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Bank of America - Then and Now

This is an upper level Final Term Paper I wrote for a Business Course just a few years ago in March of 2009 when we were at the peak of the financial meltdown, at the peak of unemployment and especially when the banks were hit the hardest and the government had to step in. I feel this paper is important to gain understanding in two things: A) There are times when a stock or any other asset such as the fiat digital currencies which are becoming the next big thing, which (for a while) are perceived as having too much systemic risk and too much market risk and are dumped, mocked and pushed away by Wall-street and the majority of existing stakeholders, and from my experience and as one can see with Bank of America, the time to have bought bank of America stock was back then, in 2009 when it was at its multi decade low because a closer investigation showed it wasn't nearly as risky as everyone thought. And I firmly believe that most of the digital currencies on the market today, and especially Bitcoin, where it has strength in now being a household name, or Devcoin - where its strength comes from numbers - it is probably the most widely held digital coin today as it was made for and is regularly distributed to developers and individuals who labor to add value to Devcoin, its mission and its brandname. And just like this research paper on BofA, one can do similar research on any existing digital currency and find out the real risk - instead of listening to the talking heads on television who know little about this new market and perhaps have their own agenda, as analysts have been proven to first serve their Employer, the banks, and secondly us, the investors.


Executive Summary

Bank of America is the largest financial services company in the world, largest bank by assets, second largest commercial bank by deposits, and (previously) third largest by market capitalization in the United States. Also, Bank of America is the number one underwriter of global high yield debt, the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisitions. Bank of America serves clients in more than 150 countries and has a relationship with 99 percent of the U.S. Fortune 500 companies and 83 percent of the Fortune Global 500. The company is a component of the Dow Jones Industrial Average and a member of the Federal Deposit Insurance Corporation (FDIC).

Unfortunately, as powerful as BofA may sound it is currently on the brink of extinction mostly due to its acquisition of Merrill Lynch in December of 2008. Merrill Lynch brought a lot of promises of expanded services, experience, reputation and a huge client base, but it also brought tens of billions in toxic assets. These assets are mortgage backed securities which have been plaquing Merrill Lynch and now threaten BofA. BofA was one of the favored bank to make it through the credit crisis which started in 2007 but now all of that has changed. It’s losing billions of dollars due to all of the bad debt write-downs, has received $45 Billion in TARP funds and another $118 billion in federal loan guarantees and is still in a lot of trouble.

What ends up saving BofA however, may be the stress test which the fed is now conducting on all the big banks. As I’ll discuss in the pages to follow, preliminary tests show that BofA is passing these stress tests with an A. Given the limited possibilities right now for BofA it is wise to wait for this stress test, especially since it looks so promising, before making any big decisions on what should be done next. A positive outcome from this stress test would change the entire landscape for BofA as investors, customers and stakeholders would again have the confidence they once had in this American icon. It is therefore the best solution – a solution easy and ethical to implement, to complete the stress test which is currently ongoing and should be done in the next thirty days.

Position

Bank of America Corporation (NYSE: BAC) now based in Charlotte, North Carolina, was originally known as Bank of Italy which was founded in San Francisco by Amadeo Giannini in 1904, based on catering to immigrants (“The Story of Bank of America: Biography of a Bank”). After more than 100 years, Bank of America has become the largest financial services company in the world, largest bank by assets, second largest commercial bank by deposits, and until recently, third largest by market capitalization in the United States (BofA tops Citigroup and JP Morgan Chase in market capitalization”). Also, Bank of America is the number one underwriter of global high yield debt, the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisition. Bank of America serves clients in more than 150 countries and has a relationship with 99 percent of the U.S. Fortune 500 companies and 83 percent of the Fortune Global 500 (“Bank of America Details Community Development”). The Bank, once considered one of the winners and healthiest survivors of the 2007 credit crisis, plunged in market value in early January of 2009, several months after its purchase of Merrill Lynch, when it came to light that Merrill Lynch was holding much larger toxic assets than BofA shareholders were originally lead to believe. (“U.S. Pushed BofA to Complete Merrill Buy: Report”).

