Major Banks Ignore States Banning Payday Loans

Story first appeared on The New York Times -

Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent.

With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.

The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.

But state and federal officials are taking aim at the banks’ role at a time when authorities are increasing their efforts to clamp down on payday lending and its practice of providing quick money to borrowers who need cash.

The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans, according to several people with direct knowledge of the matter. Benjamin M. Lawsky, who heads New York State’s Department of Financial Services, is investigating how banks enable the online lenders to skirt New York law and make loans to residents of the state, where interest rates are capped at 25 percent.

For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.

Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.

Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.

While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. Under federal law, customers are allowed to stop authorized withdrawals from their account. Still, some borrowers say their banks do not heed requests to stop the loans.

Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.

“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.

A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.

Payday lenders have been dogged by controversy almost from their inception two decades ago from storefront check-cashing stores. In 2007, federal lawmakers restricted the lenders from focusing on military members. Across the country, states have steadily imposed caps on interest rates and fees that effectively ban the high-rate loans.

While there are no exact measures of how many lenders have migrated online, roughly three million Americans obtained an Internet payday loan in 2010, according to a July report by the Pew Charitable Trusts. By 2016, Internet loans will make up roughly 60 percent of the total payday loans, up from about 35 percent in 2011, according to John Hecht, an analyst with the investment bank Stephens Inc. As of 2011, he said, the volume of online payday loans was $13 billion, up more than 120 percent from $5.8 billion in 2006.

Facing increasingly inhospitable states, the lenders have also set up shop offshore. A former used-car dealership owner, who runs a series of online lenders through a shell corporation in Grenada, outlined the benefits of operating remotely in a 2005 deposition. Put simply, it was “lawsuit protection and tax reduction,” he said. Other lenders are based in Belize, Malta, the Isle of Man and the West Indies, according to federal court records.

At an industry conference last year, payday lenders discussed the benefits of heading offshore. Jer Ayler, president of the payday loan consultant Trihouse Inc., pinpointed Cancún, the Bahamas and Costa Rica as particularly fertile locales.

State prosecutors have been battling to keep online lenders from illegally making loans to residents where the loans are restricted. In December, Lori Swanson, Minnesota’s attorney general, settled with Sure Advance L.L.C. over claims that the online lender was operating without a license to make loans with interest rates of up to 1,564 percent. In Illinois, Attorney General Lisa Madigan is investigating a number of online lenders.

Arkansas’s attorney general, Dustin McDaniel, has been targeting lenders illegally making loans in his state, and says the Internet firms are tough to fight. “The Internet knows no borders,” he said. “There are layer upon layer of cyber-entities and some are difficult to trace.”

Last January, he sued the operator of a number of online lenders, claiming that the firms were breaking state law in Arkansas, which caps annual interest rates on loans at 17 percent.

Now the Online Lenders Alliance, a trade group, is backing legislation that would grant a federal charter for payday lenders. In supporting the bill, Lisa McGreevy, the group’s chief executive, said: “A federal charter, as opposed to the current conflicting state regulatory schemes, will establish one clear set of rules for lenders to follow.”

Bank of America Putting Pressure on Small Businesses

First appeared in the LA Times

Bank of America Corp., under pressure to raise capital and cut risks, is severing lines of credit to some small-business owners who have used them to stay afloat.

The Charlotte, N.C., bank is demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

Business owners complain that BofA's credit squeeze is abrupt and could strain their small companies and even put them out of business. The credit cutoff is coming at a time when the California economy can't seem to catch a break, and bucks what the financial industry says is a new trend of easing standards on business loans.

One such customer, Babak Zahabizadeh, was told in a letter that the $96,000 debt carried by his Burbank messenger service must be repaid Jan. 25. A loan officer offered multiple alternatives over the phone that Zahabizadeh called unaffordable, including paying off the debt at 12% interest over two years. That's about $4,500 a month, nearly 10 times his current interest-only payment.

Zahabizadeh, known as Bobby Zahabi to his customers, said he has cut the staff of his Messengers & Distribution Inc. to 80 from 200 to nurse his business through tough times.

"I was like, 'Dude, you're calling a guy who's barely surviving!' " he said. "My final word was that I can double my payment — but not triple or quadruple it. I told them if they apply too much pressure they're going to push me into bankruptcy."

