Bank of America

3/12/12

History of the company:
The bank of America has become one the most well known banks in the world. In fact this success is due to it several historical merges, especially with the bank of Italy, founded by Amadeo Giannini in San Francisco in 1904. The founder and president of Bank of America agreed to the merging on 1929. It operated under the name Bank of America, and in 1958 the bank harnessed the technology that lets credit cars to be linked directly to bank accounts by introducing bankamericard, and this was the progenitor of VISA. Bank of America first expanded to the borders of California with its acquisition of Seattle-based Seafirst Corporation in 1983. From this, the company expanded in Idaho, Arizona, Washington and Oregon, and it was the largest in history. In 1998, the company was purchased by NationsBank, which moved the headquarters to charlotte North Carolina. The bank suffered serious losses when the director was not able to pay back the large hedge fund it loaned. NationsBank structured the purchase as a merger and renamed the merged company the bank of America Corporation. The company had assets totaling 570 billion dollars, with 4800 branches situated across 22 states. It is currently the largest bank in the United States.
Comentario [RN3]: I got lost with the dates during your presentation. There are some more here, but the history could have been made clearer with specific dates and actions. Comentario [RN2]: This sentence needs explaining as it doesn't make sense.

Problem:

Bank of America announced that it would begin charging debit card users a $5 monthly fee. Molly Katchpole, client and college graduate and District of Columbia got mad and started an online petition. Molly Katchpole turned to Change organization, an online platform that publishes petitions and mobilizes community campaigns. She first decided to send a letter to Bank of America to withdraw the fee went viral. She closed her Bank of America account, cutting up her debit card on camera, and moved her money to a community bank. Plus, the Progressive Change Campaign Committee said it got more than 51,000 people to pledge to take their money out of major financial institutions, with 21,500 consumers planning to remove their money from Bank of America specifically. Americans flooded her with support. One month and 306,000 signatures later, she won Bank of America removed the charge on November 1, 2011.
Comentario [RN4]: An excellent example of how customer pressure can cause major image issues, as well as impact on profitability.

Bank of America Internal Issues
We all know that it is difficult for a bank to make money through debit cards, the only way they have is to charge their clients a fee for having one or the fee charged to a shop for making a transaction with a debit card. With the new Dodd-Frank financial reform, that will lower “interchange fees” (which is the amount banks can charge retailers for debit transactions), banks need a new way to make money with debit cards. So far the only solution Bank of America found was to increase by 5$ the monthly fee for debit cards holders. This is not a common thing in the USA, before that decision less than 2% of debit cards holders were paying such fees. Many mistakes have been made during the decision process and we are going to explain the ones that were made internally.
Comentario [RN5]: Good description of the issue

If proper research would have being conducted with their clients (which are the first ones to be affected by this decision), Bank of America would have seen that it was a bad idea and that many clients would change to another bank with no such fees. Instead they made it mandatory

and said that if you do not want to be affected by this then upgrade to premium (which need higher income)
Comentario [RN6]: Poor research and understanding of their client base.

Bad customer relationship, during a financial crisis a bank is often blamed for what ever is going on. It is really important in such times to maintain a good customer relationship. But Bank of America has always been seen has a bank that thinks about profits before its customers and it is really hard for them to change image with such crisis. Banks need to change their customer relationship; they should offer help to both their weaker customer and their best and not only their best customers. When a customer is in trouble they should offer then several solutions before getting their valuables.
Comentario [RN8]: I don't understand Comentario [RN7]: Good point

Bad strategy, bank of America strategy wanted to become the dominant bank in nearly every category of American finance, from mortgages and home-equity loans to commercial lending and wealth management. Bank of America was actually everywhere and nowhere at the same time. Their operations and divisions were so broad that they could not manage it well anymore.
Comentario [RN9]: Overdiversification

In time where Americans are asked to stop living on credits, banks discourage them on using debit cards. One question is to be asked then, are banks making any effort on helping people getting out of their credits or they are just super greedy?
Comentario [RN10]: Good question

Bank of America External Issues
As for the September 2011, the recent financial crisis negatively affected the valuation for Bank of America. Consequently, Bank of America shares plummeted to a $4.85 from a strong $7.05. Challenges facing Bank of America trace their roots back to the onset of the mortgageled financial crisis that started the middle of 2007.
Comentario [RN11]: Important influences from the external environment, and also from internal decisions

