The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘BofA

The Good, the Bad and the Ugly | which is your bank?

In this video commentary on the US Banks results they note that while large profits are announced, any parts of the business related to the US consumer consumer is flat. This includes all retail banking and credit cards. The only bright spots are the fee based revenue from the investment banking units, hence JP Morgan and Goldman Sachs results, although poor old Citi did not even make it there.

One quarter does not make or break anything in banking in and of itself. However the predictions of Roubini and Baker linked below are playing out as expected, so which banks are going to wait it out and hope for the best, and which will challenge and break out?

Citi and BofA fail to allay fears | FT

The problem with Citi it is not firing on any cylinders, at least with the others they are at least firing on one cylinder.

Relevance to Bankwatch:
The word ‘bank’ is quite generalised. On this blog I focus on retail and commercial (small ‘c) banking. I care little about investment banking. Looking at the US this week, the US consumer base is still being hit with ever increasing unemployment, and there is no indication that will change soon. Europe and Japan are no better. I go back to an earlier post about ‘recovery’ which is a word used too loosely by economists and politicians. What will the future look like? What will recovery look like and what does that mean for your bank?

While technical recovery meaning positive GDP growth may occur later this year or earlier next, that is of little interest here. That ‘recovery’ is driven by Government deficit spending in all major economies. What matters is the state of the consumer, their aggregate confidence level, and frankly their income level with which they choose to save, pay down debt or spend.

I will repeat that banks as they move into this post ‘recovery’ world will do well to consider what it will take to succeed in that world. James Baker worried about Zombie banks back in March. We are beginning to see the evolution of zombies, financial utilities who operate under government supervision and ownership with little benefit if any to people or the economy.

If it is not going to look like the pre recession world and if we accept that it will be a relatively smaller, more careful world with far less money velocity, then how should your bank adapt products, services, service and business model to thrive?

Written by Colin Henderson

July 17, 2009 at 15:12

Bank of America Needs $33.9 Billion | NYT

As predicted yesterday, the amount of capital the banks need is far in excess of the amounts they were negotiating.

This news just in from the NYT confirms what had to be the case.  If we do the math based on project bad debts, it had to be in the $20bn + range for the big banks.  Similar results will apply to Wells, Citi,  PNC and others in the group of 19.  Watch out for the stock market tomorrow.  Reality bites.

Bank of America Needs $33.9 Billion, U.S. Determines

The government has determined that Bank of America will need
$33.9 billion in capital, according to an executive at the

Written by Colin Henderson

May 5, 2009 at 22:32

Where are the bank visionaries when we need them?

As we watch for bank stress test results in the US and other countries efforts to deal with Banks’ asset valuation and capital levels, its useful to keep a track on the economic back drop, and assess the bank’s efforts to address their real problem, which is over-valued assets.

The US stress tests specifically address the impact on banks under certain sets of future assumptions for economic growth and stability.

Spring forecasts 2009-2010 | European commission

The Commission forecasts a sharp contraction of the EU economy by 4% in 2009 (relative to a positive growth of 0.8% in 2008). Almost all EU countries are severely hit by the worsening of the financial crisis, the sharp global downturn and ongoing housing market corrections in some economies. However, with the impact of fiscal and monetary stimulus measures kicking in, growth is expected to regain some momentum in the course of 2010 (annual growth forecast for 2010 stands at -0.1%). Figures are essentially the same for the euro area as for the EU as a whole. These figures represent a significant downward revision compared to the autumn forecast and the interim forecast of January 2009.

spring-forecast-2009-publication15048_en [pdf]

So far the news is not good.  We have US, Japan, and now EU all noting significant downward adjustments to their forecast for 2009.  Magically, they all seem to agree 2010 will be just fine.  2010 aside, the consensus for the big three are 2009 GDP drops in the 4 % – 6+ % range.

Here is an extract of the baseline forecasts used by the Stress tests, contained in their methodology document for SCAP (Supervisory Capital Assessment Progam).

SCAP Economic Assumptions

The short view is that the assumptions for GDP growth in 2009 are approximately 1/3 of the latest forecasts.  Put another way 2009 is going to be 3 times worse than the forecast used in SCAP.   This is only May, so one can only assume that on a probability scale the opportunity for additional downward revisions are as possible as any other prediction at this stage.

The debate amongst BofA, Citi and the government on whether they ought to raise $5Bn in capital is ridiculous, and counterproductive.  As the economic forecasts show, the amounts required are not going to be debated in the $1 Bn range – this needs vision that produces 10’s or 100’s of billion in improvement such that the organisation can leap ahead of the economic crisis and look out 10 years, not 1 month, which seems to me to be the current landscape for banks.

Incidentally, to place $5Bn in perspective, Merrill Lynch paid out $3.6 bn in bonuses at the end of 2008.  Geithner should not even take a phone call from any bank who wishes to discuss anything thats less than $20 bn.  A debate over $5bn is ludicrous.

