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In Ten Years: Bank of America


What happens when a financial services company becomes too big for its own good.


10 Companies in 10 Years The Great Credit Crunch of 2008 led to several rounds of consolidation in the banking industry, not to mention endless job cuts and increased government oversight.

Redundant branch banks were closed through round after round of merger and acquisition. Once as common as gas stations, branch banks became as rare as bookstores. Fewer bank companies with fewer branches meant less competition. Major banks squeezed savers on interest rates because there were fewer regional banks offering higher rates to attract new money.

Bank of America (BAC) became 1 of 3 major banking companies, slugging it out with Wells Fargo (WFC) and JPMorgan Chase (JPM). However, none emerged as a truly national bank with wall coverage of 50 states. Instead, each was strong in a particular region of the country, with scattered representation elsewhere. Still, bank share prices rebounded over a period of 2 or 3 years.

The first hint of revived competition in banking came from an unlikely sector: Supermarkets.

With fewer branch banks, many customers had to walk or drive out of their way to deposit a check or conduct other routine transactions. Major supermarkets quickly completed the federal rigmarole and opened branch banks in their stores. Clever market research determined that placing the new banks next to the produce section would work best. This led to obvious slogans such as "Green on green," "Crisp cash" and "A fresh approach to your money."

But it worked.

Bank of America, never big on customer service, fought back by rebranding itself as Bank of the World. But the geniuses at the head office in Charlotte, North Carolina overlooked a basic point: Customers bank in their neighborhood or at work - not the world.

Wal-Mart (WMT), the world's largest retailer and nation's biggest grocer, saw an opportunity, and quickly expanded its fledgling banking operation to all 7250 stores.

In true Wal-Mart fashion, it kept fees low. Its credit and debit cards offered bonus points good for further discounts on food or retail items - a great selling point for price-conscious customers.

"Who would want to bank with a big-box retailer when we're specialists?" Bank of the World sniffed derisively. Millions, as it turned out.

Never one to think small, Bank of the World stressed its years of experience. But it didn't stanch the flow of retail customers to Wal-Mart and the supermarkets, especially those looking for good service and low fees.

Bank of the World then renamed itself Bank of the Universe, but few noticed - and even fewer cared. By 2018, Wal-Mart issued more credit cards and wrote more mortgages than than the former Bank of America.

Under Uncle Sam's stern eye, Wells Fargo and JPMorgan flipped a coin to determine which company would take over Bank of America. Each hoped the other would win.

No positions in stocks mentioned.
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