As one of the world's largest financial institutions, Bank of America serves individual consumers and businesses of all sizes domestically and globally. In the United States alone, the company serves 57 million consumers and businesses owners through 5,800 retail banking offices, 18,000 ATMs and 29 million active users of their online banking services. The company offers a full range of banking, investing, and other banking and nonbanking financial products and services. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services.
The corporation has since grown to over 5,900 retail locations due to mergers and acquisitions, with the most recent being with Countrywide and Merrill Lynch – a controversial move. Headquartered in Charlotte, NC, Bank of America serves clients worldwide and is a publicly traded company on the New York Stock Exchange.The company provides a range of banking and financial services and products through six business segments in the U.S. and select international markets: Deposits, Global Card Services, Home Loans & Insurance, Global Banking, Global Markets, and Global Wealth and Investment Management (New York Times).
During the past decade or so, Bank of America has grown from providing services in one region of America to the largest financial institution in the entire country. The company lost a lot during the recent financial crisis, with Merrill Lynch and Countrywide bringing their financial losses into the acquisition. Many questioned whether Bank of America was forthcoming to their shareholders about just where they stood financially during this time. The subprime lending fiasco pushed the company below Goldman Sachs and JPMorgan Chase. Despite the mounting costs to Bank of America in covering these loans, a first-quarter profit of $3.2 billion was reported in April 2010. This was a drastically different picture than the one painted in 2008. The company credited trading at Merrill Lynch for the surge in profits. Unfortunately for Bank of America, the surge didn’t last long and significant loss was reported in January 2011. Bank of America realized that if they were to emerge from this downturn caused by the subprime lending that they would need to make changes in how they do business. This would also help them prepare for the lingering effects of the financial crisis, especially with the ill-fated acquisition of Countrywide whose subprime loan practices significantly contributed to the housing bubble bursting. In an attempt to reduce the connection to the mortgage crisis, Bank of America created a unit to deal with 1.3 million bad mortgages.
The top three concerns impacting the U.S. economy are healthcare reform, the U.S. budget deficit and the housing market. Because they are largely concentrated in U.S. businesses, Bank of America is directly affected by the economy’s upswings and downturns. When the economy is down, there is a greater likelihood that customers will default on loans. But, when the economy is up, people have more money to deposit, invest, repay loans and get credit cards.General business and economic conditions have a significant effect on the profits of financial services companies like Bank of America. The strength of the U.S. economy and factors like interest rates, equity and debt capital markets, inflation, and money supply all impact earnings.
Politically, when the U.S. government takes action against acts or threats of terrorism and/or military conflicts, business and economic conditions both in the US and abroad are affected. FinancialNet.org credits the following three areas with the greatest effect on the banking industry: Overspending: As with any budget, heavy spending in one area means that other areas have to be cut back. With the Iraq war, this spending keeps money out of economy-supporting actions that could help prop up the dollar’s value.Consumer spending: Fear keeps people from spending, as they’re more likely to hang on to money “just in case” for the future. When consumers don’t spend, however, our economy slows and puts pressure on the dollar.Uncertainty: Conflict in Iraq, or anywhere for that matter, breeds uncertainty in the markets. It creates political change, huge spending, fear of terrorism, and takes attention away from economic positives like corporate profits. This all adds up to an investment attitude that’s more “wait-and-see” than free-flowing, a situation that hurts the dollar.
Diverse financial products. Bank of America serves individual consumers, small and middle market businesses, large corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services.Market domination. Bank of America is positioned strongly in the market and has a variety of strengths which give the corporation a distinct advantage over its competitors. Branding. Bank of America has a strong customer service position and has branded itself as such. The branding program is bold, distinct and has a profound consumer-driven look and feel.
