Stephanie Milner Spent the fall and winter of 2008–2009 like m.docx

Stephanie Milner Spent the fall and winter of 2008–2009 like
many americans, watching and
reading the dire financial news as it was streamed, blogged, and
reported directly from Wall Street.
Milner, however, had an even more personal interest. as a
manager in the Global Corporate and
investment Banking (GCiB) division of Bank of america, she
worked every day in the middle of the
financial storm. now, as the dark clouds are beginning to part
and the recovery gathers steam, she has
been asked to join a committee of managers from throughout the
organization who will analyze the
strategic direction of the bank and locate opportunities for
growth.
historically, Bank of america has pursued a strategy of growth
through acquisition. (See Exhibits 1,
2, and 3 for Bank of america’s historical financial information.)
this strategy was evident even at the
height of the financial crisis, when the bank purchased
mortgage lending powerhouse Countrywide
Financial in the summer of 2008 and brokerage Merrill lynch in
early 2009. (See Exhibit 4 for a list of
important company dates.) these latest acquisitions made Bank
of america the largest bank holding
company in the United States by asset value (Exhibits 5 and
6).1 they also led to the absorption of
nearly $100 billion dollars in toxic assets from Merrill and
increased the bank’s exposure to potentially
massive losses in the mortgage industry.2
like its competitors, Bank of america had significant problems

in late 2008 and was on the verge of
collapse. the U.S. federal government came to its rescue,
providing $25 billion and then an additional
$20 billion in tarp funds. the U.S. treasury and the Federal
Deposit insurance Corporation (FDiC)
also guaranteed $118 billion to “provide protection against the
possibility of unusually large losses”3
(Exhibit 7). Without this cash injection, Bank of america could
possibly have received the dubious dis-
tinction of being the largest bankruptcy in U.S. history. instead,
that “honor” went to another victim of
the 2008 financial crisis, lehman Brothers, which destroyed
more than $40 billion in shareholder value
when it filed for bankruptcy in September 2008.
With economists agreeing that the recession ended in mid-2009,
Bank of america has some impor-
tant work to do.4 as Milner enters the conference room, she
surveys the scene. the group looks weary,
but optimistic. after greeting several colleagues, she takes a seat
and begins to scrawl a few notes on
the questions she feels the committee should address: Where is
the bank heading? What can Bank of
america do in the future to prevent such exposure to economic
meltdowns? What will the financial
landscape look like as the U.S. economy continues to recover?
Where will the bank’s opportunities lie
in the new economy? and most importantly, how should the
bank position itself strategically to com-
pete successfully and grow in the future? these questions swirl
in Stephanie Milner’s head as the room
quiets and the team gets to work.
Consultant Casey Burt (Gt MBa ’11) of Capgemini and
professor Frank t. rothaermel prepared this case from public
sources. it is developed for

the purpose of class discussion. it is not intended to be used for
any kind of endorsement, source of data or depiction of efficient
or inefficient
management. all opinions expressed, all errors and omissions
are entirely the authors’. © Burt and rothaermel, 2013.
MH0007
0077645065
Bank of America (in 2010) and the New Financial Landscape
CaSey BUrt
Frank t. rothaerMel
For the exclusive use of T. Wang, 2020.
This document is authorized for use only by Tianfang Wang in
Financial Institutions spring 2020 taught by ROBERT FULLER,
The Ohio State University from Dec 2019 to Jun 2020.
2
Bank of America and the New Financial Landscape
Commercial National Bank and Bank of Italy
Bank of america’s history is really the history of two banks on
opposite coasts of the United States—
one in north Carolina and the other in San Francisco.5
COMMERCIAL NATIONAL BANK
the foundations of the first bank were laid in 1874 in Charlotte,

north Carolina, with the forma-
tion of Commercial national Bank. it grew steadily in the
Charlotte area for nearly 85 years. then, in
1958, it purchased Charlotte banking competitor american trust
Company and took on the new name
american Commercial Bank. regional expansion continued in
1960 when american Commercial Bank
purchased another local competitor, Securities national Bank,
and again renamed itself, this time as
north Carolina national Bank (nCnB).
in 1982, nCnB expanded beyond the borders of north Carolina
through the acquisition of First
national Bank of lake City in lake City, Florida. the next year
began an era of rapid growth for the
company with the appointment of hugh McColl as chief
executive officer. assets swelled to $118 bil-
lion after the purchases of failed Dallas bank, First republic
Bank Corporation, from the FDiC in 1988,
and atlanta-based C&S/Sovran Corporation in 1991. Upon
completion of the latter acquisition, nCnB
became nationsBank.
Under McColl’s leadership, the asset base of nationsBank more
than doubled throughout the
mid-1990s. to further strengthen its presence in the atlanta
banking market, nationsBank purchased
BankSouth in an all-stock deal valued at $1.6 billion in 1995.
next came the acquisitions of St. louis’s
Boatmen’s Bankshares for $9.6 billion in 1996, and Florida-
based Barnett Bank for $15.5 billion in 1997.
these purchases made nationsBank the largest bank in the South,
with $284 billion in assets and more
than 2,600 branches stretching as far west as new Mexico.
BANK OF ITALY

thirty years after the founding of Commercial national Bank in
Charlotte, italian-american amadeo
Giannini founded Bank of italy in San Francisco. although
Giannini first established the bank to cater
to immigrants, he had much larger dreams.
like Commercial national Bank, Bank of italy achieved much of
its early growth through acqui-
sitions. in 1922, Giannini purchased Banca dell’italia
Meridonale and renamed the combined entity
the Bank of america and italy. Five years later, he increased his
holdings again in a merger with the
newly formed liberty Bank of america. the new entity, the Bank
of italy national trust & Savings
association, served customers through a network of 276
branches in California. after the completion
of yet another merger, this time with the Bank of america los
angeles, in 1930 the Bank of italy was
renamed Bank of america.
Giannini continued throughout the 1930s and 1940s to pursue
his vision of creating a national bank.
Bank of america expanded into most of the states surrounding
California. it also expanded its service
offerings to include insurance through the formation of a
holding company, transamerica Corporation.
however, the 1956 passage of the Bank holding Company act
prohibited banks from owning nonbank
subsidiaries, forcing Giannini to spin off transamerica Corp.
Bank of america continued its traditional

3
banking activities and retained the transamerica name for the
insurance arm. additionally, due to new
federal interstate banking regulations, Bank of america’s
domestic non-California banks were formed
into a new corporation that would eventually become First
interstate Bancorp (which was acquired by
Wells Fargo & Company in 1996).
the 1950s did not represent all bad news for Bank of america’s
aspirations. new technology that
allowed credit cards to be directly linked to bank accounts led
to the introduction of the Bankamericard
in 1958. the credit card ushered in a new era for the bank as
well as for american consumer spending
in general. Bankamericard became Visa in 1975. in response, a
consortium of other California banks
joined together to form Master Charge, the forerunner of
MasterCard.
During the late 1960s, the regulatory environment changed
again. the Bank holding Company act
of 1967 allowed for the establishment of Bankamerica
Corporation, to serve as parent company to
Bank of america, its subsidiaries, and any future acquisitions.
Growth continued slowly in the ensuing
years until the bank began a new wave of expansion outside of
California by acquiring the insolvent
Seattle-based Seafirst Corporation and its subsidiary, Seattle-