While doing my research I found numerous mission and vision statements for Bank of America, and oddly enough none of them were on BofA’s corporate website. As a result, I called BofA customer service and talked to a very accommodating lady by the name of Elisha. Surprisingly enough she had no idea what the mission and vision statements were and had quite a difficult time finding them. After approximately fifteen minutes she was able to locate them both on BofA’s employee intranet. I don’t want to pass judgment prematurely but if an employee had such a difficult time finding these key components of a company then perhaps the company isn’t very dedicated to these statements.

The mission statement is quite simple and to the point stating, “To provide world class service”. This mission statement is not what I expected from one of the greatest financial institutions of our time. It lacks descriptive content and values which BofA has and treasures. Bank of America’s vision statement, on the other hand, is quite the opposite: “A financial services company that offers the most convenient banking network for our retail customers coast to coast. At the same time, we are building our global capital market platform to better serve our corporate client – a company that consistently leverages information and market knowledge to innovate for customers and clients. A company which knows how to integrate its operations and businesses to create value for customers and shareholders, and a company that delivers the highest standard of service quality to consumers, businesses, and institutions of all sizes.” I feel this is a complete and detailed vision statement which can hold true for many years to come. BofA has consistently worked to hold true to its mission and vision statements as is evident by its consistent spending on improving its current business and through strategic acquisitions. There is little doubt that management is doing all they can to improve customer satisfaction through a more diverse offering of financial services while improving stakeholder value. A stakeholder is a person, group, organization, or system who affects or can be affected by an organization's actions. Given the size, nature and reach of BofA’s business, the company faces a complex and diverse group of stakeholders which are customers, investors, shareholders, employees, business partners, communities, government and consumers in general. It is a real task and challenge to cater to so many diverse stakeholders but BofA is doing all it can to meet everybody’s expectations. Long gone are the days where corporations were only concerned with maximizing shareholder value by increasing profits. Corporate Social Responsibility is only becoming more popular in our society today, and BofA has made it a top priority to stand above the rest when it comes to philanthropic endeavors, volunteer work and improving the health and vitality of communities all over the United States. BofA holds all of its associates to the same high standards when it comes to CSR, according to Global Consumer and Small Business Banking President Liam McGee, “Our commitment to communities is ingrained in the Bank of America culture that holds all our associates accountable for doing the right thing for customers, shareholders, communities and one another.” (“BofA Details Community Development”) In addition, Bank of America is in its fourth year of achieving an unprecedented 10-year goal to donate $1.5 billion to nonprofit organizations engaged in improving the health and vitality of their neighborhoods. Funded by Bank of America, the Bank of America Charitable Foundation is one of the most generous financial institutions in the world and the second largest donor of all U.S. corporations in cash contributions. Bank of America approaches giving through a national strategy called “neighborhood excellence” under which it works with local leaders to identify and meet the most pressing needs of individual communities. Through Team Bank of America, bank associate volunteers contributed more than 650,000 hours in 2007 to enhance the quality of life in their communities nationwide. The efforts don’t stop there, as BofA is dedicated to its ongoing commitment, they recently announced that beginning in 2009, Bank of America will pursue a new goal to lend and invest $1.5 trillion for community development over the next 10 years. Areas of focus will include affordable housing, economic development and consumer and small business lending. “This new level for community development lending and investments is double Bank of America's existing $750 billion goal set in 2004” (“BofA Details Community Development”).

Ethics is another key value which has made Bank of America what it is today. Banks are always under the scrutiny of consumer advocate groups, customers and governing legislative bodies. Part of BofA’s success is due to its ability to go above the laws and guidelines and offer its customers transparency and genuine honesty when conducting business.

From its humble beginnings as Bank of Italy to one of the world’s largest financial institutions, Bank of America continues to please its stakeholders by continuing to grow its revenues and business offerings through strategic spending and acquisitions. Over the years it has acquired other large financial institutions such as, FleetBoston Financial, Countrywide, MBNA, ABN AMRO North America and LaSalle Bank. All of these acquisitions held steadfast to BofA’s mission and vision statements while serving its stakeholders well, but a recent acquisition, that of Merrill Lynch, has created major issues and conflicts within BofA, has called in question the ethics of its CEO, Kenneth Lewis, and currently threatens its very existence.