Subprime Issues. Bank of America Corp., the largest consumer bank in the country, was also the fourth-largest subprime lender in the country. The business practice focuses on high-risk borrowers who often find it hard to obtain credit. Federal bank regulators and members of Congress became very concerned about increased losses on subprime loans.Loss of trust from shareholders. The recent acquisitions of Countrywide and Merrill Lynch have put into question Bank of America’s leadership and integrity. Having a tarnished representation can have can make customers perceive a lower standard of quality and true concern for their financial welfare.
Cross selling to customers. Bank of America has many related business lines, and can offer a consumer coming with a specific for one thing many other different products and services. This saves on targeted advertising and the cost of marketing materials. Consolidating industry. Because there are so many acquisition targets, Bank of America can consolidate small, but successful, companies that bring quick earning potential. Expansion in global markets. Bank of America can experience higher profits and revenue growth by expanding more into the international markets.
Interest rates. Bank of America’s profit margins could be adversely affected by increased interest rates. Financial institutes earn their profits by borrowing money at low rates and lending it out at higher rates.Consumer spending. Following the recession, consumer spending and the interest charges on credit card balances will decrease. More consumers will be saving instead of spending until they are convinced that the economy will be more stable. For Bank of America that means less consumers taking out loans.Competition. Bank of America’s market share could be captured by competing banks and financial institutes that are improving their business policies and strategies to attract the Fortune 500 businesses that Bank of America is known for serving.
Factors Bank of America Will Need to Predict, Plan for, and Adjust to in the FutureEmployment/healthcare costs: According to their 2009 annual report, Bank of America was employing well over 280,000 people. These employees are all throughout the world. Chief concerns are insufficient demand, stability of the economic recovery and uncertainties about higher health insurance costs.Revenue growth: Now that the U.S. is on the downhill side of the recession and banking financial crisis, economists predict 2011 will bring better sales and increased revenues and profits. Companies are likely to increase borrowing to what it was prior to the recession to fund operations, increase capital expenditures and finance mergers and acquisitions. As the number one bank in the world, more companies will be seeking out their financial services.Global Expansion: Bank of America is highly involved in foreign markets and is forecasting growth for international sales in the coming year. Their regions consist of Asia Pacific, Costa Rica, Canada, EMEA (Europe, Middle East, and Africa) and the United States.
Gross Domestic ProductThe value of the goods and services produced in a specific period are called Gross domestic product (GDP). When growth in GDP increases, this typically means the economy is doing better. As America is emerging from the economic downturn, companies are looking to startup or expand their business. Bank of America provides financial expertise and lending to helping small and medium-sized businesses grow and succeed. Housing Financial institutions monitor the housing sector carefully for clues about the near-term performance of the economy and for the effects of changes in financial conditions.Bank of America’s Home Loans and Insurance segment offers consumer real estate products and services, including mortgage loans, reverse mortgages, home equity lines of credit, and home equity loans. It also provides property, disability, and credit insurance. According to the U.S. Department of Commerce, housing is the most interest-rate sensitive sector of the economy. Changes in the level of long-term interest rates, such as those on mortgages, causes large swings in activity. And, though residential housing purchases only represent 4% of the level of GDP, the volatile nature is much higher over relatively short periods of time in proportion to other types property investments.
EmploymentBank of America pays close attention to growth of employment. This economic indicator provides important information about the current and likely future pace of overall economic growth. The overall level of resource utilization in the economy can be found by analyzing trends in average hourly earnings and the supply and demand conditions in labor markets. The economy is improving when employment rises and unemployment falls. This means that there is more spending money for consumers.Interest ratesBecause lending is such a large part of Bank of America’s business, they take into careful consideration what rates are being set by the Federal Reserve. For example, consumer loan rates depend on the interest rates banks pay depositors and on defaults on loans. Savings accounts, certificates of deposit/share certificates,or money market accounts pay different rates according to how long the depositor agrees to leave the money in the bank.When banks need short-term money, they can borrow from other banks, paying the federal funds rate.When a bank borrows from the Federal Reserve Bank, it pays the discount rate. Various factors, including inflation, affect long-term interest rates, including homemortgage rates.InflationThe Consumer Price Index (CPI) is designed to measure the change in price of a fixed market basket of goods and services which is representative of the purchases of a typical consumer (BEA). Bank of America keeps a close eye on the rate of change of the CPI because it is one of the key measures of inflation for the U.S. economy. Acceleration or deceleration of inflation may signal that a change in monetary policy may need to happen.