First national Bank, in 1983.
Bank of america faced a crisis in the mid-1980s due to massive
losses on loans made to third-world
nations, particularly those in latin america. as a result, the
company replaced then-Ceo Sam armacost
with former Ceo a. W. Clausen, but the damage was already
done. Stock price depreciation made
the bank vulnerable to hostile takeover. ironically, one of the
attempts was made by First interstate
Bancorp, its former spin-off. Bank of america rebuffed this and
other takeover efforts by liquidating
several subsidiaries such as Financeamerica (sold to Chrysler),
Charles Schwab and Co. (sold back to
Schwab), and Bank of america and italy (sold to Deutsche
Bank).
after the 1987 stock market crash, Bankamerica’s stock rallied
strongly. Major acquisitions resumed
in 1992 with the purchase of Security pacific Corporation and
the banks owned by its subsidiaries in
California, arizona, idaho, oregon, and Washington. Despite
having to liquidate rainier Bank due to
concerns of federal regulators about competition in Washington
state, the Security pacific deal was the
largest bank acquisition in history at that time.
in 1994, Bankamerica acquired Continental illinois national
Bank & trust Co. Continental had
been run by the federal government for more than 10 years due
to insolvency issues stemming from
the same oil-industry exposure suffered by Seafirst in 1983. this
transaction allowed Bankamerica to
regain its position as the largest bank in america by total
deposits, a title that the company had lost to
nationsBank Corporation in 1997. that was also the year that

Bankamerica embarked on a path that
would change the face of the bank forever.
in exchange for running various business units at the bank,
Bankamerica loaned $1.4 billion to
hedge fund D. e. Shaw & Company. When russian bonds
defaulted in 1998, D. e. Shaw suffered
massive losses, limiting its ability to repay the loans and
thereby weakening Bankamerica’s finan-
cial position. this led, later that same year, to the acquisition of
Bankamerica by nationsBank for
$64.8 billion, easily the largest bank acquisition to date. the
combined bank controlled $570 billion
in assets and operated more than 4,800 branches in 22 states.
although technically nationsBank
purchased Bankamerica, the deal was structured as a merger and
resulted in the new bank hold-
ing company being named the Bank of america Corporation and
the banking subsidiary taking the
name Bank of america, n.a.
4
Growth and Financial Meltdown in the New Millennium
the new century brought new leadership, new crises, and the

growth of shadow banks.
NEW LEADERSHIP AND NEW CRISES
in 2001, hugh McColl stepped down, and ken lewis succeeded
him as Ceo. the change in lead-
ership did little to slow the bank’s growth through strategic
acquisition. (See Exhibit 8 for the level
of diversification in 2003.) in 2004, Bank of america purchased
FleetBoston Financial (the nation’s
seventh-largest bank) for $47 billion in cash and stock.6 the
next year it acquired MBna for $35 bil-
lion in cash and stock, making Bank of america a major credit
card issuer both in the United States
and abroad. Shortly thereafter came the purchase of aBn aMro
north america and laSalle Bank
Corporation from Dutch giant aBn aMro for $21 billion.7
Despite growing storm clouds on the mortgage horizon, 2007
and 2008 saw a repurchase agreement
and then outright acquisition of Countrywide Financial, giving
Bank of america a substantial position
in the mortgage business. the purchase made the newly named
Bank of america home loans the larg-
est mortgage originator and servicer in the United States, with a
service portfolio valued at $1.4 trillion
at the end of 2007 (representing 20 to 25 percent of the home
loan market). Bank of america must have
had at least some suspicions of the developing storm, however:
it structured the deal to protect itself in
case Countrywide was forced to declare bankruptcy due to
losses on subprime home loans.8
those potential losses were looking more and more real every
day. Beginning in 2007, the U.S. econ-
omy slid into what has been described by many economists as

the most serious financial crisis since
the Great Depression.9 Most economists also agree that the
cause of this crisis was the housing bubble
that peaked in 2005 or 2006, fueled by the availability of low
interest rates on a variety of loans caused
by an influx of foreign capital into the U.S. market (Exhibit 9).
During this time, the debt of the average U.S. consumer rose to
unprecedented heights (Exhibit
10).10 Strong historical home value growth (Exhibit 11),
combined with easy initial loan terms, incentiv-
ized many americans to take on mortgages they could not afford
in the hope that they could refinance
later at more favorable terms. a leveling off and slight decline
in home values in some parts of the
country in 2006 and 2007, combined with rising interest rates,
caused the bubble to burst. refinancing
became difficult, adjustable-rate mortgage (arM) interest rates
reset at higher levels, and a wave of
defaults and foreclosures followed.11
as the number of mortgage loans (as well as credit card balances
and automobile loans) increased,
so did the popularity of a financial instrument known as asset-
backed securities, or aBS (Exhibit 12).
asset-backed securities are financial instruments securitized by
the underlying assets on which they
are based. the underlying assets provide a stream of capital from
payments made on those assets.
in the case of housing, for example, this stream is comprised of
homeowners’ mortgage payments.12
Banks packaged mortgages and other debt into tranches that
were given debt ratings and sold to inves-
tors around the world who wanted to invest in the U.S. real
estate market.

Collateralized debt obligations, or CDos, are a special form of
asset-backed security pioneered by
Drexel Burnham lambert in 1987. like other asset-backed
securities, CDos carry a credit rating that
is based on the fundamental strength of their underlying
components—in this case, investment-grade
fixed-income assets. these investments appeal to investors
because they offer higher returns than simi-
larly rated corporate bonds and allow the buyer to customize
their level of risk through diversifica-
tion. Because of these benefits, the popularity of CDos
skyrocketed: From 2004 to 2007, the compound
5
annual growth rate of global CDo issuance volume was 45
percent. issuances rose from $157.4 billion
to $481.6 billion in value over this same period.
When home prices began to decline and foreclosures rose,
however, the value of asset-backed securi-
ties fell sharply. Mass exodus from the CDo market followed,
causing the 2008 issue value to drop to
$61.9 billion (Exhibit 13).13 From the standpoint of the CDo
and aBS issuers, the precipitous drop in
prices, combined with the recent installation of mark-to-market

accounting standards, caused massive
losses for banks as they were forced to write down the value of
assets on their balance sheets.
THE SHADOW BANKS
the financial crisis had a particularly large effect on the U.S.
shadow banking system. Shadow banks
are nonbank financial institutions (for example, investment
banks, hedge funds, pension funds) that
lend corporations the capital necessary to operate, most notably
through the use of commercial paper.
What differentiated members of this system from traditional
banks was their inability to accept depos-
its, which meant they were not subject to the same regulations
as traditional banking institutions. For
example, investment banks were not required to maintain
minimum capital levels to protect against
potential losses. they also did not have the ability to draw on
federally insured customer deposits or
borrow directly from the federal government in times of
financial need. By early 2007, the shadow
banking system had grown to roughly the same size as the
traditional banking system in terms of
assets—more than $10 trillion.14
Several investment banks and hedge funds had significantly
increased their leverage in the aBS
market in the years leading up to the financial crisis. they were
therefore especially vulnerable to aBS
devaluation.15 these shadow institutions used funds from the
sale of commercial paper to invest in
asset-backed securities, either directly or through structured
investment vehicles which they spon-
sored. as those securities lost value, concerns mounted about the
investment banks’ ability to repay

