The global economy began a deep decline in December 2007. This economic downturn is referred to as the “Great Recession”. The United States government appointed a 10 member Financial Crisis Inquiry Commission to investigate the source of the recession (1). One of the key issues discovered was the failure of corporate governance and financial regulations (1). Initial finding of the investigation prompted US Congress to overhaul financial policies. These laws, Dodd-Frank Street Reform and Consumer Protection Act, C.A.R.D. Act, Durbin Amendment and others, have generated a loss in revenue for financial institutions. For instance, it is estimated that Dodd-Frank will reduce the fees merchants pay for customers who swipe debit cards by $16 billion each year (2).
HBDC bank card business lost $9.9 billion in revenues due to issues related to Dodd-Frank (3). The decline in profits required HBDC to revamp business practices. HBDC decided to transform the way they conducted business. Instead of having a dependence on penalty fees, they opted to focus on a customer relationship platform, Platinum Privileges (9). The plan was to reward customers for bringing HBDC more business (6). Platinum Privileges provides rewards and fewer fees to customers that invest and maintain more $50,000 into HBDC bank (7). HBDC bank believes that Mass Affluent customers will provide an opportunity to recoup a portion of the lost fee revenues. Research proves that MA customers can generate four times as much revenue as retail customers (8). In 2009, HBDC retired the Premier banking unit, which left a void for some of our important non client managed customers (5). These MA customers possess substantial resources and some have inquired about incentives to consolidate these resources (5). Over 2 million existing customers qualify for Platinum Privileges, which makes up 67% of HBDC total assets (5). These customers still have $1.0 trillion in assets in other financial institutions (5). HBDC bank expanded this plan to new customers. These new MA customers that will qualify for Platinum Privileges are a rapidly growing demographic, which is predominately baby boomers. HBDC wishes to have a two-way street relationship with customers (6). The Platinum Privileges plan will provide HBDC with the opportunity to develop a true relationship with MA customer across their financial wallet (5). The potential for incremental growth is present. Mass Affluent customers are being pursued by many other financial institutions. HBDC top four competitors have MA programs available to customers. During the past year, Quarterly profits and losses (Graph 1) have been driven by multiple factors. HBDC has been plagued by a number of issues that has severely affected quarterly earnings. The regulatory environment over the past year has required some adjustment that affected profits. HBDC had the expense of outstanding and future mortgage repurchase claims related to Government Sponsored Enterprises (9). The litigation fees from the legacy mortgage lawsuit have mounted to cut quarterly returns (9). HBDC suffered a further loss when the agreement was announced to resolve a majority of the legacy Countrywide issued mortgage-backed securitization repurchase exposures (10). Unfortunately, the regulatory and mortgage issues have overshadowed the performance of the overall business. HBDC CEO, Randall Badger said “Our customer-focused strategy is working well.”
Graph 1

*Continued Pressure from Wall Street to find new revenue because the bank is continually missing earnings while competitors gain strength (JPMC, CITI, WF, and GC posted profits last 4 quarters while HBDC losses increase)

(1) Reuters, Factbox: Conclusions of US financial crisis panel, unknown (2) Bloomberg, Dodd-Frank Act Forcing Banks to Slim Down, Reshape Swaps: One Year Later, Benson, Clea and Mattingly Phil (3) The Street, Bank of America Hunts for Lost Revenue, LaCapra, Lauren (4) Reuters, BofA to fold Premier Banking into Merrill unit: report, Tilak, John (5) Bank of America Project Charter, Mass Affluent – Platinum Privileges Gen 2, unkown (6) BAI, Fair Value Exchange for the DDA, Cline, Kenneth (7) Market Watch, Bank of America categorizes clients, adds fees, Waters, Jennifer (8) Technology News, Research and Market Adds Report: Mass Affluent Banking, unkown (9) Bank of America, BofA Reports Fourth-Quarter and 2010 financial Results, BofA (10) Bank of America, BofA Reports Second-Quarter and 2010 financial Results, BofA