Sense

In today’s global economic downturn financial companies are facing the greatest challenges in their entire existence. Before the Merrill acquisition, BofA was considered one of the strongest and healthiest survivors of the credit crisis. But with the much publicized and heralded acquisition of Merrill also came enormous exposure to toxic assets which BofA shareholders were largely unaware of. Even with $45 billion in TARP funds and $118 billion in federal loan guarantees, BofA is still exposed to $75 billion in potential toxic assets largely due to its Merrill acquisition (“Government Takes on Risky Merrill Exposures”). If BofA is to survive this unprecedented credit crisis, and come out stronger than ever before they will have to find a way to strengthen their balance sheet without filing bankruptcy or being nationalized by the federal government.

There are a number of real threats currently facing BofA as a direct result of its Merrill Lynch acquisition. The first is the inability to continue growing revenues and market share via acquisitions which is mission critical but not urgent due to the fact that BofA first needs to strengthen its balance sheet before it goes back to business as usual. The toxic assets from Merrill Lynch transferred to BofA’s balance sheet which has forced BofA to request $45 Billion in government loans and another $118 Billion in loan guarantees. It has also caused BofA’s stock price to plummet from around $30 per share in September of last year, when they announced their acquisition of Merrill Lynch, to around $4 per share today. This loss in market capitalization along with a weak balance sheet will prevent BofA from doing what it has done for many years, and that is to grow its market share and revenues through acquisitions. Without the ability to grow revenues and improve services BofA essentially fails on its mission and vision promise so it is crucial that they address this issue once they resolve their liquidity issues. The second problem facing BofA is weak shareholder confidence which I believe is mission critical but not urgent because volatility in the stock market is normal with any company and should be expected by investors choosing to buy stocks. Evidence of diminished shareholder support is evidenced by the current stock price of $4. The current stock price suggests that shareholders have little faith that BofA management can get out of their current dilemma without either a massive dilution, filing bankruptcy or being taken over by the Fed and nationalized. The plunge in stock price has destroyed tens of billions of dollars in value for shareholders. These shareholders include BofA employees, pension funds, potential consumers and current customers. Clearly, this is an issue as it goes against BofA’s mission, vision, values and ethics and the sooner they can restore shareholder confidence the better it will be for everyone, including BofA.

The third issue is the current debacle involving the acquisition of Merrill Lynch which is urgent but not mission critical. It’s urgent because it is constantly in the news and many analysts insist that Bank of America had to know about the toxic assets and secret bonuses given out to Merrill employees one month early. The debacle I am referring to is the ongoing drama between the ex-Merrill CEO, John Thain and BofA’s CEO Kenneth Lewis. Basically, Mr. Thain states that he was upfront with Mr. Lewis about all the toxic assets Merrill had on its books, and that the nearly $4 billion paid in bonuses at the end of 2008 to Merrill employees was determined together with Bank of America. On the contrary, Lewis insists that he was not aware of the toxic assets until after the deal closed on Dec. 5th, 2008, and that he was not aware of the large bonuses Merrill intended to pay its employees in December of 2008 instead of the normal January payout. (“Thain Says He Hid Nothing From Bank of America”). On Dec. 5, Bank of America shareholders approved the Merrill transaction; less than two weeks later, BofA executives were meeting with government officials expressing concern about the size of Merrill-related losses. BofA's official explanation - “beginning in the second week of December, and progressively over the remainder of the month, market conditions deteriorated substantially.” (“Merrill Losses Put Lewis on Hot Seat”) Many argue that there is simply no way market conditions could have deteriorated that much in two weeks and that BofA’s CEO and BOD had to have known. This lack of transparency goes against BofA’s historical ethical standards and in order to restore trust in the current management and in Bank of America this issue must be cleared up immediately.