their debt obligations. the result was a virtual freezing of the
commercial paper markets. to encourage
lending, central banks around the world felt they had to inject
capital into their respective markets.
according to timothy Geithner, then president of the new york
Federal reserve Bank, the size and
importance of the shadow banking system, combined with the
lack of strict regulation, “made the crisis
more difficult to manage.”16
ironically, the first major U.S. casualty was the venerable
investment bank and securitization pioneer
Bear Stearns. in March 2008, the Federal reserve Bank of new
york furnished Bear Stearns with an
emergency loan to prevent its sudden collapse, but the writing
was on the wall. later that same month,
JpMorgan Chase purchased the firm for a fraction of its
previous market value.17
Meanwhile, the clock was ticking at lehman Brothers. in
September 2007, lehman Brothers hold ing
inc. had closed BnC Mortgage, its subprime mortgage lender,
amid deteriorating market conditions.
however, the bank was left in an exposed position due to
billions of dollars worth of mortgage-backed
securities that remained on its books. on September 15, 2008,
lehman Brothers holdings inc. filed for
Chapter 11 bankruptcy protection after revealing it had become
insolvent. it had bank debt of $613 bil-
lion and bond debt of $155 billion while assets totaled only
$639 billion.18
like its peers, brokerage house Merrill lynch also suffered
substantial losses due to unhedged sub-
prime mortgage exposure. Despite the removal of Ceo e. Stanley
o’neal for approaching Wachovia

Bank about a merger without board approval,19 Merrill lynch
lost $19.2 billion between July 2007 and
July 2008 (an astounding $52 million per day).20 new Ceo John
thain attempted to bail out the com-
pany by selling its commercial finance division to General
electric and selling stock and select hedge
6
funds to Singapore investment group, temasek holdings, but the
bank remained near collapse.21 on
September 15, the same day that lehman Brothers filed for
bankruptcy, Bank of america announced
its intent to purchase Merrill lynch for $50 billion, a 38 percent
premium over current book value. (See
Exhibit 14 for the level of diversification in 2009 after the
Merrill lynch acquisition.)22
The U.S. Financial Industry after the Meltdown
in the midst of the financial meltdown, Federal reserve
Chairman Ben Bernanke and treasury
Secretary hank paulson were essentially left with two choices,
and neither was a good option. on the
one hand, they could allow several more of the largest financial
institutions in the world to fail, risking

a global market collapse. thousands of working americans
would lose their jobs, pensions, and invest-
ments, leading to a dramatic increase in unemployment as the
failures rippled through the broader
economy. riots would have been likely in some of the larger
U.S. cities, necessitating activation of the
national Guard. if Wall Street tanked, repercussions on Main
Street would be severe; this clearly was
not an attractive choice.
or, the U.S. government could bail out the banks and work
toward tighter regulatory controls in the
future. this was more in line with Chairman Bernanke’s promise
to himself that he would not preside
over a second Great Depression.
GOVERNMENT OWNERSHIP
While Main Street strongly opposed a “Wall Street bailout,” it
did support tighter bank regulations.
thus, during a seven-day period in early September 2008, the
federal government took mortgage lend-
ers Fannie Mae and Freddie Mac into conservatorship, which
equates to national securitization. the
financial markets viewed the move negatively, and financial
stocks dropped 31 percent. Stocks fell fur-
ther in october when president George W. Bush signed the $700
billion troubled asset relief program
(tarp) into law. tarp was designed to stabilize the balance sheets
of large financial institutions and
to increase liquidity in short-term funding markets. the
government’s first action under tarp’s capi-
tal purchase program was to buy $81 billion of preferred shares
in seven banks (including Bank of
america). over the next five weeks, financial stocks collapsed,
shedding 46 percent of their market

value.23 Many have since asked whether the bailout was
necessary. By socializing losses while priva-
tizing profits, was the government creating a moral hazard that
promoted or even incentivized risk?
the U.S. government did not see itself as a long-term investor in
bank equities, which helped to ease
criticism of government ownership of financial institutions.24
thus in april 2010, the U.S. treasury
announced plans for the sale of 7.7 billion shares of common
stock in Citigroup. (it had previously
exchanged its $25 billion in preferred stock for common stock
at a price of $3.25 per share.)25 Many
similar announcements followed throughout the rest of the year.
in March 2011, after three more finan-
cial institutions repaid a total of $7.4 billion in borrowed funds,
the treasury announced that the tarp
program had turned a profit.26
“NO MORE SHADOWS”
in order to receive assistance under tarp, several of the
remaining large investment banks, includ-
ing Goldman Sachs and Morgan Stanley, as well as other
shadow institutions like american express,
Cit Group, and General Motors acceptance Corporation
(GMaC), were forced to reorganize as bank
holding companies.27 as a result, tarp fundamentally altered the
shadow banking system that had

7
contributed so forcefully to the financial crisis. these firms now
fall under the regulation of the Federal
reserve and therefore have a more limited exposure to risk. they
are also now permitted to take con-
sumer deposits.
THE END OF THE RECESSION
the national Bureau of economic research (nBer) defines a
recession as “a significant decline in
economic activity spread across the economy, lasting more than
a few months, normally visible in real
GDp, real income, employment, industrial production, and
wholesale-retail sales. a recession begins
just after the economy reaches a peak of activity and ends as the
economy reaches its trough. Between
trough and peak, the economy is in an expansion.”28 according
to the nBer’s business-cycle dating
committee, the peak of the most recent recession occurred in
December 2007 and concluded with a
trough in June 2009, lasting for a total of 18 months. it was the
longest recession experienced by the
United States since World War ii.29
nBer based its assessment on several statistics, including higher
productivity, lower production
costs, and increasing factor orders.23 after bottoming out in
June 2009, U.S. GDp grew 2.2 percent in
the third quarter and increased at an annualized rate of 5.7
percent in the fourth quarter of 2009. GDp

growth during the fourth quarter reflected an acceleration in
private inventory investment, a decelera-
tion in imports, and increased nonresidential investment.
however, it was partially offset by decelera-
tions in federal government spending and in personal
consumption expenditures. in addition, the third
quarter of 2009 saw worker productivity (amount of output per
hour worked) increase at its highest
rate (annualized 8.1 percent) in six years, beating labor
Department estimates, while labor costs shrunk
by an annualized 2.5 percent. Meanwhile, the Commerce
Department reported that factory orders for
July 2009 increased for the fifth time in six months, gaining 1.3
percent. this gain was led by the strong
performance of durable goods, in particular transportation
goods, which surged 18.5 percent at least
partially due to the federal government’s Cash for Clunkers
incentive program.30
Unemployment took somewhat longer to improve, reaching a
high of 10.1 percent in october 2009
and hovering between 9 and 10 percent through the end of 2010
(Exhibit 15). then, after several con-
secutive monthly drops, the national unemployment rate fell to
a two-year low of 8.8 percent in March
2011. Most of the 216,000 jobs created that month were in the
private sector, offsetting job cuts by local
governments, which were still experiencing financial
difficulties.31
BANKS AS A LAGGING INDICATOR
even as other indicators showed signs of recovery, the U.S.
banking sector continued to lag. Just
three banks were forced to close in 2007, compared with 25 in
2008. in 2009, an astonishing 140 banks

