555 California Street
San Francisco, California 94104
Telephone: (415) 622-3456
Fax: (415) 622-7915
Incorporated: 1904 as Bank of Italy
Assets: $180.64 billion
Stock Exchanges: New York Pacific Midwest
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks
When BankAmerica merged with Security Pacific Corporation in 1992, it became the nation's second-largest bank. This merger of the California banks was the largest merger in the history of banking and created an institution with nearly $190 billion in assets and $150 billion in deposits.
The Bank of America was founded in 1904 as the Bank of Italy. Its credo was radical at the time: to serve "the little fellows." From its humble beginnings in a former tavern, the Bank of America grew to become a force that revolutionized U.S. banking. With deregulation, however, its traditional emphasis on the general consumer created problems for the bank.
Amadeo Peter Giannini, founder of today's BankAmerica, became one of the most important figures in 20th-century American banking. Giannini, an Italian immigrant, was seven when his father died. By age 21, he had earned half ownership of his stepfather's produce business. He married into a wealthy family, and profits from the produce business, combined with shrewd real estate investments in San Francisco, enabled him to retire at age 31.
His retirement was brief. When his father-in-law died, he left a sizable estate, including a directorship of a small San Francisco savings bank. When Giannini failed to convince the board of this bank that the poor but hardworking people who had recently come to the West Coast were good loan risks, he resigned his position and set out to start his own bank--a bank for "people who had never used one."
The year, 1904, was an inauspicious one; an up-and-down economy and the financial irresponsibility of many banks during this period gave banking such a bad name that the government was eventually prompted to create the Federal Reserve system, in 1917. But Giannini's bank was atypical. His policy of lending money to the average citizen was unheard of in the early 1900s, when most banks lent only on a wholesale basis to commercial clients or wealthy individuals.
Giannini raised capital for his new bank, called the Bank of Italy, by selling 3,000 shares of stock, mostly to small investors, none of whom were allowed to own more than 100 shares. Although Giannini never held a dominant share of stock, the extreme loyalty of these and subsequent stockholders allowed him to rule the bank as though it were closely held. His innovative policies made the Bank of Italy and its successor, the Bank of America, the most controversial bank in the United States. The nation watched with wary eyes as he created a system of branch banking that made the Bank of America the world's largest bank in a mere 41 years.
During the famous San Francisco earthquake of 1906 Giannini rescued $80,000 in cash before the bank building burned by hiding it in a wagon full of oranges and bringing it to his house for safekeeping. With this money he reopened his bank days before any other bank and began making loans from a plank-and-barrel counter on the waterfront, urging demoralized San Franciscans to rebuild an even better city.
Giannini's original vision led naturally to branch banking. Expense made it difficult for small depositors to travel long distances to a bank, so Giannini decided his bank would go to them, with numerous well-placed branches. Accordingly, the Bank of Italy bought its first branch, a struggling San Jose bank, in 1909.
Giannini made up the rules as he went; he was not a banker, and his was the first attempt ever at branch banking. Going his own way included loudly denouncing the "big interests," and he repeatedly offended influential members of the financial community, including local bankers, major Californian bankers, and many state and federal regulators, who were already uncertain about how to handle an entirely new kind of banking. Some did support Giannini's vision though, including William Williams, an early California superintendent of banks, and the Crocker National Bank, which lent money to a subsidiary of the Bank of Italy expressly for acquiring branch banks.
The bank grew rapidly; in 1910 it had assets of $6.5 million. By 1920, assets totaled $157 million, far outstripping the growth of any other California bank and dwarfing its onetime benefactor, Crocker National. Further expansion was stymied, however, by the state of California and by the new Federal Reserve system, which did not allow member banks to open new branches. Giannini shrewdly sidestepped this regulation by establishing separate state banks for southern and northern California (in addition to the Bank of Italy) as well as another national bank, and putting them all under the control of a new holding company, BancItaly. Finally, in 1927 California regulations were changed to permit branch banking, and Giannini consolidated his four banks into the Bank of America of California.
With California conquered, Giannini turned to the national scene. He believed that a few large regional and national banks would come to dominate American banking by using branches, and he intended to blaze the trail. He already owned New York's Bowery and East River National Bank (as well as a chain of banks in Italy); next he established Bank of America branches in Washington, Oregon, Nevada, and Arizona, again before branch banking was explicitly permitted.
Federal regulators, objecting to Giannini's attempts to dictate the law, took exception to some of his practices. In response, Giannini created another holding company in 1928, to supplant BancItaly. The new company was called Transamerica, to symbolize what Giannini hoped to accomplish in banking.