Finally and perhaps the greatest problem facing Bank of America today is the real threat of bankruptcy or nationalization due to too much bad debt on its balance sheet. This is a mission critical and urgent issue as such an outcome will have a negative impact on all of BofA’s stakeholders - many innocent people and communities would suffer as BofA would lose the ability to continue its operations in its current form. The problem with all of the toxic assets currently on BofA’s books is that nobody really knows the exact amount or value of these assets. This is due to mark-to-market accounting, a methodology of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments. Since there are currently no buyers for these assets their values are unknown or essentially zero and with the continued weakness in the housing market it’s very difficult to quantify how much cash BofA will need to remain solvent. To give an example, from the end of 2007 until early September 2008, Merrill had taken over $50 billion in subprime-related losses (“Bank of America Shocker: How Much More Will Taxpayers Take”). One would think that with those types of losses already written off by Merrill, that BofA would have nothing to worry about, but the fact of the matter is that BofA is currently exposed to an additional $75 billion of potentially bad assets, most of that from its Merrill acquisition (“Government Takes on Risky Merrill Exposures”). As more and more of these assets become toxic, BofA’s capital position becomes increasingly strained so this issue must be resolved before it’s too late. In addition, the Fed is currently running several banks, including BofA, through a “stress test” to ensure it can survive an additional 22% drop in home prices this year and unemployment of at least 10% next year (“US Details Stress Tests For Banks”). This test will shine more light on just how weak or strong BofA’s balance sheet is. Although, one thing to keep in mind is part of this stress test of BofA’s balance sheet is like a take home exam, BofA itself will be conducting some of the testing so one has to keep this fact in mind when the final results come out in April.

From among the four problems BofA is facing I chose the threat of insolvency or nationalization due to too much toxic assets on its balance sheet. Resolving this problem would automatically solve most of BofA’s other issues. Even with the government loan guarantees, and the $45 billion in TARP funds, if Merrill losses continue to increase Bank of America can face possible bankruptcy or nationalization by the federal government. If Bank of America is to continue operating for another hundred years this problem must be resolved immediately in order to meet stakeholders’ needs.

The fishbone diagram above (which I was not able to load on this wiki site) shows the cause and effect for the weakened balance sheet. The first reason is insufficient liquidity. There are several reasons why BofA ran into a liquidity problem. First of all, a lot of people began taking their money out of banks when banks, like Countrywide and Indy Mac, began being taken over by the FDIC last year (“A Rush to Pull Out Cash”). The money being taken out of U.S. banks was in the billions of dollars and it added to the issues banks were already facing. Secondly, credit market got very tight and banks were not easily lending money to each other the way they were just a few months earlier. Finally, due to such a low price per share, it is not practical for BofA to sell shares on the open market in order to raise additional capital. This is something BofA can do in case of a last resort, but right now they’re not at the point yet.

The second cause for the weakened balance sheet is BofA’s own toxic assets which compounded the problem once they acquired Merrill Lynch. The absence of these bad assets would probably have a minimal impact if any at all, but it’s still a contributing factor in this case.

The third cause is the Mark-to-Market accounting which exacerbated the liquidity issues as banks, including BofA, were forced to recognize bad assets at a time when there was no market for them. These large losses were unpredictable in nature as the amount of future write downs was largely unknown due to the volatility in the credit markets and severe downward pressure in the housing market.

Finally, the last cause in the fishbone diagram is the acquisition of Merrill Lynch. As stated before, BofA was financially sound before it acquired Merrill. BofA’s management rushed into this acquisition and failed to perform sufficient due diligence. They then failed to provide sufficient transparency to their shareholders and stakeholders in regard to the enormous toxic assets on Merrill’s balance sheet and the $3.6 billion in planned bonuses to Merrill employees. It is unfortunate that the people who were not informed of the bad assets, employees, shareholders and stakeholders, have to suffer the most financial loss as a result of the poor decisions a few individuals made in haste. Just weeks after it acquired Merrill, however; BofA sought help from the federal government via TARP funds and loan guarantees, which, as was mentioned above, it received. This is the greatest evidence supporting the conclusion that the greatest cause which immediately forced BofA to request government funding, due to a liquidity crisis, was the acquisition of Merrill Lynch.

