerage house and consumer banking franchise. But during the financial crisis it was sapped by huge losses and a deal turned sour - the purchase of Merrill Lynch. It lost its position of pre-eminence to JPMorgan Chase and Goldman Sachs, the emerging titans of post-meltdown Wall Street.

While those institutions rebounded, Bank of America, along with Citigroup, came to symbolize the troubles plaguing the nation's banking industry. Bank of America reported a loss of $2.2 billion, or 29 cents a share, in 2009.

On Dec. 2, 2009, Bank of America announced that it would repay the $45 billion in federal aid that it received at the height of the financial panic -- a step that, only months ago, would have been almost unimaginable. Bank of America will repay part of its relief funds by selling $18.8 billion in stock that is expected to be converted into common stock, a move that will further dilute its existing shares even as it strengthens the bank's financial footing.

But most of the money will come from money that Bank of America has generated in recent months with its wagers in the financial markets. After its acquisition of Merrill - a takeover that was once panned but now appears to be paying off - Bank of America has taken greater risks to compete with Wall Street giants like Goldman Sachs and JPMorgan Chase.

The bank said it would put $26.2 billion of its cash toward repaying its bailout and would also sell off $4 billion in assets.

The board of directors at Bank of America struggled to find a replacement for its beleaguered leader, Kenneth D. Lewis, who left his post at the end of 2009. By paying back the federal money that it received, Bank of America will free itself from exceptional federal oversight of its executives' pay -- a thorny issue in recruiting a new chief executive.

On Dec. 17, 2009, Brian T. Moynihan, formerly head of Bank of America's consumer unit, was named to succeed Mr. Lewis. Mr. Moynihan, 49, joined Bank of America after it acquired FleetBoston in 2004, becoming president of global wealth and investment management. Before he was named head of consumer banking, Mr. Moynihan served as president of investment banking and as general counsel.

Growth by Purchase

Bank of America grew through an aggressive series of acquisitions.

Bank of America's recent difficulties are a startling change from what had been a successful run of growth by purchase. In 2003, it paid $48 billion for FleetBoston Financial, which gave it the most branches, customers and checking accounts of any United States bank. In 2005, Bank of America became the biggest credit card issuer when it bought MBNA for $35 billion. And when the mortgage meltdown came along the bank showed itself ready to move rapidly to take advantage of the instability, acquiring two troubled giants: Countrywide Financial and Merrill Lynch.

The deal for Merrill cost more than $50 billion -- and appeared to have been a coup, transforming Bank of America overnight into the nation's largest player in wealth management.

The $4 billion deal for Countrywide, which had become a symbol of the excesses that led to the subprime mortgage crisis, had already significantly bolstered Bank of America's position in the mortgage market while rescuing Countrywide from the jaws of possible bankruptcy. At the time, both deals appeared to burnish the reputation of Mr. Lewis, and his strategy of bold acquisitions that had turned what was once a regional institution into a national player. A decade ago, it was known as NationsBank when it bought a much larger institution, the Bank of America, and took its name.

In retrospect, the Countrywide and Merrill Lynch acquisitions turned Bank of America into the type of financial supermarket model that Citigroup had championed -- just at the time that deep mortgage losses are forcing Citigroup to dismantle it.

The purchase of Merrill Lynch, when that famed brokerage house was at death's door -- may have been a deal too far.

The deal drew heavy criticism, and in April 2009 shareholders voted to strip Mr. Lewis of his title as chairman of the board -- a stinging blow that left his legacy in doubt. The bank announced in September that Mr. Lewis had resigned, effective at year's end.

On Aug. 3, 2009, Bank of America agreed to pay $33 million to settle claims by the Securities and Exchange Commission that it had misled its shareholders about $3.6 billion in bonuses paid by Merrill before Bank of America bought it. The bank did not admit or deny the accusations.

On Aug. 10, the judge in the case, Jed S. Rakoff, refused to approve the deal, questioning whether the $33 million agreement was adequate. He later overturned the settlement, and told both the agency and the bank to prepare for a possible trial that would begin no later than Feb. 1, 2010.

Turning to Washington for Help

Like the nation's other big banks, the Bank of America received $25 billion from the federal government in October 2008 as part of the Treasury Department's bailout of the financial system. Then in December 2008 it quietly turned to the government for help after learning that Merrill would be taking a fourth-quarter write-down of $15 billion to $20 billion, which came on top of the bank's rising consumer loan losses.

The government later announced that it was injecting $20 billion more into Bank of America. The second lifeline brought the government's total stake in Bank of America to $45 billion and made it the bank's largest shareholder, with a stake of about 6 percent.

On April 20, 2009, the bank reported a $4.2 billion quarterly profit, but investors sent its shares and that of many of its peers down on fears that much of the new profits being reported by banks stemmed from recently approved changes in accounting rules and one-time accounting gains.

In May 2009, the government told Bank of America that its so-called stress test indicated that the bank would need to raise $33.9 billion in new capital to withstand any worsening of the economic downturn.

Bank of America paid back the federal government in December 2009.

Related pages: Kenneth D. Lewis Countrywide Financial

Source:
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