Stocks & BondsConsumer confidence with regards to the future is often measured by the current value of the country’s stock of capital. A high and/or rising stock market may signal robust growth of business investment and consumer spending in the near future while a low and/or falling stock market may signal sluggish spending. Financial institutions like Bank of America look to movement information about long-term interest rates that reveal future activity level changes in those areas of the economy that are interest-sensitive. Such as changes in the level of activity in housing markets that often follow changes in the 10-year Treasury rate which seem occur in tandem with changes in mortgage.Export of Goods and ServicesBank of America has a large global segment, providing global trade services to more than 5,000 large multinational importers and exporters, 10,000 middle-market companies as well as financial institutions involved in international trade.
After reviewing the economic indicators above, it is clear that the best way for Bank of America to maximize revenues in the future is to focus on providing loans for small and medium-sized companies. As the economy is beginning to improve these companies will be helping to fuel economic growth by expanding or starting their businesses which will create more jobs and increase spending.Bank of America will also benefit from developing community partners and increasing loans and investments to Community Development Financial Institutions (CDFI). Starting at the community and helping to grow businesses, especially in lower-income communities, will also create jobs and increase spending. And, by continuing to work with community leaders and understand communities’ needs emphasizes the company’s commitment to provide innovative programs and resources
The bad loans effected the decreased value of BankAmerica stock making it an ideal candidate for a hostile takeover. BankAmerica had to offload parts of its business in order to fend of the advances of a number of interested financial institutions, which further decreased the value of its stock.
Asia - broad network spans 12 countries and territories, five time zones and more than a dozen languages. Canada - maintained a strong presence for more than 30 years. Major business lines include: Corporate and Investment Banking/Global Markets; Commercial Banking; Commercial Real Estate Banking:Global Treasury Services;LeasingChina - presently has interests in the China Construction Bank Europe, Middle East and Africa (EMEA) - comprised of 32 cities across 23 countries on three continents;Currently over 14,000 associates are based in EMEA.India - operates as the Bank of America in Chennai, Mumbai, New Delhi, Bangalore and Calcutta.Latin America - leading financial advisor to companies and institutional investors.
Expanding on technology for online banking, such as using the iphone app.Along with this all the information pertaining to your account statement and account can be downloaded in the form of quickbook from the website. The Global ATM Alliance is a joint venture of several major international banks that allows customers of their banks to use their ATM card or debit card at another bank within the Global ATM Alliance with no International ATM Access fees.
Global markets business includes equity, electronic trading, rates and currencies, credit and structured products, commodities, research, sales and capital markets.Online Banking provides simple and easy access to your account. Also Bank of America Free checking services allow free online banking, access to different online programs such as Keep the change, free access to your account for cash at different ATM centers.
Mobile banking fills a need for the existing banking population that's constantly on the move, and where banking of any kind had not existed.
The company is able to determine where best to increase their efforts to help the economy grow through business lending, which ultimately leads to increased employment and increased consumer spending – including purchasing homes through bank loans – which leads to increased revenues.Online and mobile banking is the newest and most popular trend. By utilizing and improving upon these popular modes of banking – such as infrastructure and availability - Bank of America will stay current for new generations of banking customers.
Global Operations ofBank of America
Global Operations of Bank of America Cathie Tedrick March 1, 2011 GB540: Economics for Global Decision Makers Instructor: Timothy Terrell Kaplan University
Overview One of the worlds largest financial institutions. Serves 57 million consumers and business owners. Offers a full range of banking, investing, and other products and services.