With the causes that weakened BofA’s balance sheet analyzed above, BofA should take measured steps in an attempt to shore up its balance sheet as to avoid possible bankruptcy or nationalization. Here are some alternative which can be used to reach this goal. Firstly, BofA can issue more shares and do a secondary stock offering, in effect raising cash while diluting its current shareholders. Currently, BofA has approximately 6.4 billion shares outstanding (“Key Statistics”). At a current share price of $4.79 it could raise $10 billion by issuing approximately 2.2 billion shares. That is about a 40% dilution of current shareholders which is a lot but compared to what the fed may do if they’re forced to step in it may be a better scenario.

A second option is for BofA to attempt to merge with another healthier bank, such as Wells Fargo Bank who has a very strong balance sheet and is maintaining fairly strong growth, even in this environment. Wells Fargo Bank is also the only bank with the honor of having a AAA rating (“Wells Fargo Living up to AAA Ratings”). In merging with the likes of Wells Fargo Bank, BofA would essentially form the world’s largest financial institution and it would effectively share the burden of its current toxic assets. This would eliminate the need for government aid, eliminate the risk of bankruptcy and eliminate any possibility of nationalization.

Third, BofA can use a tactic CITI Financial used just months ago in an attempt to rid itself of its toxic assets, and that is to split the company in two. By separating the “good” bank operations from the “bad” ones, BofA would be effectively undoing the Merrill merger which has brought it so much financial risk (“CITI Loses $8.3 Billion, To Split In Two”). This may be a better choice as shareholders would not be diluted by an enormous secondary offering and it would not necessitate finding a “marrying” partner which in this credit crisis is not easy to do. It would also allow BofA more time to payback the TARP funds as it would be able to focus on business operations and making a profit rather than fighting off the possibility of nationalization.

Finally, a fourth option is to wait for the stress tests to be completed and hope that they are very positive and encouraging. If that were to happen and investors believed that BofA had a strong enough balance sheet to weather a worsening housing market and higher unemployment then the stock price would most like appreciate considerably as investors would snap up shares expecting BofA to recover from its current situation. With a higher stock price BofA would then have more option if the need for additional funding should arise in the near future.

Solve

Now let’s analyze and evaluate the four solutions above to see which one would work best given BofA’s current dilemma. The quick fix would be to dilute shareholders and issue another 2.2 billion shares in an attempt to raise approximately $10 billion. This may strengthen the balance sheet, short term, but it’s difficult to say whether that would be enough money to keep BofA solvent in the event that the economy worsens and its exposure to $75 billion in potential toxic assets becomes a reality. The $10 billion it would raise by doing a secondary may be a lot of money but in the big picture it really is not enough, if things were to get worse. Another negative from doing a secondary is the fact that diluting the common by nearly 40% would cause major selling on the open market and one would expect the stock price to also drop by at least 40% in value. This means that BofA will most likely not get $4.79 per share, but would instead get closer to $3 per share or around $6 billion. This massive secondary would also have an enormous negative impact on earnings per share, a key metric in judging the profitability of a company. Given that the solution is not a guarantee of success and that it comes with such a large negative impact to earnings and BofA’s current shareholders I would opt to not do this option but instead look at one of the remaining three options.

Mergers have been very popular in the last 18 months and in many cases they were done out of necessity due to the unprecedented global credit crisis. In fact, this is why Merrill’s CEO John Thain went searching for a marriage partner, he knew he had a lot of toxic assets on his balance sheet and he wanted to act before the street devalued Merrill’s stock to a much lower level (US Pushed BofA to Complete Merrill Buy: Report”). One problem with this scenario is that right now even Wells Fargo Bank, with its triple A rating is seeing its stock price collapse. It is currently trading around $10 per share, down from around $40 per share less than one year ago (“Key Statistics”). Given that its market capitalization is much lower now it would have to issue a lot of shares to acquire BofA and give that Wells is also trying to weather this financial storm, their BOD and CEO would most likely not want to take on the risk BofA is currently carrying on its books considering that it would be a very costly merger for them. Not to mention that since both banks are already too big to fail, as recently stated by Fed Chairman, Ben Bernake, the last thing the government would want is an even bigger back with toxic assets, so I doubt such a huge merger would even get regulatory approval (“The Fed: Big Banks Will Not Be Allowed To Fail”). This option would be my first choice but given the current condition of any potential suitor and the fact that the SEC would most likely never allow such a merger to take place it’s best to look at the remaining two options.