All this to say, that banks are stuck in a classic rat hole and surrounded.  Which bank and which leader will step up with vision for the future that carries banks on beyond 2011?

Relevance to Bankwatch:

Banks need to take a leaf out of Sergio Marchionne, Fiat chief executive’s book.  He is in Germany this morning proposing a deal that will take advantage of the current climate, and look to take advantage of infrastructure provided by Vauxhall, Chrysler, Opel and Fiat to structure an effective platform around car types that consumers actually want and need, ie smaller, cheaper and more efficient.  Already he is getting positive reaction to his plan, and these meetings only took place today (Monday).

He hopes to complete the transaction by the end of May, and list shares of the new company, tentatively called Fiat/Opel, by the end of the summer.

Mr Marchionne said Fiat and Opel would reap synergies of €1bn a year by merging their small B and midsize C segment car platforms, and absorbing Fiat’s ultra-small A platform and Opel’s upper-middle D platform.

Note the timing – he is going to do this in one month. This new conglomorate will involve hard decisions and layoffs.  This is the hard reality of the adjustment required for the new economy.  Getting through the crisis is not a return to 2007.  It is a fundamental shift to a smaller and different economy.

Where are the bank visionaries now?  Are they becoming so bogged down worrying about beaurocratic discussions with their new government masters and defending bonuses and perks that they have lost sight of the real goal?

Written by Colin Henderson

May 4, 2009 at 09:09

Ken Lewis is gone

No surprise but dramatic nonetheless – Ken Lewis is gone as Chairman – the writing is on the wall for him.

Unfortunately he did himself no favours, showing up in Washington looking more like a bling bling movie star, but he was also American Banker’s banker of the year just a few months ago. He left the shareholders no choice today.

How quickly the world changes ……  being chief of a bank ain’t what it was!

New York Times breaking news

Bank of America shareholders stripped Kenneth D. Lewis of his chairman’s title on Wednesday while allowing him to remain president  and chief executive, a vote that may mark the beginning of the end of his leadership at the embattled bank. Walter E. Massey will succeed Mr. Lewis as chairman, the bank said.

Written by Colin Henderson

April 29, 2009 at 17:16

Posted in Uncategorized

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Bank of America helps recession-hit customers | new web site earns cash back

Nice to see a positive story with this release from BofA.  I have been critical of them recently, of their public face, so good to see the work is going on behind the scenes to create new ideas.

Bank of America ‘online mall’ targets crunched online shoppers | finextra

Bank of America is looking to attract recession-hit customers with the launch of a new Web site that allows users to earn cash back on purchases at a host of online retailers.

Written by Colin Henderson

March 10, 2009 at 23:14

Posted in Uncategorized

Tagged with ,

Ken Lewis – where are you getting your political advice?

Building on a post the other day about BofA, you might think its time to single out Ken Lewis here and his apparent inability to read the obvious.  [hat tip Paul].

It has been two weeks since those incredibly painful hearings with the House Finance Committee where no-one could doubt that corporate jets are the political hot potato of the day, right behind bonuses being paid by government bailout money.

Well this piece adds visuals with the rented bling-mobile after a ride on one of the most expensive corporate jets in existence.  Add the almost $4bn in bonuses referred to at the end of this video which represents almost 25% of the bailout, and you have a serious lack of political awareness going on from the top at Bank of America.

Relevance to Bankwatch:

Well I have a different take. Umair speaks of the need for a new corporate DNA.  Here and recently with a manifesto.

Umair is really trying amongst several other things, to address the traditional corporate and customer positioning and associated information control approaches that have existed.  They all fail in internet land.

  • The notion that you know more than the market is flawed.
  • The notion that by not saying anything means that it is not known is flawed.
  • The notion that you can answer criticism with rationalisations to prove you were right is flawed.

Bank of America have not adopted a new DNA at all it appears so their actions depicted in the video are precisely what is expected of an old DNA bank.

In fairness Lewis lives in Charlotte, and I don’t know how he gets his advice.  Who is responsible for monitoring the political sphere and advising him?  As ABC points out its only $444 to fly from Charlotte to NY.  Would that be so hard during these times?  Is he getting the right advice and not listening?  Time will tell.

I refer to my post last week comparing the fate of the telcoms in the dot com crash to the banks.  It refers to the outcomes for the telcoms, and one outcome was that none of the senior executives of the telcoms survived.  BofA are not doing a good job of refuting that lesson.

incidentally, i don’t see Wells Fargo falling into this trap anymore.  Geez we have Obama running around in a 50 car convoy when he hit Canada last week for a 3 hour visit, and he is still able to carry off that he has a believable message for the times and appear contrite.  BofA …  its just not that hard.