The capped credit lines stem from a corporate overhaul launched by Brian Moynihan, who became Bank of America's chief executive in 2010. He promised to address losses caused by loose lending and rapid expansion by reining in risks and shedding investments deemed non-core.

BofA spokesman Jefferson George said a "very small percentage" of small-business customers have been affected by the changes. He would not provide exact numbers except to say it wasn't in the hundreds of thousands. Some of the affected businesses had been customers of other banks that Bank of America acquired, but most were BofA customers from the start, George said.

"These changes were explained in letters to customers, and they were necessary for Bank of America to continue prudent lending to viable businesses across the U.S.," he said.

The bank still has 3.5 million non-mortgage loans to small businesses on its books. The affected business owners were notified a year in advance that their credit lines were being called, George said, although Zahabi and several others said they had not received the early warnings.

The changes also include added annual reviews of borrowers and annual fees, and often reductions in the maximum amount of credit. George said the aim was to reduce Bank of America's risks and to bring the loan terms in line with more stringent standards imposed after the 2007 mortgage meltdown and 2008 credit crisis.

Scott Hauge, president of the advocacy group Small Business California, called the credit cuts "a tragedy" for longtime BofA clients left vulnerable by years of struggle in a sour economy.

"If small businesses are going to lead the way out of the economic doldrums we now face in this country, they must have access to capital, not only to hire more people but to protect the jobs they are currently providing," Hauge said.

Bank of America was a leader in the banking industry's abortive attempt to impose debit card fees. But it appears to be a laggard in tightening business lending standards. Most other banks, having tightened lending standards in the aftermath of the financial crisis, had eased credit last year as competition for small-business customers heats up, bank analysts say.

"Everyone … is targeting commercial and particularly small-business lending as the real focus area for growth," said Joe Morford, an analyst in San Francisco for RBC Capital Markets.

While Bank of America is advertising its own commitment to small businesses, it needs to send another message to its government supervisors because it has less of a capital cushion against losses than major rivals, said FBR Capital Markets bank analyst Paul Miller.

Restricting credit lines "is a way to show the regulators they are serious about addressing risks," Miller said. "Bank of America is under great pressure, especially with another round of [Federal Reserve] bank stress tests coming up, as the regulators say: 'We want you to tighten up.' "

The analysts said all banks monitor business customers and restrict credit on a case-by-case basis. But they said they were unaware of any other large bank systematically capping credit at this time.

Customers interviewed by The Times said they could understand how the turbulent economy might result in some restrictions. But they complained that the credit cutoffs threatened to undo businesses they shepherded through the downturn by slashing costs, hoping to expand when brighter days return.

Several small-business owners indicated that they had nearly used up all the available credit on their Bank of America lines. However, George said maxing out the lines wasn't a major factor in the bank's reevaluation of the credit terms.

Kathleen Caid's Antique Artistry Studio in Glendale sells elaborately beaded, Victorian-style shades that she makes for lamps, chandeliers and sconces. She said she had understood that her $85,000 credit line would remain in place "as long as I wasn't in default," and she hadn't missed any payments.

Caid and her husband, Tim Melchior, a video producer with a Burbank media company, insist they are not in serious financial trouble despite having laid off her eight full-time employees and downsized her business space by two-thirds during the recession.

Yet Bank of America says that her credit-line debt, totaling $80,000, is due in May.

"I wouldn't have run it up if I knew what was in store," she said, adding that she would be speaking to an attorney and other banks about her options.

End of Line for Two Homeowners

First appeared in Contra Costa Times

Business at two Antioch banks was disrupted Friday by protesters demanding help for two homeowners who haven't been able to pay their mortgage.

About three dozen members and supporters of a grass roots social justice organization went to the Bank of America and Wells Fargo Bank branches on Somersville Road asking officials there to intervene on behalf of an elderly Antioch woman who lost her home just days ago as well as a Concord couple that received an eviction notice last month.

Holding signs and chanting, they asked employees to fax a letter to the banks' chief executive officers insisting that the companies work with these people they had victimized with their "predatory lending practices."

Bank of America refused and called the police, who dispersed the crowd by warning that they would be arrested if they didn't leave, said John Adams, local director of the Alliance of Californians for Community Empowerment.