The third option is to split the company in two, just as CITI announced it would do a couple of months ago. By doing this BofA would be able to literally “shed” the bad assets by separating the good banking operations from the bad. One bad thing about this solution is that BofA would be essentially forfeiting those assets at a time when the Mark-to-Market accounting states those billions in assets, although now considered toxic, are seen as worthless. In reality those mortgage backed securities have a value and in time that value will be realized so getting rid of them now, when nobody wants them, pretty much locks in that loss and does not give BofA time to find a suitable buyer at a later date when the housing market stabilizes. Another issue with splitting the bank in two is that there may still be no guarantee. CITI announced it would be doing the split and since that announcement two months ago its stock price has hit a new low of just under $1 per share (“Key Statistics”). I would say that Wallstreet and investors in general still feel like Citi is a potential candidate for a takeover. So this option may work and it may not work – it would be worth doing it if there were no other possibilities since it’s a preferable idea compared to diluting the common to the tune of 40%.

Finally, the wait and see approach. BofA right now seems to be fairly stabilized and its CEO and BOD seem very confident in its future, as evidenced by their current stock purchases on the open market. Also, the CEO, Ken Lewis, in the last few months, has been saying, loud and clear, that BofA is going to be fine and that there is no risk of nationalization and Mr. Lewis, along with most members of the BOD, are putting their money where their mouths are (“Ken Lewis: Nationalization is Just Absurd”). Over the last few months, Mr. Lewis, has purchased over $4 million in common shares and most directors have spent a considerable amount as well (“Insider Transaction”). That’s no guarantee but it definitely makes you feel better as an investor, shareholder and a stakeholder to see the people running the company putting their own money at risk. As mentioned earlier the current “stress” tests issued by the federal government is designed to see if BofA can sustain another 22% decline in home values this year as well as unemployment of 10% next year. These are both worse case scenarios and the final results are supposed to be out in April of this year. Given that preliminary stress tests are passing, I think it’s a good idea for BofA to wait for the final grade as a passing grade would instill confidence in shareholders, investors and stakeholders and would most likely cause the stock price to rally considerably (“Citi Fails Stress Test, BAC, and JPM get A’s”). With a passing grade from the fed it would be much easier for BofA to find a merger partner, if it still needed one, and it would be able to do a secondary stock offering at a potentially much high price which would result in less dilution. The only risk in using this solution is that if they fail the stress test, and there’s no reason to believe this would happen at this time, then the stock price would get pushed down to much lower levels and a secondary offering would be off the table. At that point the only possibilities left for BofA would be to put itself up for sale at a huge discount, split its bad bank assets from its good assets or agree to being partially owned by the fed in return for additional funding.

There are many factors to consider when attempting to choose the right solution such as, will the stakeholders be worse off or better off, will revenues and profitability increase or decrease, will the solution make BofA more or less competitive and is it easy to implement and maintain the chosen solution? Below is the matrix comparing the alternative above and as one can see, the number one choice on the matrix is to wait for the stress test. The merger would have been the number one choice but the feasibility and implementation criteria took off a lot of points as it would be nearly impossible to implement and execute a merger of this size due to federal antitrust regulations. Last place on the list was the secondary offering. Although this would be an easy solution to implement and it’s very feasible the criteria for profitability and happy stakeholders really hurt its score. All in all I think the matrix was an efficient way to more objectively analyze and evaluate multiple potential solutions. I have to admit though, personally I was leaning toward the waiting for the stress test so I’m sure some bias when into the matrix as I was creating it. With that said, given the drastic measures BofA would need to take to right its current situation I think it’s worth waiting a month since there is a real potential that confidence can be restored in which case BofA would have better options to choose from.