Giannini knew he needed a Wall Street insider to help him realize his dream of nationwide branch banking, and he thought Elisha Walker, the head of Blair and Company, and old-line Wall Street investment-banking firm, was just the man. So, in 1929, the year Bank of America passed the $1 billion mark in assets, Transamerica bought Blair.
A year later, Giannini consolidated his two banking systems into the Bank of America National Trust and Savings Association, under the control of Transamerica. Sixty years old and in poor health, he relinquished the presidency to Walker, retired for the second time, and went to Europe to recuperate. It was again a short retirement. His stay ended abruptly in 1931, when he received news that Walker was trying to liquidate Transamerica.
Giannini headed straight for California, where three-quarters of the bank's stockholders remained. What followed was one of the most dramatic proxy fights in U.S. history. Giannini crisscrossed California, holding stockholder meetings in town halls, gymnasiums, courthouses, and other public spaces. A poor public speaker, he hired orators to drive home the message that Walker and eastern interests, the dreaded "big guys" Giannini had battled against for years, were trying to ruin the bank. The campaign succeeded and the stockholders returned control of the Bank of America to Giannini.
The bank had suffered, though. By the end of 1932, deposits had shrunk to $876 million, from a high of $1.16 billion in 1930. No dividend was paid that year, for the first time since 1905, and the battle had cost Giannini his New York banks. Depositor confidence had to be rebuilt.
Giannini's presence seemed to be just the right thing. By 1936 Bank of America was the fourth-largest banking institution in the United States (and the second-largest savings bank) and assets had grown to $2.1 billion. The bank continued to innovate, instituting a series of new loans called Timeplan installment loans. Timeplan included real estate loans, new and used car financing, personal credit loans from $50 to $1,000, home appliance financing, and home-improvement loans, all industry firsts.
As the Bank of America became more influential, Giannini took on bigger and bigger foes, among them the Federal Reserve, Wall Street, the Treasury Department, the Securities and Exchange Commission (SEC), Hans Morgenthau, and J.P. Morgan Jr. Eventually, the enmity Giannini aroused in his war against the Establishment cost the bank its chance for nationwide branch banking. The beginning of the end came in 1937, when the Federal Reserve made its first attempt to force Transamerica and Bank of America to separate.
World War II brought tremendous growth to the Bank of America. As people and businesses flocked to California during the war, the bank more than doubled in size: in 1945, with assets of $5 billion, it passed Chase Manhattan to become the world's largest bank.
As California began to rival New York as the most populous state, Bank of America continued to expand. Giannini continued to battle, and win, against the big interests, until his death in 1949. From radical outsider to the leader of what Business Week called the "new orthodoxy" of banking--the trend toward serving average consumers--Giannini's was one of the most innovative careers in 20th-century banking.
He was succeeded as president of Transamerica by his son, Lawrence Mario, long a top official at the bank. He continued in his father's tradition, but for only three years; he succumbed to lifelong health problems in 1952.
Following the deaths of the Gianninis, Bank of America slowly made itself over. New chief Clark Beise moved to decentralize operations, encouraging branch managers to assume more responsibility for their branches. This approach paid off with tremendous growth; by 1960, assets totaled $11.9 billion. The bank continued to innovate. In 1959, it was the first bank to fund a small-business investment company. It was also the first U.S. bank to adopt electronic and computerized recordkeeping; by 1961, operations were completely computerized. Other new programs included student loans, an employee loan-and-deposit plan that let workers transact bank business through their offices (a response to increased competition from credit unions), and the first successful credit card, BankAmericard, the predecessor of Visa.
In addition, Bank of America stepped up its international presence, becoming one of only four U.S. banks with significant impact on international lending. It also began to pursue wholesale accounts, to supplement its traditional retail base. Finally, in 1957, the Federal Reserve forced Transamerica to separate from Bank of America, an event the two institutions had anticipated.
Bank of America's efforts to become a "department store of finance" in the late 1950s and early 1960s marked the last significant period of innovation in the bank's history until the 1980s. It was a time when the bank strove to sell the widest variety of banking services to the widest possible market. Beise felt there was more room for innovation, saying in 1959 "there are new frontiers to develop," but warning that "we are constantly fighting against the attitude of entrenched success." It was a battle that the Bank of America lost, as it eventually became a conservative, stodgy, and inflexible institution.