were shuttered, leaving the FDiC’s insurance fund at its lowest
point in more than 15 years. Such a
large number of bank failures had not occurred since the
savings and loan crisis of the early 1990s.
at the time the recession technically ended (second quarter
2009), the FDiC had 416 banks on its
“problem list,” meaning they were undercapitalized or deficient
in some way. experts predicted
another 100 to 300 banks, particularly small ones, could fail
while the crisis ran its course.24 in fact, con-
ditions grew even worse in 2010 with 157 closures, and
remained elevated through first quarter 2011,
during which 26 bank failures occurred (Exhibit 16).
Unfortunately for many regional banks, the mantra “too big to
fail” did not apply. they were too
small to be bailed out, and thus became mass casualties of the
financial meltdown. one of the most
noteworthy failures was the regional commercial real-estate
lending giant Colonial Bank, based in
8
Montgomery, alabama. With total deposits of $20 billion and
assets of $22 billion as of mid-august

2009, Colonial was the sixth-largest bank failure in U.S.
history. its assets and deposits, along with
its 346 branches, were sold to BB&t.32 overall, the dramatic
rise in bank failures was attributed to
defaults on commercial loans given to developers, many of
whom simply walked away from projects
as demand dried up. another potent contributor was rising
default rates on traditional prime mort-
gages, driven by the increase in unemployment.
Bank of America after the Crisis
as the financial situation regained its footing, Bank of america’s
senior management came under
heavy fire for decisions made during the crisis. Serious
questions were raised regarding the role played
by the Federal reserve in Bank of america’s acquisition of
Merrill lynch.
CRISIS CLEAN-UP
an april 2009 report by new york attorney General andrew
Cuomo alleged that federal officials,
namely former treasury Secretary hank paulson and Federal
reserve Chairman Ben Bernanke, pres-
sured Ceo ken lewis into proceeding with the merger without
disclosing significant losses the broker-
age was carrying on its books. lewis’s concerns proved to be
valid when it was ultimately revealed that
Merrill lynch’s fourth-quarter losses topped $15 billion.33
Concerned about the viability and value of
the merger, stockholders voted (narrowly) to replace ken lewis
as chairman of the board of directors,
but allowed him to remain as Ceo for the time being.
outraged Bank of america shareholders also questioned the large

bonus pool paid at Merrill lynch,
despite the $27.6 billion in losses incurred by the firm in 2008.
in all, the Merrill lynch compensation
committee approved $3.6 billion in bonus payments only three
days after Bank of america sharehold-
ers approved the merger. Bonus payments were made just one
day prior to the deal becoming effec-
tive.34 Under questioning from federal investigators, former
Merrill lynch Ceo John thain claimed
that Bank of america, and ken lewis in particular, were fully
aware of the incentive-compensation
plan in place when the bank purchased the floundering
brokerage firm, effective January 1, 2009. this
contradicted lewis’s testimony to the house Financial Services
Committee on February 11, 2009, when
he claimed to have very little involvement in the Merrill lynch
bonus plan.
the SeC also took notice and launched an investigation to
determine whether Bank of america’s
management misled shareholders prior to the December 2008
meeting in which the merger was
approved. in august 2009, the SeC filed a civil suit in U.S.
District Court for the Southern District of
new york, claiming that proxy documents mailed to
shareholders failed to disclose Bank of america’s
prior agreement with Merrill lynch authorizing the payment of
billions of dollars in year-end bonuses
prior to the close of the merger. then in January 2010, the SeC
filed a second charge that Bank of
america failed to disclose to shareholders the extraordinary
losses incurred by Merrill lynch in the
fourth quarter of 2008.
Bank of america denied any wrongdoing but agreed to a
settlement that stipulated payment of $150

million to shareholders harmed by the disclosure violations. the
bank also had to promise to adhere for
the next three years to a series of remedial actions designed to
improve its corporate governance with
respect to executive compensation and financial transparency.35
9
EXECUTIVE SHAKEUP
the year following the Merrill lynch merger saw a massive
shakeup of the executive leadership at
Bank of america. Starting in early august, several members of
the guiding team left and were replaced
by fresh faces. according to the official press release, the
changes were meant to “enhance future suc-
cess at the company.”36 Brian Moynihan, former head of Global
Corporate and investment Banking
(GCiB) replaced liam McGee, a 20-year Bank of america
veteran, as head of Consumer Banking. tom
Montag took over responsibility for GCiB from Moynihan in
addition to his role as head of Global
Markets.
the largest news-grabber, however, was the addition of Sallie
krawcheck as head of Global Wealth

and investment Management. Ms. krawcheck has a long and
accomplished resume and is widely
regarded as one of the most powerful women in business.
Before moving to Bank of america, she
rose from her position as an equity analyst to Ceo of research
firm Sanford C. Bernstein & Co. She
subsequently served as CFo and head of strategy for Citigroup.
Most recently, she served as Ceo in
charge of Smith Barney and the Citi private Bank, Citigroup’s
wealth-management businesses. Bank of
america expected big things from the addition of Ms.
krawcheck. Upon her hiring, ken lewis stated,
“She is acknowledged to be one of the premier executives in the
wealth-management industry. her
experience and perspective will lead that business to the next
level.”31
the biggest change came at the end of September 2009 when
Ceo lewis announced that he would
leave the company at the end of the year.37 those close to the
decision said that lewis had grown weary
of the criticism surrounding the Merrill lynch acquisition. those
sources said the decision was solely
lewis’s and that he was under no pressure from the board of
directors or government officials. “the
Merrill lynch and Countrywide integrations are on track and
returning value already,” said lewis in
his official statement. “our board of directors and our senior
management include more talent, and
more diversity of talent, than at any time in this company’s
history. We are in position to begin to repay
the federal government’s tarp investments. For these reasons, i
decided now is the time to begin to
transition to the next generation of leadership at Bank of
america.” in January 2010, the bank’s board
named Brian Moynihan as lewis’s successor as Ceo. Moynihan

inherited a bank with 280,000 employ-
ees that was active in more than 180 countries across the globe.
TARP FUNDS
in June 2009, 10 banks repurchased a combined $68 billion
worth of preferred stock that the govern-
ment had purchased from the banks under tarp to inject capital
into the banking system. included
among the ten were major rivals JpMorgan Chase, Morgan
Stanley, and Goldman Sachs Group. the
repayment was in direct response to government “stress tests”
of 19 of the nation’s largest financial
institutions, a test that large banks like Wells Fargo, Citigroup,
and Bank of america failed.38
eager to restore some luster to its tarnished image, Bank of
america announced the complete repay-
ment of its own $45 million in tarp funds on December 9, 2009.
Despite the fact that the bank lagged
behind several of its major competitors in this regard, Ceo lewis
looked positively toward the future:
“We owe taxpayers our thanks for making these funds available
to the nation’s financial system and
to our company during a very difficult time,” said lewis. “now
that we have cleared this significant
hurdle, which demonstrates the strength of our company, we
look forward to continuing to play a key
role in the economic recovery and helping to meet the changing
needs of our customers and clients.”39