Bank of America is a great bank but these are not the best of times.

Written by Colin Henderson

March 1, 2009 at 23:36

The flaw in the House Financial Services hearings \ misalignment on the paradigm

The hearings are going on this morning in Washington. After my rant about Wells Fargo yesterday, it is clear to me that apparently ill timed newspaper ad on the weekend was in fact timed to coincide with these hearings. I still think it was ill timed though.

Listening to the introduction today from Barney Frank, Chairman and the commentary on CNN, the general view is that Banks are receiving money, using it for perks and not working on “getting the economy back to working again”.

On the other hand the banks are listing off how they are increasing lending, keeping people in homes granting new credit etc.

The flaw in this debate lies in the paradigm being misunderstood.

Government paradigm:

We have a temporary glitch in the economy, and must inject money to return the economy to normal. This paradigm is based on the notion that we will return to normal – normal meaning as we were before, stable GDP growth, and inflation of 1 – 2%, all with low unemployment.

Bank paradigm:

They are investment oriented. Listening to State St, Bank of America, Bank of NY Mellon, they all use similar language. “Thank you” for the investment and we will ensure we provide good return on investment to our shareholders “including taxpayers [Ken Lewis BofA]”. In fact two banks described how it would repay their $3bn shortly (Morgan Stanley and one other). Morgan Stanley is listing their clients including Pepsi whom they increased lending to. Many of the CEO’s are throwing themselves on their sword including reducing salary to zero, clawing back bonuses etc.

Barney Frank – ‘why do you people (CEO’s) need to be bribed with bonuses to do your job – you are having fun, well maybe not today, why not work for a salary?’

The Flaw in those paradigms:

The flaw is this. Neither paradigm is correct, and both are short-sighted. This is the end of business as usual.


– Global debt is at an all time high relative to GDP having increased 300% over the last 20 years.

– Global assets are worth 50 – 60% of what they were worth 2 years ago – there is broad acceptance that we were in a bubble and the asset value reset is associated to income and profit levels.

– the US auto sector was insolvent (Liabilities exceeded assets) for several years prior to this crisis.

– subprime lending was a systemic flaw introducing many to home ownership, that will not be able to afford within the current lending terms and conditions

The Bank CEO’s and the Banks cannot win this argument – its an impossible argument. The reality is that banks are operating at too high debt to equity, and insufficient liquidity, and thats why they got TARP money. That is the end of business as usual.

The right paradigm:

This is the end of business as usual – cannot emphasise this enough. The right paradigm accepts the reset of asset values, accepts the implication that debt terms and conditions must be changed. The implication in the government paradigm is that banks should lend more money to unemployed people and subprime mortgage holders to allow those people to make loan payments. That won’t work.

The implication of the bank paradigm is that they will continue to make loans to an every decreasing supply of credit worthy customers. That won’t work either. This is a guarantee of a deflationary economy.

The new economic paradigm is one of higher debt to equity, higher leverage, and higher unemployment for the foreseeable future. Once this paradigm is accepted, new programmes could be considered by a joint government / bank arrangement that would work to help the situation.


The current speaker is now talking to this point in fact by suggesting that banks consider interest only loans for people rather than ‘calling’ loans which they are doing as required by their loan terms and conditions. Ken Lews is talking about untapped lines of credit.

This pink pong game between the banks who ‘are lending’ and the government who says the banks are ‘not lending’ is indicative of the mixed paradigms.

They should be discussing the nature of the economy and agreeing on the paradigm. This is such an uncomfortable hearing, it is painful. One side is speaking Swaheli and one side is speaking Mongolian.

Relevance to Bankwatch:

The government and the banks are speaking different languages. Paradigms and policies are interconnected. however policies cannot be meaningfully developed until we have agreement on the paradigm within which we are operating. That’s why we saw that Wells Fargo advertisement on the weekend and why it raised such an emotional response.

Once the new paradigm is accepted, programmes would naturally look at government guarantees, loan forgiveness, long term interest commitments – these programmes would look at moving high debt levels into manageable chunks that would allow a longer term view of the future and move people beyond worrying about next months mortgage payment. It would allow banks’ to speak the same language as the government and vice versa. More later.

Written by Colin Henderson

February 11, 2009 at 11:24

Bank of America says Keep the Change customers have saved over $1bn

BofA offerred this service first in 2005, and the results have been good for the customers involved.

Finextra: Bank of America says Keep the Change customers have saved over $1bn

said a little change doesn’t add up? In just a little more than two
years, Bank of America’s Keep the Change savings program has helped its
customers save more than one billion dollars in customer round-ups and
bank-matching funds, the bank announced today.

Since the program was launched, these customers have accumulated approximately $10 billion in savings, including the $1 billion in customer round-ups and bank-matching funds.

Written by Colin Henderson

May 15, 2008 at 00:35

Posted in US

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