The crowd then walked to Wells Fargo, where the branch manager agreed to fax the plea to rescind its foreclosure on Eva Cader, a 78-year-old Antioch woman who was evicted Jan. 3 while trying to obtain a loan modification, Adams said.

Although the Bank of America branch didn't comply with the group's request, its manager discovered she knew Jessi Koritz, a small-business owner who frequents the Concord branch where she used to work.

The woman promised she would bring his case to the attention of those who mightbe able to forestall his eviction and modify the terms of his loan.

Grappling with financial setbacks from a job loss and workplace injuries, Koritz and his wife, Pamela, have been struggling to keep the first home they have owned for most of the 5½ years they have been in it.

"We're just trying to live the American dream," said Koritz, who hasn't made a mortgage payment since July 2008.

He initially had tried to renegotiate the loan but says the bank told him it couldn't do anything unless he was delinquent.

Although Koritz is reluctant to pin his hopes on Bank of America having a change of heart, Adams says he's optimistic because of what the groundswell of opposition to lending practices already has accomplished.

"We're acting on the knowledge that this is happening across the country," he said. "People are shining a light on their case and -- lo and behold -- the bank will take a look and end up working something out."

That's exactly what Bank of America has been doing, said media relations director Britney Sheehan, noting that the company has made more Home Affordable Modification Program loans than any other lender.

The bank has processed about 200,000 of those loans in California alone since the housing crisis began in 2008, she said.

Moreover, Bank of America works with nonprofits like the housing counseling agency NACA to prevent foreclosures and has opened dozens of customer assistance centers in the hardest hit housing markets around the country -- it's opening one in San Mateo in the next few weeks -- where homeowners can talk to mortgage specialists about their loan, Sheehan said.

It's not in the bank's interest for customers to lose their homes, she said.

"While some would have the public believe that banks make a profit on foreclosures and evictions, the truth is that the process is tremendously costly for all parties," she said.

NY Fed joins Investors demanding B of A buy back Mortgages

The Washington Post

The Federal Reserve Bank of New York has joined a group of investors demanding that Bank of America buy back billions of dollars worth of mortgage securities that are plagued with shoddy documentation and lending standards, according to people familiar with the matter.

Some of the most powerful investment groups in the country as well as the New York arm of the central bank are accusing one of Bank of America's major mortgage divisions of cutting corners when it was issuing mortgages during the housing boom and as it has been foreclosing on struggling borrowers during the bust.

If Bank of America refuses to comply, these investors could end up suing, a person familiar with the matter said.

The demand from the New York Fed and other investors sets up an unusual and high-stakes confrontation, pitting an arm of the federal government against the country's biggest bank. It also illustrates conflicting policy priorities, because it could put the Fed at odds with a bank the Treasury Department has been helping through the financial crisis over the past two years.

With this new confrontation, the government finds itself in the awkward position of being an unhappy private investor pressing for its rights to be enforced. The New York Fed holds roughly $16 billion of mortgage securities that it acquired after it bailed out American International Group.

On Tuesday, Bank of America dismissed concerns that investors will drag the bank into court for years with costly lawsuits.

"We don't see the issues that people [are] worried about, quite frankly," chief executive Brian Moynihan said in a conference call Tuesday as the bank reported a $7.3 billion third-quarter loss.

But against a backdrop of accusations that banks did not properly foreclosure on homes, a growing number of bondholders are ramping up attempts to recoup their losses from mortgage securities they bought from banks. These securities plummeted in value as home prices dropped and a massive wave of borrowers fell behind on their payments.

Attorneys for the group of investors say that affiliates of Countrywide Financial, which was bought by Bank of America in 2008, failed to service the loans as promised after the investors bought a large swath of a $47 billion offering of mortgage loans.

These investors, which also include Blackrock, Prudential, MetLife and Pimco, argue the banks have not kept accurate paperwork on the loans that were sold, a charge being investigated across the nation as details have emerged that banks may have taken shortcuts to save money and time. These concerns have prodded a handful of banks, including Bank of America, to temporarily halt foreclosure sales.