In response, management has undertaken a massive strategic repositioning of the company with a focus primarily on the domestic retail market. Restructuring steps include disposal of the non-U.S. credit card business, exiting the mortgage wholesale channels, selling half its interest in China Construction Bank, accepting a $5 billion investment from Berkshire Hathaway (BRK.A) As for the $5 scandal, the external issues Bank of America faced were varying from their own clients to Investor and shareholder to the weakening of its image and reputation by the American citizen. Since the average American and BOA client is still recovering from the crisis and need more support than ever from their bank, they were shocked to see that the bank is actually “ripping the off” and making them pay for something they didn’t pay for and in the worst economic situation. Instead of giving them an opportunity to save money and reduce costs, the bank is actually charging them more. In the Public Relations effect, BOA was in the eyes of all the media. The media was criticizing them and all eyes were at the bank, causing a lot of harm and loss to the company. BOA lost corporate social responsibility as it was viewed as a company that wants to “rip you off” rather than secure you and stabilize your life. Because more than 300.000 clients cancelled their accounts, BOA shareholders and investors started to lose their confidence and strong positive expectations for the entity. Its shares lost value and this highly affected the bank in the stock market. As a result, its image and reputation got partially damaged and people were looking at the bank from a very critical perspective.
Comentario [RN14]: A PR nightmare! Comentario [RN13]: Could be seen as heartless Comentario [RN12]: Consolidation into core areas

Solutions:
Management is a very important key for the success of a company. In this case they should first review totally their management system. Beginning by encouraging research and studies previously before imposing any new change in the company’s strategy. Apparently, managers and employees don’t care at all about their customers. In order to reverse this, customer should be put in the “center of the universe”. Meaning that employees and managers have to be trained in order to explain them the importance of satisfying the more they can their customers. Upstream they manager have to like their work environment in order to be efficient and effective. This will lead to more efficient productivity. Seminars and training should be arranged every month. Furthermore, as it is a huge company, they should gather

their employees and make them feel part of a team, of a company. Arranging some weekends to go fishing for example, or to play soccer can be a good way to get them know eachother, feel close, feel part of something more than just employees in a business that have to do their job as they are told to. Furthermore we believe that employees should be taken more into consideration and be listened to. They are the people who knows best their customers and their needs. Top managers have indeed a broaden view for the company’s strategy, but can’t feel really the need or their customers. This hierarchical company can’t work well when only top managers take decisions without taking into account their employees’ point of view. Another intervention or method in Organizational Development that can be used to improve the cultural dimension of the company is the use of Group Interventions. This type of intervention is aimed at increasing the effectiveness of work groups, and includes focus groups . Group interventions provide an efficient complement to more prevalent individual and consultative approaches. Through group interventions such as focus groups, group discussions and other group activities, the organization would be able to practice facilitating communication that is more effective, cooperation, and coordination among the members of a specific group, and reduction of conflicts. Group interventions are interrelated to another type of method in Organizational Development, which include Intergroup Interventions. If group interventions focus on the communication and conflict management within a specific group, Intergroup interventions focus on facilitating effective communication and conflict management among different groups. The last method or intervention that can be used is the Organizational Interventions, which uses system-wide interventions, using predominantly survey feedback and structural intervention mechanisms. According to the solutions for the external issues, we came up with the idea that the image of the enterprise is totally destroyed. They should though work to implement a new PR strategy including corporate social responsibility to gain again the trust of their customers, investors and shareholders. This PR strategy will begin with a news release sent to all the well know newspapers, where they will apologize for this bad strategy and explaining that they will not put this fee anymore, and that furthermore they will do anything possible to help their customers in need by for example letting more time for their clients to pay their credit, or by reducing the interest rates. The news release will be followed by a press conference where the media will be invited.
Comentario [RN18]: Turn a negative into a positive with the debit card charge issue. Comentario [RN17]: Interesting. Where does this methodology come from? Comentario [RN16]: Good point Comentario [RN15]: Good suggestions. Banks usually concentrate on a more formal environment, such such informality could be difficult.

They will say again what they said in their news release. They will choose the best speaker of the company to talk in the press conference. Corporate social responsibility is very important in the case of a huge PR and management problem, they will though do some actions to help the people in need by helping an association by giving them some money.
Comentario [RN20]: It could help recover their image if done meaningfully. Comentario [RN19]: Good plan

Conclusion:
Bank of America is the largest bank in United States, but even big companies can face crises and problem if they don’t have good management skills. We noticed that, one bad decision affected the whole company reputation, and image. They almost loose a huge among of customer and lost their credibility as well. A company reputation is very important, and it needs work to keep that image good. Good management is the key factor, and one of the most important things for a company. This lead to a good customer satisfaction and obviously to customer loyalty.
Comentario [RN21]: Good conclusion. Usually bad decisions have a greater impact than good ones.

Sources: http://www.gobankingrates.com/checking-accounts/bank-of-america-change-policies-deepencustomer-relationships/ http://money.cnn.com/2011/11/01/pf/bank_of_america_debit_fee/index.htm http://www.time.com/time/nation/article/0,8599,2098715,00.html#ixzz2DRR0jDLH http://www.gobankingrates.com/checking-accounts/bank-of-america-change-policiesdeepen-customer-relationships/ http://money.cnn.com/2011/11/01/pf/bank_of_america_debit_fee/index.htm

http://www.gurufocus.com/news/154842/financial-crisis-impact-on-bank-of-america-bac-valuation http://www.ibtimes.com/bank-america