Last year I had the honor of being an editor of Consolidation of Banking: or How Five Banks Bought 50% of America’s Biggest Business by Arnold G. Danielson. (Note to readers: full disclosure–yes, he’s my Dad. And, somehow, we got over our editorial differences … i.e., he’s from the traditional school of writing and I write “chick lit biz books.”) But I wouldn’t include it here if I didn’t think it had some entrepreneurial or, as some might say, “intrapreneurialâ€? interest.
As stated before on this blog, I believe an entrepreneur is someone who runs his or her company in a new and innovative manner that creates efficiencies in existing markets, new markets or new products and services. That being said, banking is probably–along with the legal industry–one of the industries least open to entrepreneurial thinking. However, there were a few innovations along the way: i.e., ATMs and debit cards, and a few very “outside the bank windowâ€? thinkers who basically bought up the entire industry.
Today we have the five largest banks–Bank of America, Citigroup, JPMorgan, Wells Fargo and Wachovia–holding almost 50 percent of domestic bank assets. This is up from 19 percent as recently as 1991. What is interesting to an entrepreneur is how some of the banks moved up the ranks through some creative and daring moves. Here are a few examples from the book of how Bank of America came to be.
Growth by acquisition and exploiting loopholes
Bank of America started as a small bank in Charlotte, North Carolina, which, like other aggressive banks at the time, grew by merger. But its growth was constrained by not being able to cross state lines until the early 1980s. Unlike other small banks with big ambitions, though, American Trust did not just wait for things to happen and always seemed to be a step ahead of others in making acquisitions work in its favor. In the 1970s, it used a loophole in banking laws to buy a trust company in Florida, and then in the 1980s argued and won its case that this trust company was really a bank, and that it should be allowed to buy other banks in Florida despite being based out-of-state. By then it had taken the name NCNB and was still relatively small but was on its way.
Profiting from crises and creative financing
In 1989, Bank of America, then-named NCNB, took advantage of a banking crisis in Texas to buy the biggest bank in that state, FirstRepublic–a bank bigger than itself–by persuading the regulators to let it do so using minimal cash and lot of tax credits. First Republic was the first bank bought by this method. Two years later, it was successful in a hostile takeover of its primary challenger for banking leadership in the South, C&S/Sovran–a bank of equal size–and by 1993, it was the third largest bank in the country. It also changed its name once more–this time to NationsBank.
A driven leader
In 1998, the predecessor of Bank of America (NationsBank) bought a struggling San Francisco-based Bank of America, took that name and made Charlotte a major banking center. Behind most of this growth was one man, Hugh McColl Jr., who was with the bank from the American Trust days until he retired as CEO of Bank of America in 2000.
The Top Shelf Bottom Line: This book will be primarily of interest to readers who work in the financial-services industry; but if, like me, you lived through your own bank being bought four times (BayBank > Bank of Boston > Fleet > Bank of America) or are curious as to how the banking industry got to where it is now, you may also find it of interest. And, it just goes to show that even a staid old industry can make changes with the right leader and innovative strategy.
**Final note: While I appreciate the wonders of ATMs and online banking (both are driving factors for which bank I choose), here’s one more entrepreneurial thought for banks. Get rid of banker’s hours. On the rare occasion I have to go the bank in person, I can’t possibly be expected to remember that banks often close at 4:00 or 4:30 p.m. Other retail establishments don’t do that. What’s up with that?
This entry was posted on Friday, December 14th, 2007 at 9:12 am and is filed under Nonfiction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