The big investment firms - which manage funds from endowments, pension funds and others - say they have also been upset that Treasury and the banks have been too quick to restructure mortgages, which hurts investors. Yet the department has left largely untouched consumer debt and home equity loans owed to the same big banks at the heart of the lending and foreclosure debacles, according to a senior executive at one of the investment companies.

Now that new document problems have emerged, one senior executive said, investors are able to allege that Countrywide didn't even own the mortgages it sold and was in violation of local real estate laws. As a result, he said, Bank of America is responsible for repurchasing the securities and paying the investors in full.

Investors' fear, he said, was that "the politicians creating noise about mom and apple pie and the servicing industry will agree to all sorts of things to do right by the borrower, and the person who pays the ultimate cost is the investor."

Headlines about flawed foreclosures have added momentum for the small group of investors who have been threatening legal action for years against the banks.

"We've signed up many new investors," said Tal Franklin, an attorney. "People have realized that we're here and just didn't know it before."

Blackrock, Pimco and the New York Fed declined to comment. MetLife and Prudential did not return calls for comment.

On Tuesday, Bank of America said its quarterly loss was driven mainly by a $10.4 billion write-down in the value of its card services business as a result of new federal limits on debit card fees.

The company said it ended the third quarter facing $12.9 billion of claims that it should repurchase mortgages that it misrepresented.

Courts are hashing out the complex legal questions surrounding the way judges review foreclosures. On Tuesday, an emergency measure approved by Maryland's highest court empowered judges to bring in outside experts to review questionable papers.

"Nothing in this rule mandates any particular action by the court," said Alan Wilner, chairman of the Maryland Standing Committee on Rules of Practice and Procedure. "This flexibility is essential, because the context and circumstances may be different from case to case."

Bank of America Reports $7.3 Billion Loss, Citing Charges

NY Times

 

Bank of America, the nation’s biggest bank, announced Tuesday that operating profit rebounded in the third quarter, helped by improved credit conditions among consumers and businesses.

On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.

Without the one-time charge, the bank earned $3.1 billion, or 27 cents a share. Wall Street had been expecting earnings of 16 cents a share, according to Thomson Reuters.

Analysts said the improving credit environment was a healthy sign, both for the bank and the broader economy. The bank set aside $5.4 billion in the quarter for credit losses, $2.7 billion less than the previous quarter and $6.3 billion less than the period a year ago.

“The biggest thing is that credit quality improved way more than anybody thought,” said Chris Kotowski, an analyst with Oppenheimer & Company. “That is the holy grail — anything else you can deal with. The one thing that kills value for banking institutions is when credit quality spirals out of control, so this should be the key to the stock doing well for the next year or two.”

Indeed, a substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, as the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.

In recent days, Bank of America shares have been hammered as investors worried about the impact of legal challenges to home foreclosures. After halting foreclosures across the country, Bank of America said Monday it was resuming the process in 23 states where court approval is required for a foreclosure to proceed.

One critical worry over the last week was that investors would force the bank to repurchase now-toxic mortgage backed securities, arguing that they were put together improperly.

These so-called “put-backs,” some analysts warned, could total tens of billions of dollars, undermining earnings for years to come. But the $872 million charge recorded for put-backs in the quarter indicates the threat is manageable, Mr. Kotowski said.

In the same quarter a year ago, Bank of America reported a loss of $2.2 billion, or 26 cents a share.

“We are adapting to the regulatory environment, credit quality continues to improve, and we are managing risk and building capital,” the chief executive, Brian T. Moynihan, said in a statement. “We are realistic about the near-term challenges, and optimistic about the long-term opportunity.”

Bank of America became the third major bank to report third-quarter earnings. JPMorgan Chase reported a $4.4 billion profit for the third quarter while Citigroup reported earnings of $2.2 billion, its third profitable quarter in a row.

Foreclosure Probe by 40-State Coalition Expected

LA Business

About 40 state attorneys general are expected to announce a joint investigation into faulty foreclosures as early as Tuesday morning, following Monday’s Columbus Day holiday.

Several media outlets are reporting the anticipated investigation, which would place further pressure on the nation’s largest banks to follow Bank of America’s lead in declaring a nationwide foreclosure moratorium.

Lenders face mounting criticism over how they’re handling home foreclosures, often using automated processes to speed completion of the documentation needed to recover possession of homes from delinquent borrowers.

