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Bank Of America Goes Global

Charlotte Giant Hopes for Growth in Asia

By Martin H. Bosworth
ConsumerAffairs.com

July 28, 2006

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America's largest bank is poised to go global. From its base in Charlotte, N.C., Bank of America is preparing to overtake Citigroup as "the world's No. 1 bank according to market value," although its business so far remains mostly in the U.S.

Bank of America's acquisition of credit card issuer MBNA vaulted it into the top tier, earning over $5 billion in revenue for the second quarter of 2006.

Analysts noted that the current push by the Federal Reserve Board to raise lending interest rates would have a greater effect on Bank of America's earnings than its competitors, because it is so dependent on U.S. consumers for revenue, Bloomberg News reported.

Much of the increase in revenue came from the bank's new "card services" division, made up of the remnants of MBNA and selling the company's famous "affinity" branded credit cards.

Part of Bank of America's success with the MBNA merger came partly from the firing of 6,000 employees, mostly based at MBNA headquarters in Wilmington, Delaware.

In a July 27 speech to the Wilmington rotary club, Bank of America CEO Bruce Hammond said the layoffs were regrettable, but would have been worse if MBNA had not been bought out.

According to Delaware Online, Hammond told the audience that "MBNA was suffering from a slowdown and struggling in the face of obstacles, including telemarketing restrictions that made it harder to sign up new customers."

MBNA's "slowdown" undoubtedly included a massive drop in revenue from customers paying off and closing their credit cards, leading to a 400 million dollar-plus earnings shortfall.

Hammond and other Bank of America executives were hit with a class-action lawsuit by angry shareholders, after news that the executives sold off their MBNA stock and pocketed millions of earnings.

The China Syndrome

In order to ensure more growth and profit, Bank of America is looking to make the great leap outward into the vast Asian market. The bank is aggressively pushing credit cards and other services in international markets, particularly China.

On July 28th, Bank of America named former Northeast regional banking president Bill Lorenz as its chief operating officer for Europe, the Middle East, Africa and Asia. Lorenz's task was, in the words of the Charlotte Observer, to "sell more credit cards, business loans and investment-banking advice overseas."

American businesses have found the Chinese market especially difficult to crack, due to cultural aversions to debt and credit spending.

Former Treasury Secretary John Snow was sent to China in October 2005 to sell Chinese investors and businessmen on the idea of using credit to increase spending and buying goods.

Although Snow's efforts were met with skepticism and he was unceremoniously replaced earlier this year with Goldman Sachs exec Hank Paulson, Bank of America is unfazed, and continues to move towards building business in China.

Heavy reliance on U.S. consumers to spend and borrow beyond their means could have damaging consequences for Bank of America.

If Americans continue to slow their spending due to high interest rates, and the spate of credit card holders paying their debts and closing the books continues, going global may be the only way for the banking behemoth to sustain its growth.

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