Build

The next question to address is whether or not this solution, to wait for the stress test, is the most ethical choice and whether or not it’s a feasible and easily implementable choice. First we need to look at whether the cost/benefit ratio is a favorable one. In order to judge if our solution is truly feasible it must be judged against several valuations such as legal, ethical, economical, and organizational. The legality of this solution is not in question as the stress test is something required by the federal government. Likewise, there are no ethical issues as most, if not all, stakeholders would like to know whether or not BofA can sustain further deterioration in the housing market and in the economy in general. This solution is also economical as it requires no funding or extra spending. If BofA passes the stress test then this solution is the cheapest way to go which will in turn open up numerous other options for Bank of America. If they pass the test they will also not have to worry about diluting their current shareholders, merging on unfavorable terms, breaking up the company in two to shed the bad assets or being taken over by the federal government. This one simple test could change everything for BofA that’s why it’s so crucial to wait it out, especially if it looks like they will pass, and so far it does appear that way. This is also the best choice for the organization as a whole. While BofA waits for the test to be completed business is as usual. Employees, business partners, investors and all stakeholders see no disturbance in their day to day involvement with BofA. That would not be the case with any of the other options as most require major change in one way or another. A massive dilution or a merger on unfavorable terms would also not be perceived as an ethical choice as many faithful stakeholders would be hurt, financially, in the process. For all of these reasons, it is completely ethical and feasible to wait for the stress test.

Achieve

The Implementation and maintenance plan for this solution is quite easy as it only requires that BofA management wait and assists in any way possible to ensure an accurate and honest stress test is being performed. In being transparent BofA will raise no doubts, in the event that the result is positive, that it can go it alone without additional help from the federal government. The timeline in this case is approximately one month after which time BofA will be faced with additional choices. If they fail the stress test then the choice may be made for them in the form of nationalization. The government can only give away so many billions of dollars to failing banks before it’s no longer economical to do so. As Ben Bernanke made it clear, these big banks, like BofA, will not be allowed to fail but that doesn’t mean they won’t be nationalized. If BofA passes its stress test then various measures can be used to gauge its success or improvement in the current credit crisis. Measures such as change in deposits are customers confident enough in BofA to keep their money in their bank or are they taking money out? Customer satisfaction – is BofA able to focus with their business and hold true to their mission and vision statements or are they still being derailed by the current credit crisis? Strengthening balance sheet – will BofA be able to generate positive cash-flow and perhaps even profits which would indicate that the worse is probably over for them. And finally, one major yet easy way to measure a company’s success is its stock price. If BofA’s stock price improves considerably from today’s level then that will be a positive sign that they are headed in the right direction. Once BofA successfully performs the stress test of its balance sheet we will have all of these answer and we will be able to compare them to the analysis and alternatives presented in this paper. I for one, am looking forward to seeing how things turn out over the next month and beyond, and much like the CEO and BOD, during my research on this paper I was compelled to purchase 800 shares of BofA stock in my IRA account at $4.43 per share and as of today I’m actually making a profit.

Updated Conclusion

To add an updated conclusion to my original conclusion is exciting given I can now look back and have perfect, 20/20 vision. I did hold on to my BofA stock shares while most people, professional analysts and even my PhD Economics professors were saying I was crazy and that BofA would go bankrupt and nobody should buy their shares. But I did my own research and although I took some risk at the time, it was a well calculated risk just like the risk I am taking now by purchasing “dCoins” (a term I've “coined” which I use to refer to all digital coins) digital coins, and just like a few years ago when I bought BofA stock while everyone was screaming “SELL!”, I don’t deviate from my own personal convictions which are based on solid research, experience and a decent education. It’s good to listen to advice from professionals but not when that advice goes contrary to everything you feel is right and not when that advice comes from professionals who have been proven, again and again, to have ulterior motives and biases when issuing their professional opinions. I’m ecstatic to see if Devcoin, Litecoin, IXcoin, the coins which I feel are worthy of purchasing, will have the same or perhaps even better outcome than BofA, as I was able to triple my money on that investment in a short amount of time. The thing that makes me laugh is that the same “pros” who were saying stay away from BofA stock a few years ago when it was at $4 per share are now, today, shouting “strong buy”. I fully expect a similar outcome for Devcoin and most of the other crypto currencies.