Iowa Attorney General Tom Miller is leading talks with his counterparts in other states to announce the probe as soon as Tuesday, Bloomberg News reported over the weekend, citing a source with direct knowledge of the matter.

Bank of America said Oct. 8 that it was halting foreclosures in all 50 states. No timetable for resuming foreclosures was provided by the bank, but it’s hard to imagine the nation’s largest bank triggering a tsunami of foreclosures ahead of Santa’s arrival.

Previously, BofA, J.P. Morgan Chase & Co. and Ally Financial, formerly GMAC, all agreed to foreclosure moratoriums in the 23 states that require judicial review as part of the foreclosure process. California is not one of those states.

Bank of America’s decision to halt all foreclosures nationwide is likely to be followed by other large banks as they face growing political pressure.

But on Oct. 8, Wells Fargo said it has no plans to halt foreclosures.

Also that day, Senate Banking Committee Chairman Christopher Dodd said he will hold a hearing on Nov. 16 to investigate allegations of improper and fraudulent mortgage servicing and foreclosure proceedings.

“American families should not have to worry about losing their homes to sloppy bureaucratic mismanagement or fraud,” Dodd said.

Moynihan Says Challenges Only Beginning for B of A

USA Today

 

 

CHARLOTTE — In his first 100 days on the job, Bank of America CEO Brian Moynihan has won over analysts, surprised consumer advocates and angered politicians.

His encyclopedic knowledge of the bank has earned him the respect of prominent analysts such as Dick Bove, who once questioned whether Moynihan was the right choice to steer BofA through unprecedented industry and economic turmoil.

His rollback of aggressive bank fees has elicited shock — and applause — from consumer groups who had long blasted such fees but become accustomed to the industry doing little about them.

And his unwillingness to demonize the bank's controversial acquisition of Merrill Lynch has irked critics pressing for answers about the deal.

It's all in a day's — well 116 days, to be exact — work for Moynihan, a fiercely competitive, sometimes fast-talking executive who took the bank's helm shortly after it repaid $45 billion in government TARP funds and its former CEO Ken Lewis retired amid outcry about the Merrill deal.

The new CEO says he's aware his challenges are only beginning.

"When you're in the middle of a very difficult time, what you need to do is pretty obvious," says Moynihan, a boyish-looking 50, in an interview at his office on the 58th floor of BofA's Charlotte headquarters. "The harder part of success is in calmer times. You have to be more disciplined, more focused."

Part of the challenge for Moynihan going forward will be streamlining the operations of Merrill and mortgage lender Countrywide, two prominent casualties of the financial fallout that have been absorbed into BofA. Another will be improving the health of the bank's business lines, even as regulatory measures threaten to crimp the company's earnings.

But perhaps the bank's most daunting task will be to regain the public's trust after the implosion of Wall Street-created exotic instruments that helped plunge the nation into recession, gutting Lehman Bros. and bringing other competitors close to collapse.

For now, BofA's latest financial results are a welcome sign that normalcy might be returning. In the first quarter, BofA returned to profitability with $3.2 billion in net income, easily surpassing analysts' expectations. A record $7 billion in trading revenue — helped by the Merrill Lynch acquisition — bolstered the company's results. Overall, BofA made money on all its major business lines except home loans.

Moynihan believes that by expanding customers' ties to the bank, BofA will be able to ramp up its profits as the economy recovers.

"Last year was a year ... to get through the recession," says Moynihan. "This is a year that we're moving forward."

Terry Murray, the former FleetBoston chairman who gave Moynihan his first banking position in the 1990s, believes the new CEO has taken an important step in getting the company back on track: "He's settled the troops."

Small-town boy

Moynihan grew up as the sixth of eight children in an Irish-Catholic family in Marietta, Ohio, an enclave of about 15,000 nestled in the Appalachian foothills.

Having seven siblings, Moynihan says, gave him a "unique background in understanding what competition is," a lesson he's been able to apply as he climbs the corporate ladder. Moynihan also learned he had to talk quickly to get his point across, a habit he's found hard to shake as a corporate executive.

Even as a young boy, he was "very serious," recalls Carolyn Armor, his third grade teacher at St. Mary Catholic Elementary School in Marietta.