10
Critics were a bit less optimistic, however. an analyst cited by
huffingtonpost.com argued that the
timing was too soon, given the number of delinquent loans that
were likely to default in the near
future. Using $26 billion in extra cash to pay back tarp funds at
the same time the Federal reserve was
in the process of withdrawing other subsidies for large banks
was also likely to leave Bank of america
in a weak cash position.40 others argued that the payback was a
mere sleight of hand designed to
allow lewis to take a “victory lap” 41 before stepping down as
Ceo. Bank of america continued to take
advantage of low-interest loans from the federal government
that did not have any of the restrictions
that tarp funds did.42
BUSINESS OUTLOOK
in 2008, analysts estimated that U.S. property owners lost $3.3
trillion in housing value and that one
in six americans owed more than their homes were worth.43
Unfortunately for homeowners and the
banks holding their mortgages, the real estate market continued
to struggle even after the technical end
of the recession in June 2009. Due to its acquisition of
mortgage-lending giant Countrywide Financial,
Bank of america had become the leading servicer of mortgages
in the United States. this left the bank
vulnerable as struggling homeowners continued to abandon their

properties at unprecedented rates.
in July 2009, Bank of america reached a settlement with the
attorneys General of 40 states to start
three programs aimed at relieving homeowners’ financial
distress. the Foreclosure relief program
provided $150 million in assistance for certain borrowers who
experienced a foreclosure, short sale,
or deed-in-lieu of foreclosure on mortgages originated by
Countrywide. the second initiative, the
national homeownership retention program, was aimed at
creating affordable and sustainable mort-
gage payments for 400,000 homebuyers who financed their
purchases with subprime or adjustable-rate
mortgages serviced by Countrywide. the third component
provided cash assistance for individuals
subject to a foreclosure sale who vacated their property
voluntarily.
in its 2010 annual report, Bank of america reported that it had
modified nearly 775,000 mortgages
since January 2008. it had also reached an agreement to pay
$2.8 billion to Freddie Mac and Fannie Mae
to resolve claims related to mortgages they had purchased from
Countrywide and its affiliates. Despite
these positive steps, Bank of america was not yet out of the
“mortgage woods”: the housing market
remained weak throughout 2010, with house prices showing a
downward trend in the second half of
the year.44
however, the Merrill lynch acquisition was starting to look up.
according to an april 2010 article in
The Economist magazine, attrition at Bank of america and
Merrill lynch’s combined investment bank-
ing operations had slowed considerably.45 new management

that was brought in to refresh the firm
seemed to be having the desired effect. overall the bank earned
$3.2 billion in the first quarter of 2010,
driven mostly by a reduction in provisions for credit losses and
strength in the capital markets. thus,
while some things were improving, Bank of america still had a
long way to go toward full financial
recovery.
Management’s Challenge
in Stephanie Milner’s conference room, consensus is easy to
achieve on one point: executive man-
agement is ready to get the bank back on track to profitability.
however, many obstacles stand in the
way. First and foremost are the many challenges that come with
the merging of any large organizations.
11
Bank of america’s case is even more complicated because it is
integrating two distinct entities at the
same time, both of which were failing when the bank assumed
control. each has a significant amount
of “baggage” that needs to be sorted through in order to clear a
path toward a better future. Bank of

america’s home retention program represents a significant effort
to undo the negative aspects of
Countrywide’s legacy, but how much longer will the past
continue to haunt the bank’s financial state-
ments? Major competitors like JpMorgan Chase and Morgan
Stanley were able to pay back their tarp
funds and put the financial crisis behind them much more
quickly. Bank of america cannot afford to
fall behind. (See Exhibit 17 for a revenue and net income
comparison among major competitors.)
then there is the question of what integration should look like—
which activities should stay, which
should be spun off, and what redundancies should be
eliminated? the longer it takes Bank of america
to sort out these issues, the more likely it is to lose star talent to
other firms, especially as the financial
sector perks back up. Should the bank go with a single brand
and image, or take advantage of the
equity that remains in the Merrill lynch name? (letting go of
Countrywide seems to be a foregone
conclusion.) one of the attractive aspects of Merrill lynch is its
international presence and the promise
it holds for global expansion. Will foreign countries embrace
the bank as readily if it renames Merrill
lynch’s worldwide operations as Bank of america?
as the bank continues to grow in the future, what competencies
should it rely on? historically,
Bank of america has been known for its willingness to innovate
and push the boundaries of banking
technology. the bank led the way in online banking, including
advanced bill-payment options for cus-
tomers, mobile-banking applications for smartphones, and atM
technology that can accept deposits
without envelopes, scan and recognize checks, and count cash.

Bank of america has also developed a
reputation for developing class-leading, customer-oriented
promotions and services, such as its “keep
the Change” and “privacy assist” programs (see Exhibits 18 and
19). Should innovation and service
continue to be the building blocks of its future competitive
advantage, or have the changes brought
about by the financial crisis rendered them less effective going
forward? how could these strengths be
combined with what Merrill lynch and Countrywide have to
offer?
Further, how should the company grow in the future? in the
past, Bank of america has displayed a
steady appetite for acquisitions, making it the mammoth
financial institution it is today. But how big is
too big, and how can a firm know when it has reached that
threshold? With the number of annual bank
failures still quite high, plenty of acquisition targets exist, but
do their discounted prices merit taking
on even more financial distress? how healthy does Bank of
america have to be in order to consider
additional purchases?
Finally, in order to avoid repeating previous mistakes, Bank of
america needs to understand how
Merrill lynch and Countrywide got themselves into such
precarious financial positions in the first
place. What risk-management mechanisms were in place to
prevent such massive losses, and why
were they ineffective? Was the financial crisis created by good
people making bad decisions at an inop-
portune time? or were the people themselves to blame? to what
extent did corporate strategy and
compensation incentives promote unnecessary risk-taking? and
most importantly, how can situations

like the 2008 financial crisis be avoided in the future?
Stephanie Milner and the rest of the team must assess all of
these issues and draft a set of rec-
ommendations to help guide future strategy development. their
recommendations need to address
weaknesses in past strategy that may have contributed to the
crisis at each firm (Bank of america,
Countrywide, and Merrill lynch). in addition, they need to
discuss how Bank of america can harness
the inherent strengths of the legacy firms and build a stronger,
more financially secure organization.
the group begins to work.
12
E
X
H
IB
IT
1

B
an
k
of
a
m
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ic
a
C
or
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ti
on
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is
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l B
al
an
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et
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at
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ec
em
be
r
31
st
(i
n
m
ill
io
ns
)
20
10
20
09

20
08
20
07
20
06
20
05
As
se
ts
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de
ra
l f
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ds
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an
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se

cu
rit
ie
s
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rr
ow
ed
o
r p
ur
ch
as
ed
un
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r a
gr
ee
m
en
ts
to

re
se
ll
$
2
09
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16
$
1
89
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$
8
2,
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8
$
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ad
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un
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et
s
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1
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ur
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: B
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k
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a
m
er
ic
a
C
or
po
ra
ti
on
a
nn
ua
l r
ep
or
ts
.