History Started as a small bank in 1764 in Massachusetts; now headquartered in Charlotte, NC. Grown to over 5,900 retail locations due to mergers and acquisitions. Serves clients worldwide and is a publicly traded company on the New York Stock Exchange.
Recent and CurrentOperating Costs Lost a lot during the recent financial crisis, with Merrill Lynch and Countrywide bringing their financial losses into the acquisition. Despite the mounting costs in covering these loans, a first-quarter profit of $3.2 billion was reported in April 2010. Created a unit to deal with 1.3 million bad mortgages.
Economic andSocial Forces The strength of the U.S. economy and factors like interest rates, equity and debt capital markets, inflation, and money supply all impact earnings Affected by economy’s upswings and downturns: When the economy is down, there is a greater likelihood that customers will default on loans. When the economy is up, people have more money to deposit, invest, repay loans, get credit cards.
Political Forces Three areas having the greatest effect on banking industry: Overspending: As with any budget, heavy spending in one area means that other areas have to be cut back. Consumer spending: When consumers don’t spend, our economy slows and puts pressure on the dollar. Uncertainty: Political change, huge spending, fear of terrorism, takes attention away from economic positives like corporate profits. This all adds up to an investment attitude that’s more “wait-and-see” than free-flowing, a situation that hurts the dollar.
SWOT Analysis Strengths Diverse financial products. Provides range of banking, investing, asset management and other financial products and services. Market domination. Positioned strongly in the market and has a variety of strengths which give the corporation a distinct advantage over its competitors. Branding. Strong customer service position and has branded itself as such.
SWOT Analysis Weaknesses Subprime Issues. The largest consumer bank in the country was also the fourth-largest subprime lender in the country. Loss of trust from shareholders. The recent acquisitions of Countrywide and Merrill Lynch have put into question Bank of America’s leadership and integrity.
SWOT Analysis Opportunities Cross selling to customers. With many related business lines, can offer a consumer coming with a specific for one thing many other different products and services. Consolidating industry. Can consolidate small, successful, companies to bring quick earnings. Expansion in global markets. Experience higher profits and revenue growth by expanding more into the international markets.
SWOT Analysis Threats Interest rates. Profit margins could be adversely affected by increased interest rates. Consumer spending. Following the recession, consumer spending and the interest charges on credit card balances will decrease. Competition. Market share could be captured by competing financial institutes improving their business policies and strategies to attract the Fortune 500 businesses.
Factors Needed toPredict, Plan for, andAdjust to in the Future Employment/healthcare costs Over 280,000 employees throughout the world Revenue growth Economists predict 2011 will bring better sales and increased revenues and profits. As the number one bank in the world, more companies will be seeking out their financial services.
Economic Indicatorsof Most Interest Gross Domestic Product When growth in GDP increases, this typically means the economy is doing better. Companies are looking to startup or expand their business. Bank of America provides lending to small and medium-sized businesses grow and succeed. Housing Most interest-rate sector of the economy. Monitor housing market for economy performance and effects of changes in financial conditions.
Economic Indicatorsof Most Interest Employment The economy is improving when unemployment falls, causing more consumer spending. Interest Rates Because lending is such a large part of business, they carefully consider rates set by the Fed. Inflation Rate of change of the CPI is one of the key measures of inflation for the U.S. economy.
Economic Indicatorsof Most Interest Stocks and Bonds Consumer confidence in the future is measured by the current value of the country’s stock of capital. Financial institutions look to long-term interest rates movement to reveal future activity level . Export of Goods and Services Bank of America must pay close attention to how the Gross National Product may affect the international countries that they serve.
Strategies to Respondto EI and MaximizeRevenues Focus on providing loans for small and medium-sized companies Companies will be helping to fuel economic growth by expanding or starting their businesses which will create more jobs and increase spending. Develop community partners and increase loans and investments to CDFI Help to grow businesses, especially in lower-income communities; will create jobs and increase spending. Emphasize commitment to innovative programs and resources.