- Maximilian Wilhelm

Works Cited

Bank of America. “Heritage Center” http://newsroom.bankofamerica.com/heritagecenter/

Marquis, James and Bessie R. James. “The Story of Bank of America: Biography of a Bank” 2002/09 http://www.beardbooks.com/beardbooks/the_story_of_bank_of_america.html

Bank of America. 2008-09-15. “Bank of America Buys Merrill Lynch Creating Unique Financial Services Firm” http://www.bankofamerica.com/merrill/index.cfm?template=press_release.

Charlotte Business Journal. 2007-11-05. “BofA tops Citigroup and JP Morgan Chase in market capitalization”. http://charlotte.bizjournals.com/charlotte/stories/2007/11/05/daily8.html.

Reuters UK. 2009-02-15. “ US Pushed BofA to Complete Merrill Buy: Report” http://uk.reuters.com/article/americasDealsNews/idUKTRE5140OA20090205

Bank of America 2007-04-28. “BofA Details Community Development” http://bankofamerica.mediaroom.com/index.php?s=press_releases&item=8152

Wall Street Journal. 2009-01-18 . “Merrill Losses Put Lewis on Hot Seat” http://online.wsj.com/article/SB123233878902794523.html

AP News via Yahoo Finance. 2009-01-26 “Thain Says he Hid Nothing From BofA” http://finance.yahoo.com/news/Thain-says-he-hid-nothing-apf-14155683.html

Yahoo Finance – Tech Ticker. 2009-01-16 “Bank of America Shocker: How Much More Will Taxpayers Take” http://finance.yahoo.com/tech-ticker/article/159946/Bank-of-America-Shocker-How-Much-More-Will-Taxpayers-Take?tickers=BAC,XLF,FNM,C,%5EDJI,%5EGSPC,SKF

Market Watch. 2009-01-16 “Government Takes on Risky Merrill Exposures” http://www.marketwatch.com/news/story/government-takes-risk-merrill-cdos/story.aspx?guid=%7BF936817D-1E71-4463-B8CF-70465DBE8C95%7D

Los Angeles Times. 2007-08-17 “A Rush to Pull Out Cash” http://www.latimes.com/business/la-fi-countrywide17aug17,0,1835165.story?coll=la-home-center

Yahoo Finance. 2009-03-10. “Key Statistics” http://finance.yahoo.com/q/ks?s=bac

24/7 Wallstreet. 2008-10-15 “Wells Fargo Living up to AAA Ratings” http://247wallst.com/2008/10/15/wells-fargo-liv/

Reuters News. 2009-01-16 “CITI Loses $8.3 Billion, To Split in Two” http://www.reuters.com/article/newsOne/idUSTRE50F2SR20090116

L.A. Times. 2009-02-26 “US Details Stress Tests For Banks” http://www.latimes.com/business/la-fi-banking26-2009feb26,0,2869687.story

CNN Money. 2009-03-10 “The Fed: Big Banks Will Not Be Allowed To Fail”

http://money.cnn.com/news/newsfeeds/articles/djf500/200903101121DOWJONESDJONLINE000511_FORTUNE5.htm

Yahoo Finance. 2009-03-11 “Insider Transactions” http://finance.yahoo.com/q/it?s=BAC

Tradingmarkets.com 2009-02-06 “Ken Lewis: Nationalization is Just Absurd” http://www.tradingmarkets.com/.site/news/Stock%20News/2164325/

Businessinsider.com 2009-03-01 “Citi Fails Stress Test, BAC, and JPM get A’s” http://www.businessinsider.com/citi-fails-stress-test-bac-and-jpm-get-as-2009-3


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