13
EXHIBIT 2 Bank of america Corporation Consolidated
Statement of income (in millions)
2010 2009 2008 2007 2006 2005
Revenue
Net interest income $ 51,523 $ 47,109 $ 45,360 $34,441
$34,594 $30,737
Non-interest income 58,697 72,534 27,422 32,392
38,182 26,438
Total Revenue, Net of Interest
Expense
110,220 119,643 72,782 66,833 72,776 57,175
Expenses
Provision for credit losses 28,435 48,570 26,825 8,385 5,010
4,014
Noninterest expense, before merger
and restructuring charges
81,288 63,992 40,594 37,114 34,988 28,269
Merger and restructuring charges 1,820 2,721 935 410
805 412

Total Expenses 111,543 115,283 68,354 45,909 40,803
32,695
Income before Income Taxes (1,323) 4,360 4,428 20,924 31,973
24,480
Income tax expense (benefit) 915 (1,916) 420 5,942
10,840 8,015
Net Income (Loss) $ (2,238) $ 6,276 $ 4,008 $14,982
$21,133 $16,465
Source: Bank of america Corporation annual reports.
EXHIBIT 3 other Financial Data and ratios
2010 2009 2008 2007 2006 2005
Performance Ratios
Return on average assets N/M 0.26% 0.22% 0.94% 1.44%
1.30%
Return on average common shareholders’ equity N/M N/M
1.80% 11.08% 16.27% 16.51%
Return on average tangible common
shareholders’ equity
N/M N/M
4.72% 26.19% 38.23% 31.80%
Return on average tangible shareholders’ equity N/M 4.18%
5.19% 25.13% 37.80% 31.67%
Total ending equity to total ending assets 10.08 10.38 9.74 8.56

9.27 7.86
Total average equity to total average assets 9.56 10.01 8.94
8.53 8.90 7.86
Dividend payout N/M N/M N/M $72.26 $45.66 $46.61
Per Common Share Data
Earnings (loss) $ (0.37) $ (0.29) $ 0.54 $ 3.32 $ 4.63 $ 4.08
Diluted earnings (loss) $ (0.37) $ (0.29) $ 0.54 $ 3.29 $ 4.58
$ 4.02
Dividends paid $ 0.04 $ 0.04 $ 2.24 $ 2.40 $ 2.12 $ 1.90
Book value $20.99 $21.48 $27.77 $32.09 $29.70 $25.32
Tangible book value $12.98 $11.94 $10.11 $12.71 $13.26
$13.51
Market Price per Share of Common Stock
Closing $13.34 $15.06 $14.08 $41.26 $53.39 $46.15
High closing $19.48 $18.59 $45.03 $54.05 $54.90 $47.08
Low closing $10.95 $ 3.14 $11.25 $41.10 $43.09 $41.57
(continued)

14
EXHIBIT 3 other Financial Data and ratios (continued)
Source: Compiled from Bank of america Corporation annual
reports.
2010 2009 2008 2007 2006 2005
Market capitalization $134,536 $130,273 $70,645 $183,107
$238,021 $184,586
Asset Quality
Allowance for credit losses ($M) $ 43,073 $ 38,687 $23,492 $
12,106 $ 9,413 $ 8,440
Nonperforming loans, leases, and fore closed
properties ($M) $ 32,664 $ 35,747 $18,212 $ 5,948 $
1,856 $ 1,603
Allowance for loan and lease losses (% of total
loans) 4.47% 4.16% 2.49% 1.33% 1.28% 1.40%
Net charge-offs $ 34,334 $ 33,688 $16,231 $6,480 $ 4,539 $
4,562
Net charge-offs (% of total loans) 3.60% 3.58% 1.79% 0.84%
0.70% 0.85%
Nonperforming loans (% of total loans) 3.27% 3.75% 1.77%

0.64% 0.25% 0.26%
Ratio of the allowance for loan and lease losses 1.22 1.1 1.42
1.79 1.99 1.76
Year Event
1874 Commercial National Bank was founded in Charlotte,
North Carolina
1904 Amadeo Giannini founds the Bank of Italy in San
Francisco, California
1922 Bank of Italy purchases Banca dell’Italia Meridonale and
rebrands as Bank of America and Italy
1927 Bank of America and Italy merges with Liberty Bank of
America to form Bank of Italy National Trust & Savings
Association
1930 Bank of Italy National Trust & Savings Association
merges with Bank of America Los Angelas and rebrands as
Bank
of America
1958 Commercial National Bank purchases Charlotte
competitor American Trust Company and rebrands as American
Commercial Bank
1958 Bank of America issues the first BankAmericard, ushering
in the era of credit cards
1960 American Commercial Bank purchases Securities National
Bank and rebrands as North Carolina National Bank
(NCNB)

1967 The Bank Holding Company Act of 1967
1975 The BankAmericard association rebrands as Visa
1982 NCNB exbands beyond North Carolina by purchasing First
National Bank of Lake City in Lake City, Florida
1983 Hugh McColl becomes CEO of NCNB
1983 BankAmerica Corporation purchases Seattle, Washington–
based Seattle First National Bank
1986 Large BankAmerica losses due to third-world lending
lead to unsuccesful takeover attempt by First Interstate Bancorp
1991 NCNB rebrands as NationsBank after the purchase of
Atlanta, Georgia–based C&S/Sovran Corpoation
1992 Bank America Corporation purchases Security Pacific
Corporation and gains a foothold in all major West Coast
markets
EXHIBIT 4 key Dates in the history of Bank of america
15

Source: Bank of america (www.bankofamerica.com).
Year Event
1994 BankAmerica purchases Continental Illinois National
Bank & Trust Co. and overtakes NationsBank as the largest
bank
in America
1995 NationsBank purchases BankSouth for $1.6 billion
1996 NationsBank purchases St. Louis’s Boatmen’s Bankshares
for $9.6 billion
1997 NationsBank purchases Florida-based Barnett Bank for
$15.5 billion
1997 BankAmerica loans hedge fund D.E. Shaw $1.4 billion in
exchange for services
1998 Russian bond defaults cripple D.E. Shaw and weaken
BankAmerica
1998 NationsBank purchases BankAmerica for $64.8 billion and
rebrands as the Bank of America Corporation
2001 Hugh McColl steps down as CEO of Bank of America and
is succeeded by Ken Lewis
2004 Bank of America Corporation purchases FleetBoston
Financial for $47 billion
2005 Bank of America Corporation purchases MBNA for $35
billion
2005 Bank of America Corporation purchases ABN AMRO

North America and LaSalle Bank from ABN AMRO for $21
billion
2008 Bank of America Corporation purchases Countrywide
Financial and rebrands the firm as Bank of America Home
Loans
2008 Bank of America Corporation purchases Merrill Lynch for
$50 billion
2008 Bank of America Corporation recieves $25 billion in
federal TARP funds
2009 Bank of America Corporation receives an additional $20
billion in TARP funds, plus $118 billion in guarantees against
Merrill Lynch losses from the FDIC
EXHIBIT 4 (continued)
EXHIBIT 5 Bank of america–total assets ($M)
2010
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
20052006200720082009

Source: Compiled from Bank of america 10-k filings.
16
JPMorgan
Chase
Bank of
America
Citibank U.S. Bank PNC BankWells
Fargo
$2,00,000
$4,00,000
$6,00,000
$8,00,000
$1,000,000
$1,200,000
$1,400,000

$1,600,000
$1,800,000
$0
EXHIBIT 6 total assets of largest U.S. Bank holding Companies
Source: Federal reserve Board, national information Center,
www.federalreserve.gov/releases/lbr/current/default.htm.
17
A.I
.G.
Cit
igr
ou
p,
Inc
.