Global Operations History The company is a long-established participant in the European markets, with a presence since 1922. Between 1986 and 1987 BankAmerica made significant losses as a result of a number of bad loans in Latin America.
Global Operations Current State The company’s largest department is Global Consumer and Small Business Banking. This also includes ATMs in other countries through the Global ATM Alliance. Provides comprehensive market, industry, product and advisory expertise to more than 140,000 businesses around the globe: Asia Canada China Europe, Middle East and Africa India Latin America
Global Operations Plans and Possibilities for the Future Incorporating more hip and hitech technology. Recently designed software platform unifies trading, risk and pricing applications for foreign exchange options, equities and commodities. Belongs to the Global ATM Alliance
Global Operations Improving What They Do: E-banking Currently have 29 million online banking customers. Online banking allows customers to do all of their banking online, without ever having to visit an actual brick-and-mortar bank branch – all over the world.
Global Operations New Venture: Mobile Banking The new Bank of America mobile banking app gives customers a convenient way to access their accounts and complete transactions. However, many are unable to use it: One of the biggest challenges in mobile banking is connecting to online banking infrastructure. With recent mergers, Bank of America online banking is operating on several different infrastructures. To reach all consumers, the company must unify infrastructures domestically and develop new ones globally.
Conclusion Monitoring trends in the overall growth rate through economic indicators helps the company to forecast what activities will bring the biggest return. The company’s membership in the Global ATM Alliance gives their customers another benefit when traveling around the world. Continued investment in technology or online and mobile banking positions the company to create opportunities to grow and reach the new generation of banking customers - both domestically and globally.
Resources20 Hidden Ways the Iraq War is Affecting the US Dollar. Currency Trading. Retrieved from www.currencytrading.net/features/20-hidden-ways-the-iraq-war-is-affecting-the-us-dollar/2009 Annual Report. Bank of America. Retrieved from http://media.corporate- ir.net/media_files/irol/71/71595/reports/2009_AR.pdf2011 CFO Outlook. Bank of America. Retrieved on 2/12/11 from http://corp.bankofamerica. com//publicpdf/products/abf/final_pdf.pdfAsset-based financing new and resources. Bank of America. Retrieved from http://corp.bankof america.com/public/public.portal?_pd_page_label=products/abf/news&panel=2Bank of America. (2010). Helping small and medium-sized businesses to fuel the economy. Retrieved by http://ahead.bankofamerica.com/fueling-economic-growth/helping-small-and-medium-sized- businesses-to-fuel-the-economy/Bank of America. (2011). Bank of America Announces Changes to Resolve Legacy Mortgage Issues and Continue Building the Leading Home Lending Business. Retrieved from http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol- newsArticle_print&ID=1525073&highlight=Bank of America Annual Report. (2010). Extending nearly $150 billion in credit for the first quarter, more than any other U.S. bank. Retrieved from http://ahead.bankofamerica.com/moving-our-company- forward/extending-nearly-150-billion-in-credit-for-the-first-quarter-more-than-any-other-u-s-bank/Bank of America Corporation. New York Times. Retrieved from http://topics.nytimes.com/ top/news/business/companies/bank_of_america_corporation/index.htmlBank of America emphasizes its financial strength. Los Angeles Times. Retrieved from http://articles.latimes.com/2009/feb/14/business/fi-bofamerica14Bank of America Overview. (2011) Retrieved from www.bankofamerica.com/homepage/overview.goBureau of Economic Analysis. Retrieved from www.bea.gov/Fundamental Analysis. (2011). Retrieved from http://thismatter.com/money/forex/fundamental_analysis.htmHistory of Bank of America. The Finance Owl. Retrieved on 2/27/11 from www.thefinanceowl.com/banks/usa/bank-of-america/McConnell, Brue, Flynn. (2008). Economics. McGraw-Hill Irwin.