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SENIOR employees of Bank of America (BofA) packed into the auditorium at the companys headquarters in Charlotte on July 20th. They had gathered to hear Kenneth Lewis, the chief executive, deliver a long-awaited message: thanks to BofAs earnings of $5.5 billion in the second quarter, they now worked for the most profitable financial institution in the world. To cheers, he added: “It was nothing personal; Citi just got in the way.”
“Citi”, of course, is Citigroup. For BofA, passing Citigroups profit number is a joy to be topped only when it has the greatest stockmarket value, too. A year ago that would have been laughable: the gap exceeded $40 billion. Today it is merely $4 billion (see chart).
Mr Lewis could always take the top spot by promising never to make another dilutive acquisition. He wont, but BofA may reach the summit anyway. Citigroup, it is true, has more revenue. It also has better prospects for growth, because it is present in many immature markets. Yet its growth has stalled since a series of scandals brought close regulatory scrutiny, discouraged acquisitions and rattled management. BofA has hardly been unscathed by regulators, but it has not been hurt anything like as much. A scandal over mutual funds began with its dealings with a hedge fund, and it has been sued for its role in the financing of Parmalat, Enron and Adelphia, but all this has had little effect on its overall business.
From a distance, Citigroup and BofA are similar creatures. Both have grown to huge size through acquisitions. Both make about one-third of their profit from their corporate banks and most of the rest from consumers. Both have big shares of the credit-card market. Still, they are different animals on closer inspection. Citigroup sells complex investment products and has a big investment bank, operations in lots of countries and a tiny domestic retail franchise concentrated in three states, California, New York and Texas. It is not clear how these various bits fit together.
Bank of America, in contrast, lives up to its name. It makes almost all its money at home. Its sprawling branch network covers most of the heavily populated states. It has a vast banking business serving individuals and small firms, and a big share of the loan-syndication