August 15, 2006 > BofA hits a new milestone in Citi rivalry - Fast-growing Bank of America catches up to No. 1 Citigroup's market
BofA hits a new milestone in Citi rivalry - Fast-growing Bank of America catches up to No. 1 Citigroup's market
by Joe Bel Bruno, AP Business Writer
NEW YORK (AP), Aug 11 _ There's a legend on Wall Street that Hugh L. McColl Jr., Bank of America Corp.'s storied former chairman, used to keep an "enemies list" tucked into his pocket _ marching orders for who the bank must topple to become the biggest in the nation.
On top of that list: Citigroup Inc., then the world's largest financial institution whose stock market value consistently dwarfed BofA. By McColl's retirement in 2001, Citigroup's market value was twice that of the once-small North Carolina bank.
Often disputed, even by McColl himself, the story demonstrates the ferocity behind the company's 25-year quest to be No. 1. This week, the Charlotte-based bank took a psychological step toward that goal _ coming within 1 percent of overtaking Citigroup in market value. Citi has a market cap of about $237 billion, while BofA is valued at $233 billion.
"Everyone's heard about the enemies list, but whether it's true or not doesn't matter," said Hoefer & Arnett analyst Richard X. Bove, who has tracked BofA since its infancy. "McColl didn't have to have an enemies list. They had a strategy, and one that was deployed effectively and has paid off."
Where Citi's tentacles spread to everything from high-fee asset management to global investment banking, Bank of America has remained focused squarely on the consumer. The strategy flourished as international markets soured and global merger activity waned, but some doubt it will work in the long run as overseas markets remain primed for growth.
Citigroup is still the biggest U.S. financial services company based on assets of $1.63 trillion, the most common yardstick. The New York-based heavyweight, built through an acquisition spree orchestrated by former chairman Sanford Weill, is one of Wall Street's biggest players with operations in more than 100 countries.
BofA _ with $1.45 trillion of assets _ is America's largest retail bank with almost 6,000 branches coast-to-coast. Through various deals, it has acquired stakes in three foreign banks, some credit card assets abroad and spent $675 million building trading platforms in Asia and Europe. The company's international exposure still remains significantly less than many of its bigger competitors.
How Bank of America got there is one of the most colorful and controversial stories in American banking history. McColl, a brash ex-Marine, led North Carolina regional player NationsBank Corp. through some 70 acquisitions since the early 1980s.
The company moved in a rapid-fire fashion to new parts of the country. Its push into Florida in 1981 was famously coined "Operation Overlord" after the Normandy invasion in World War II.
But McColl's biggest coup was the acquisition of BankAmerica Corp., a financial institution bigger than NationsBank. He adopted the San Francisco-based bank's name, moved the headquarters to Charlotte, ousted its CEO and began placing his executives into top positions as the two banks integrated.
Although the $57 billion deal was the biggest in McColl's career, his competitive nature still kept at least some focus on being able to best his bigger competitor.
"In the early and mid part of my career, I spent time looking up at Citibank, and ultimately realized them as a competitor in many of the retail areas," said McColl, who founded an advisory firm in his retirement and spends his time dedicated to charities like Habitat for Humanity.
"If we eventually are larger than Citigroup, we'd be happy about that," the 71-year-old said.
McColl contends successor Kenneth Lewis should be credited for keeping BofA focused on Main Street consumers rather than forge an international franchise. Lewis, 59, could not be reached for comment.
BofA has been able to leapfrog Citi by adding branches through its acquisition of FleetBoston Financial Corp., and becoming the nation's biggest credit-card issuer with its purchase of MBNA Corp. The company is so steeped as America's bank that it processes more checks annually than the Federal Reserve, and its tellers handle 1 billion face-to-face transactions per day.
At the same time, Citigroup has been criticized for losing sight of consumer customers in favor of becoming a global financial supermarket. The company has about 900 retail branches and 2,000 CitiFinancial lending offices in the U.S.
Realizing the bank neglected its consumer ambitions, Citigroup Chairman and CEO Charles Prince recently laid out an aggressive plan to expand the franchise with some 1,000 new Citibank and CitiFinancial branches globally this year.
The expansion came too late to boost Citi's fortunes in 2006. Bank of America for the first time reported higher net income than Citigroup during the second quarter. Investors have responded this year by sending BofA shares up 9 percent while Citi has fallen 4 percent.
BofA Chief Financial Officer Al de Molina draws a sharp distinction between Bank of America and Citigroup. He joined McColl's team in 1989, and said he "marvels" at the growth the company has been able to achieve.
"We have very different businesses," said de Molina, 49. "We like to be dominant everywhere we go but they appear to put their chips on faster growth through diversified positions throughout the world."
The strategy to avoid riskier businesses outside the U.S. borders has created bumper earnings and given shareholders something to cheer about. But, analysts say it might not be enough to propel the bank in the future.
In fact, Bove and other analysts expect Citigroup's market value and assets will again pull away within the next five years. "Aversion to moving overseas is going to hamstring the company," Bove said.
"The biggest growing markets are outside the U.S.," he said. "And, Chuck Prince does know how to manage Citi, and is doing so very effectively."
For now, Bank of America has been trying to compensate for its lack of an overseas presence by boosting its capital markets business. The bank is tapping its massive list of small-and-middle market corporate customers, offering underwriting and advisory services.
McColl _ who now spends his days hunting with a shotgun rather than a team of investment bankers _ still hungers for bigger and better deals.
"I'm a great believer in a monopolies, I wish we had a monopoly, but that's certainly never going to happen," he said, only half seriously.
"The industry will continue to consolidate," McColl said. "I don't think we went overboard, as in every industry you have survivors and people that perish. We were a survivor."