In 1968, BankAmerica Corporation was created as a holding company to hold the assets of Bank of America N.T. & S.A. and to help the bank expand and better challenge its archrival, Citibank. This came just before banking deregulation, which affected Bank of America more adversely than was predicted. Bank of America's branch banking system was a major problem, since it gave the bank the highest overhead in the banking industry.
Through this period the retail division provided 50 percent of the bank's profits. It was not until interest rates exploded in the 1970s that the bank's bulk of low-interest-bearing mortgages became damaging, as it was for many savings and loans.
As the largest bank in the world, the Bank of America was a natural target for groups with statements to make during the 1960s. It became the first major employer in California to sign a statement of racial equality in hiring. At the time, the Bank of America had more than 3,500 minority employees--more than 10 percent of its workforce. The bank also responded to complaints from women's groups by creating a $3.8 million fund for training female employees in 1974, and set itself the goal of a 40 percent-female workforce.
By 1970, Bank of America had established a $100 million loan fund for housing in poverty-stricken areas, and purchased municipal bonds that other California banks wouldn't touch. This was in keeping with the tradition Giannini had established when he bought rural school bonds and bonds for the Golden Gate Bridge at a time when no other bank would buy such issues.
A. W. "Tom" Clausen succeeded Rudy Peterson as chief executive officer (CEO) in 1971. He presided over Bank of America's last tremendous growth spurt&mdashsets jumped 50 percent (to $60 billion) just between 1973 and 1975. Bank of America was the only one of the 20 largest U.S. banks to average 15 percent growth between 1971 and 1978; its seemingly unstoppable growth earned its management great praise during the 1970s.
When Clausen left Bank of America in 1981 to head the World Bank, Bank of America had $112.9 billion in assets. Clausen was replaced by 40-year-old Samuel Armacost. Soon the Bank of America began to fall apart. Energy loans, shipping loans, farming loans (Bank of America was the largest agricultural lender in the world) and loans to Third World countries all started to go bad. Bank of America, whose large deposit base had traditionally made it exceptionally liquid but had also given it trouble in maintaining proper capital reserves, was ill prepared to meet the crisis. Suddenly, the biggest bank in the world had no money. It could not even raise capital in the stock market because its stock price had plummeted at a time when most bank stocks were rising.
Armacost started a general campaign to cut costs. The bank dropped a third of its 3,000 corporate clients, sold subsidiaries and its headquarters building, closed 187 branches, and began to lay off employees, something it had never done before. In 1986, the wounded BankAmerica became the target of a takeover bid from a company half its size. First Interstate Bancorp offered $2.78 billion for the nation's second-largest banking group. A few days after this bid was made public in early October, Armacost resigned and was replaced by none other than Tom Clausen, the man many blamed for BankAmerica's troubles in the first place. Clausen resisted the takeover, but Joe Pinola, Interstate's chairman, was determined, and by the end of October had sweetened the deal to $3.4 billion. Clausen was equally determined to prevent BankAmerica's takeover. He rejected First Interstate's bid and battened down the hatches for a hostile assault. In the end, Clausen was able to rally shareholders behind him and thwart First Interstates' plans.
In 1987, BankAmerica set about restructuring its operations. Clausen sold nonessential assets--including the Charles Schwab discount securities brokerage and Bank of America's Italian subsidiary--and refocused the bank's attention on the domestic market. New services, including advanced automated teller machines and extended banking hours, lured Californian customers back. In addition, the bank went after the corporate business it had neglected in the early 1980s. Clausen cut back substantially on staff, cleaned up the nonperforming loans in Bank of America's portfolio, and hired a number of exceptional managers to execute BankAmerica's new directives. By the end of 1988, the bank was in the black again. Though still plagued by a good deal of exposure to Third World debt, BankAmerica was able to record a profit of $726 million, its first in three years.
By 1989, BankAmerica's recovery was so strong that it was able to declare its first dividend since the fourth quarter of 1985. Industry analysts called the recovery the biggest turnaround in the history of U.S. banking. Retail operations were expanded in Nevada with the acquisition of Nevada First Bank, and in Washington with the purchase of American Savings Financial Corp. by the subsidiary Seafirst Corp., the largest bank in the Pacific Northwest. During this year, BankAmerica was the first major bank in California to announce that it would open all its branches on Saturdays and extend weekday hours for greater consumer convenience.
