Is Bank of America Bad for America?

In its current form, Bank of America has hit the trifecta of failure: it is failing the nation, its shareholders and even its own customers.

As for the nation, Bank of America required a taxpayer bailout to survive the 2008 financial crash. That crash followed the rupture of a housing bubble inflated through massive fraud conducted, in part, by Bank of America. The crash cost millions of Americans their jobs, their homes and their savings. For that fraud, Bank of America has paid billions of dollars to government and private litigants. Its settlement with the federal government cost $17 billion.

As for shareholders, they financed those fines. That’s just one reason the bank performs poorly as an investment. The stock trades at a fifth of its pre-crash peak. Technically, the company is worth more liquidated than as a going concern.

As for customers, JD Power just reported that Bank of America placed last among its competitors in customer satisfaction in four of the 11 regions surveyed. Among those regions was California, where Bank of America branches are ubiquitous.

Fixing these problems can be challenging. As with so many intractable issues, the forces that would normally heal such a wound aren’t working. Customers in California might switch to another bank, but the choices are limited. Congress needs to correct this problem. Lawmakers did approve the Dodd-Frank Wall Street Reform and Consumer Protection Act, but Bank of America lobbied to dilute key measures – such as a provision that would have broken up the firm – before the bill’s passage. Since then, the bank has lobbied to stifle implementation of Dodd-Frank. It spent $2 million lobbying in 2006 alone. In the next two years, that figure rose to nearly $5 million and has hovered between $3 million and $4 million since then. Most rules mandated by Dodd-Frank have not been implemented. And here’s a cringeworthy idea: since money is fungible, part of the taxpayer bailout has essentially funded Bank of America’s lobbying effort.

What about shareholders? I am myself a shareholder of Band of America, and Iproposed a breakup study of the bank at the annual shareholder meeting earlier this month. A good case example is General Electric, which recently rewarded shareholders by agreeing to sell its banking arm, GE Capital. The stock subsequently rose 10 percent.

Even Bank of America agrees that selling assets is a good idea; it says it opposes the resolution because it already kinda, you know, has the problem in hand. (According to the bank’s response to my proposal,“Our company has trimmed hundreds of billions of dollars in assets from our balance sheet, eliminated dozens of non-core businesses.”)

More than 32,000 Americans have signed Public Citizen’s petition calling for a breakup of Bank of America.

Ultimately, my proposal for a breakup study  failed to win a majority. One reason may be the nature of the other groups voting on the proposal. There are some familiar names on the list: JPMorgan Chase, Citigroup and Wells Fargo. These are also mega-banks that are unlikely to be thrilled with a breakup study of a fellow mega-bank. Many of the other major holders are also conflicted. For example, mutual funds that manage money for average investors may also manage corporate savings plans. It’s bad for the marketing department of a mutual fund to vote against corporate management. Studies confirm these conflicted voting results.

Even if shareholders approved the breakup proposal, Bank of America’s board can ignore it. The board already ignored another proposal approved by shareholders to ensure that the CEO doesn’t  serve as chairman of the board. But the board assigned CEO Brian Moynihan to chair the board, effectively overseeing himself.

But shareholders will eventually force a breakup – or regulators will eventually order it. Or more nimble firms will eventually lure away Bank of America’s customers.

The real failure would be to stop pressing for these reforms.


Bartlett Naylor is an expert on corporate governance, financial markets and shareholder rights at Public Citizen. He is a Bank of America shareholder. 

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