Ba
nk
of
Am
eri
ca
Co
rpo
rat
ion
We
lls
Fa
rgo
&
Co
mp
an
y
JP
M
org
an
Ch

as
e &
Co
mp
an
y
Th
e G
old
ma
n S
ac
hs
Gr
ou
p,
Inc
.
Mo
rga
n S
tan
ley

U.S
. H
om
eo
wn
ers
Au
tom
ak
ers
, G
MA
C
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000

$90,000,000
EXHIBIT 7 largest recipients of tarp Funds
Source: “tracking the $700 Billion Bailout,” The New York
Times, www.nytimes.com/packages/html/national/200904_
CreDitCriSiS/recipients.html.
18
Ju
n ’
03
Ja
n ’
04
Au
g ’
04

Ma
r ’0
5
Oc
t ’0
5
Ma
y ’
06
De
c ’
06
Ju
l ’0
7
Fe
b ’
08
Se
p ’
08
Ap
r ’0

9
No
v ’
09
Ju
n ’
10
Ja
n ’
11
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
30-Year-FRM 15-Year-FRM 30-Year-1-ARM

EXHIBIT 9 historic Mortgage rates, June 2003–January 2011
EXHIBIT 8 Bank of america’s Diversification Strategy in 2003
Percent of Revenue
Consumer &
Commercial
Banking
69%
Asset
Manage–
ment
7%
Global &
Corporate
Investment
Banking
24%
Source: Blamely, r. S., S. Griffin, Q. Makins, B. rule, and D.
thompson (2010), “a strategic perspective on Bank of america,”
Georgia institute of technology.
Source: www.hsh.com/mtghst.html.

19
EXHIBIT 10 U.S. household Debt outstanding 1979–2010 (in
billions)
Source: www.federalreserve.gov/releases/z1/current/z1r-2.pdf.
19
79
19
81
19
83
19
85
19
87
19
89
19
91

19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
$0
$2,000
$4,000
$6,000

$8,000
$10,000
$12,000
$14,000
Home Mortgage Consumer Credit Total
20
EXHIBIT 11 historical U.S. home price indices
Source:
www.standardandpoors.com/servlet/BlobServer?blobheadernam
e3=MDt-type&blobcol=urldocumentfile&blobtable
=SpComSecureDocument&blobheadervalue2=inline%3B+filena
me%3Ddownload.pdf&blobheadername2=Content-Dis
position&blobheadervalue1=application%2Fpdf&blobkey=id&bl
obheadername1=
content-
type&blobwhere=1245301368714&blobheadervalue3=abinary%
3B+charset%3DUtF-8&blobnocache=true.
1988

224%
220%
218%
212%
28%
24%
Pe
rc
en
t c
ha
ng
e,
y
ea
r a
go
0%
4%
8%
12%

16%
20%
24%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2006 2010
S&P/Case-Shiller Home Price Indices
24%
20%
16%
12%
8%
4%
0%
24%
28%
212%
216%
220%
224%

Percent change, year ago
10-City Composite 20-City Composite
21
EXHIBIT 12 total issuance of asset-Backed Securities
EXHIBIT 13 Global CDo issuance (in millions)
Source: the Securities industry and Financial Markets
association, www.sifma.org/research/item.aspx?id=23319.
Source: Securities industry and Financial Markets association,
http://search.sifma.org/search?q=CDo+issuance&submit=Go
&site=SiFMa&client=SiFMa&proxystylesheet=SiFMa&output=
xml_no_dtd.
2001
0
100
200
300

400
500
600
700
800
$
Bi
lli
on
s
2002 2003 2004 2005 2006 2007 2008 2009 2010
$0
$50,000
$1,00,000
$1,50,000
$2,00,000
$3,00,000
$3,50,000
$4,00,000

$4,50,000
$5,00,000
$2,50,000
2010 2011
YTD
200520042003200220012000 2006 2007 2008 2009
22
Global
Banking
19%
Global Card
Services
24%
Deposits
11%

Home Loans
14%
Global
Wealth
15%
Percent of Revenue
Global
Markets
17%
4.0
Ma
r-0
9
Ju
n-0
9
Se
p-0
9
De
c-0

9
Ma
r-1
0
Ju
n-1
0
Se
p-1
0
De
c-1
0
Ma
r-1
1
Ma
r-0
9
Ju
n-0
9

Se
p-0
9
De
c-0
9
Ma
r-1
0
Ju
n-0
9
Se
p-1
0
De
c-1
0
Ma
r-1
1

5.0
6.0
7.0
8.0
9.0
10.0
11.0 600
Th
ou
sa
nd
s
400
200
0
2200
2400
2600
2800

21000
Pe
rc
en
t
EXHIBIT 14 Bank of america’s Diversification Strategy in 2009
EXHIBIT 15 Seasonally adjusted Unemployment rates and non-
Farm payroll
employment Change (Month over Month)
Source: U.S. Bureau of labor Statistics,
www.bls.gov/news.release/pdf/empsit.pdf.
23
EXHIBIT 16 yearly Bank Failures, 2000–2011
2010 201120042003200220012000

0
20
40
60
80
100
120
140
160
180
2007 2008 2009
EXHIBIT 17 revenue and net income of Major U.S. Banks,
2005–2009
$(40,000)
$(20,000)
$20,000
$40,000
$60,000
$80,000

$100,000
$120,000
$140,000
$0
Citigroup Revenue
Wells Fargo Revenue
Chase Revenue
Bank of America Revenue
Chase Net Income
Bank of America Net Income
Citigroup Net Income
Wells Fargo Net Income
2005 2006 2007 2008 2009
Source: FDiC, www2.fdic.gov/hsob/hsobrpt.asp.

24
6.69
6.53
6.53
6.38
6.03
5.63
4.89
JPMorgan Chase
Credit Suisse Group2
4
5
6
7
2
1 Bank of America
Wells Fargo

Deutsche Bank
ING Group
BNP Paribas
Overall ScoreCompanyRank
Innovation 1
1
1
2
2
2
4
4
10
Nine Key Attributes of
Industry Reputation Rank
Social responsibility
Quality of products/services
People management

Quality of management
Long term investment
Use of corporate assets
Financial soundness
Global competitiveness
EXHIBIT 18 Bank of america’s ranking in the Fortune 500
EXHIBIT 19 Bank of america’s Fortune 500 ranking by
attribute
thompson (2010). “a strategic perspective on Bank of america,”
25
Endnotes

1. “top 50 Bank holding Companies,” United States Federal
reserve System, national information Center.
2. Dash, e., l. Story, and a. r. Sorkin (2009), “Bank of america
to receive additional $20 billion,” The New York
Times, January 15.
3. Board of Governors of the Federal reserve Board System,
press release, January 16, 2009, www.federalre-
serve.gov/newsevents/press/bcreg/20090116a.htm.
4. robb, G. (2009), “Bernanke declares ‘recession is very likely
over,’” MarketWatch, The Wall Street Journal,
September 15.
5. Bank of america online heritage Center;
http://newsroom.bankofamerica.com/heritagecenter/.
6. “U.S. banking mega-merger unveiled,” BBC World news.
october 27, 2003.
7. henderson, t. (2008), “Boa to ‘paint the town red’ with
laSalle name change,” Crain’s Detroit Business, april
14.
8. Bauerlein, V, and J. r. hagerty (2008), “Behind Bank of
america’s big gamble,” The Wall Street Journal, January
12.
9. “three top economists agree 2009 worst financial crisis since
Great Depression; risks increase if right steps are
not taken,” reuters, February 27.
10. krugman, p. (2009), “revenge of the glut,” The New York
Times, March 1.