In 1990, BankAmerica showed further evidence of its recovery by announcing that its revenues exceeded $1 billion for the first time. Industry analysts theorized that the bank had the cleanest loan portfolio of the nation's big banks. Acquisitions included Woodburn State Bank of Oregon, Western Savings and Loan branches in Arizona, and Benjamin Franklin and MeraBank Federal Savings, the largest S&Ls in Oregon and Arizona, respectively. The bank also opened a new international branch in Milan, Italy.
In 1990, BankAmerica surpassed Chase Manhattan to become the second-largest bank holding company in the nation. Also, in keeping with the bank's policy of community responsibility, it began an Environmental Program that included activities directed toward saving paper and other materials through recycling, and energy and water conservation.
Seeking to expand its operations beyond its branches in seven western states, the bank added branches in two more states with the 1991 acquisitions of ABQ and Sandia Federal Savings banks of New Mexico, and Village Green National Bank in Houston. Another purchase was a subsidiary of GNA Securities that had operated an investment program in the bank's branches since 1988. The program, called Bank of America Investment Services, offered mutual funds and tax-deferred annuities. In spite of the nation's economic recession at this time as well as higher deposit insurance premiums and higher credit losses and nonaccruals, BankAmerica was able to post its third straight year of record earnings--more than $1 billion.
Expanding services to customers continued with the opening of full-service branches in grocery stores in southern California. In addition, to allow customers access to money anytime and anywhere, the bank opened several hundred new Versateller ATMs for a total of 2,300 in nine states.
After nine months of preparation, the merger of BankAmerica Corp. and Security Pacific Corp. became final on April 22, 1992. The merger was part of a national trend of bank consolidation that sought to strengthen troubled and even healthy institutions. For BankAmerica, the merger offered an opportunity to become more efficient and save money--an estimated $1.2 billion annually within the next three years. The merger also helped the bank expand into new markets and geographic locations. By the end of 1992, consumer banking services were provided in ten western states, trust and consumer financial services were provided nationwide, and commercial and corporate banking operations were located in 35 countries worldwide.
Acquisition activity continued with the purchase of Sunbelt Federal Savings, which held 111 branches in 76 cities in Texas; HonFed, the largest thrift in Hawaii; and Valley Bank of Nevada, which made BankAmerica the largest depository institution in that state. However, the persistent national recession, combined with a recession in the state of California, caused a decline in earnings reported for 1992.
Domestic expansion continued in 1993 with the acquisition of First Gibraltar of Texas and with an agreement to make a $1 million equity investment in Founders National Bank, the only African-American-owned bank on the West Coast. Additional overseas expansion occurred when BankAmerica received approval from the People's Bank of China to upgrade its Guangzhou representative office into a full-service branch, the first U.S. bank to have such a branch. Consolidation of consumer and commercial finance units was undertaken, and one year after the merger, the bank had consumer operations in much of the United States, wholesale offices in 37 nations, retail branches in ten western states, and consumer finance company operations in 43 states.
As BankAmerica moved into the mid-1990s, it planned to continue many of the policies it had begun in the 1980s. They included the development of new products and services for consumers; geographic diversification into such fast-growing economies as Asia and Latin America, which would enable the bank to better withstand the economic cycles of the domestic market; community investments; environmental programs; and loans to students and those with low income. BankAmerica also continued to hope for changes in laws and regulations that would allow interstate banking and more effective competition with non-bank institutions providing similar financial services. Such legislation would create new markets for which BankAmerica was poised to serve.
Principal Subsidiaries: Bank of America NT&SA; Bank of America Alaska, N.A.; Bank of America Arizona; Bank of America FSB; Bank of America Idaho, N.A.; Bank of America Nevada; Bank of America New Mexico, N.A.; Bank of America Oregon; Bank of America Texas, N.A.; Seafirst Corp. Seattle-First National Bank.
BankAmerica Corporation Annual Reports, San Francisco: BankAmerica Corporation, 1991 and 1992.
"BankAmerica Corp.," Wall Street Journal, February 4, 1993, p. B6.
BankAmerica Environmental Progress Report, BankAmerica Corporation, 1992.
Bank of America Milestones, 1989-93.
Hector, Gary, Breaking the Bank: The Decline of BankAmerica, Boston, MA: Little, Brown, 1988.
James, Marquis, and James, Bessie R., Biography of a Bank: The Story of Bank of America, N.T. & S.A., New York, NY: Harper, 1954.
"New BankAmerica Debuts," BankAmerican, April 22, 1992, p. 1.
Zuckerman, Sam, "B of A Adopting SecPac's Orphan NonBank Units," American Banker, April 6, 1993, p. 1.
Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.