11. Steverman, B, and D. Bogoslaw (2008), “the financial crisis
blame game,” BusinessWeek.com, october 18.
12. asset-Backed Security, www.investopedia.com.
13. Mongoose, D., “Collateralized debt obligations: from boon
to burden,” Investopedia.com.
14. Barr, a. (2008), “Brokers threatened by run on shadow bank
system,” MarketWatch, The Wall Street Journal,
June 20.
15. Greenspan, a. (2009), “We need a better cushion against
risk,” Financial Times, March 26.
16. Barr, a. (2008), “Brokers threatened by run on shadow bank
system.”
17. onaran, y. (2008), “Fed aided Bear Stearns as firm faced
Chapter 11, Bernanke says,” Bloomberg.com, april 2.
18. Mamudi, S. (2008), “lehman folds with record $613 billion
debt,” MarketWatch, The Wall Street Journal,
September 15.
19. anderson, J., and l. thomas Jr. (2007), “nySe chief is chosen
to lead Merrill lynch,” The New York Times,
november 15.
20. Story, l. (2008), “Chief struggles to revive Merrill lynch,”
The New York Times, July 18.
21. Dash, e. (2007), “Merrill lynch sells stake to Singapore
firm,” The New York Times, December 25.

22. Moyer, l. (2008), “they all fall down,” Newsweek,
September 15.
23. reynolds, a. (2009), “the government’s influence on the
stock market,” Forbes.com, March 25.
24. Crutsinger, M. (2010), “treasury plans first Citigroup stock
sale,” Washingtontimes.com, april 26.
25. www.treasury.gov/press-center/press-
releases/pages/tg660.aspx.
26
26. www.treasury.gov/press-center/press-
releases/pages/tg1121.aspx.
27. “Fed approves GMaC bank request in boost for GM,” aFp,
December 24, 2008.
28. Business Cycle Dating Committee, nBer,
www.nber.org/cycles/recessions.html.
29. www.nber.org/cycles/sept2010.html.
30. “Who needs more workers?” The Economist, September 3,

2009.
31. www.bbc.co.uk/news/business-12935003.
32. pepitone, J. (2009), “Bank failures stack up: now 106 for
2009,” CNNMoney.com, october 23.
33. Wingfield, B. (2009), “Did Bernanke bully B of a?”
Forbes.com, april 23.
34. Fitzpatrick, D. and k. Scannell (2009), “B of a denies
misleading its investors on bonuses,” The Wall Street
Journal, august 25.
35. www.sec.gov/litigation/litreleases/2010/lr21407.htm.
36. Bank of america online newsroom, august 3, 2009,
http://newsroom.bankofamerica.com.
37. “ken lewis announces his retirement,” Nasdaq.com,
prnewswire September 30, 2009.
38. “ten banks allowed to repay $68 billion to the tarp fund,”
CnBC, June 9, 2009.
39. http://mediaroom.bankofamerica.com/phoenix.
zhtml?c=234503&p=irol-newsarticle&iD=1390319&highlight=.
40. www.huffingtonpost.com/2009/12/04/bank-of-america-tarp-
repa_n_380776.html.
41. ibid.
42. http://consumerist.com/2009/12/why-bank-of-americas-tarp-
payback-is-bad-news.html.

43. levy, D. (2009), “U.S. property owners lost $3.3 trillion in
home value,” Bloomberg.com, February 3.
44. 2010 annual report, http://media.corporate-
ir.net/media_files/irol/71/71595/reports/2010_ar.pdf.
45. “Might the most controversial deal of the financial crisis
pay off after all?” The Economist, april 14, 2010.
Financial Institutions
Bank of America (in 2010) and the New Financial Landscape
Objectives of the case: to provide students with the
opportunities to understand how the operations of Commercial
Banks have changed overtime and to understand how banks,
such as Bank of America, (BAC) need to adjust to the new
financial landscape that includes nonbank financial institutions
(i.e. shadow banks).
In addition to discussing BAC’s history and the state of its
operations in 2010, the case also provides information about the
periods surrounding the 2007-2008 financial crisis. We will be
discussing the financial crisis of 2007-2008 throughout the
semester. In the current case, we will focus on BAC and think
of the financial crisis as the disruption to the bank’s business
model. Other details about the financial crisis (e.g. causes,
regulations, consequences for bank governance and culture) will
be discussed throughout the semester as they pertain to the
course material.

Instructions:
The course has cases to be analyzed. Case briefs should NOT
exceed two pages of text with no
limit on exhibits. You must use the 12-point font, double-spaced
paragraphs, and default Microsoft Word
margins (the table for question 1 and no more than two pages of
text) addressing all the questions
Questions and points to consider in your memo.
1. VRIO is a technique (developed by Jay B. Barney, former
Fisher chaired MHR faculty member)) that is used by a firm to
critically assess its value chain and understand from where the
firm’s competitive advantages come. Management can use the
assessment to make strategic business decisions. VRIO is an
acronym based on the first letters of the names of the
dimensions used in the technique:
a. Value – How expensive is the resource to obtain outside the
firm?
b. Rareness – How rare or limited is the resource?
c. Imitability – How difficult is it to imitate the resource?
d. Organization – Is the resource supported by the firm and
exploited by the firm? Using the table on the next page as a
template, perform a VRIO internal analysis for BAC.
2. Based on your VRIO analysis, prepare bullet points that
outline your recommendations for Stephanie Miller and her
team to help guide BAC’s future business strategy. You will use
this for class discussion. Each group is expected to be prepared
to discuss and answer questions about their recommendations.
3. Why did Ken Lewis and the Board not disclose to
shareholders the losses and bonus payments in the Merrill
Lynch acquisition? What do you think were their
rationalizations to justify non-disclosure of significant facts?

1
VRIO Internal Analysis for Bank of America
Resource/Area to Consider
Valuable? Y or N
Rare? Y or N
Costly to Imitate? Y or N
Exploited by BAC Y or N
Competitive Advantage?
Temporary, sustained,
parity or disadvantage
Financial Assets
Access to low-interest gov’t loans
Physical locations in the US

International presence
Internal communication & control systems
New management team
M&A knowledge & experience
BAC brand name
Breadth & depth of products and services

Technological Innovation
Merrill Lynch brand equity
Other?
Other?
Other?

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