He was also very determined. "A lot of the kids towered over him, but that didn't deter him one iota. He tried all the sports," says Armor, who recently wrote a letter to the CEO saying she always knew he'd do great things.

Moynihan's love of sports continued through middle school and high school, where he participated in track and football. While he wasn't a star athlete, he understood the game, was coachable and played aggressively, said Rich Hahn, his football coach at Marietta High School.

He was also known to family and friends as a problem solver.

Former classmate Bill Stacy says that when they were growing up, Moynihan always found time to help him with his algebra, geometry and calculus homework.

"I remember going down to the basement and calling him late on my black rotary phone," says Stacy, 51, now the president of Biomedical Solutions, a Stafford, Texas, provider of laboratory equipment. "He would explain the (math) problem two or three times. If I didn't get it, he would pause, then come at it from a different angle."

In high school, Moynihan also seemed more comfortable in his own skin than many of his peers. Stacy remembers a school talent show where he dressed up as Kiss rock band singer Gene Simmons and Moynihan took on the role of guitarist Ace Frehley, donning heavy makeup, glitter and 5-inch wooden heels glued to the bottom of his sneakers.

"You've got to have pretty good self-esteem to do that," says Stacy.

Moynihan's self-confidence — along with a healthy disregard for his appearance — have endured through the years.

As a young lawyer fresh out of Notre Dame law school, Moynihan would come into work "looking like he'd been mugged," with cuts over his eyes from a rugby game the night before, says James J. Skeffington, a partner at Edwards Angell Palmer & Dodge law firm in Providence. Yet, while he played hard, he'd also work longer hours than many of his colleagues, Skeffington says .

As a bank executive, Moynihan has been known to attend meetings with colleagues or analysts looking rumpled and tousled, a stark contrast to his predecessor, Lewis, who was known for being impeccably dressed.

Moynihan "doesn't care about his appearance, that his tie is askew, his hair is on fire," says Nancy Bush, head of NAB Research. "He cares about what he does at the meeting."

Focused on knowledge

The new CEO "knows his stuff soup to nuts, and expects you to know your stuff also," says Anne Finucane, BofA's global strategy and marketing officer, who has worked with Moynihan for about 15 years.

"His strength is his great ability to focus," agrees Bush. "His weakness is sometimes his public presentation, because he thinks a lot faster than he can talk."

Analysts say this weakness came out during a recent congressional hearing, when Moynihan was grilled about BofA's purchase of Merrill Lynch — and his answers were seen as somewhat evasive. (He was BofA's general counsel when the deal closed.)

For his part, Moynihan points to the improvement in the bank's earnings as a sign of the deal's merits.

"I think that people, when they look at the idea of Bank of America and Merrill merging, they couldn't get that (the deal) could work," says Moynihan. "If people look at the objective facts now, from how we're actually performing, this has been a strong success."

Nevertheless, the merger has been the subject of regulatory scrutiny and shareholder lawsuits related to BofA's disclosure of Merrill's financial losses and employee bonuses. Public outrage about the transaction — along with concern about government bailouts of banks blamed in part for precipitating the financial crisis — have fueled discussions in Congress about how to rein in the size of "too big to fail" banks.

Moynihan says he believes banking reform is needed to "move the company forward, to move the industry forward and to move the country forward."

He points out that BofA has made consumer-friendly changes to its credit card, debit card and mortgage policies. The bank even said at a recent meeting with consumer advocates that under certain conditions, it would support the creation of an independent Consumer Financial Protection Agency. (Previously, it's implied only that it would not oppose this agency.)

Even so, Moynihan's been clear about one reform effort he can't back: Any proposal that will impair banks' global competitiveness by making it harder for them to conduct their array of business operations.

Moving away from mass market?

Moynihan says, though, that after decades of gobbling up competitors — his paternal grandfather worked at a small upstate New York bank that has been rolled up into BofA — the bank is done with acquisitions for "many years" to come. Now, his challenge is to grow BofA's businesses organically.

Analysts say that the CEO's recent trip to China — after just three months on the job — signals that he intends to pursue overseas growth more aggressively than his predecessors. Already, BofA owns a minority stake in China Construction Bank and hopes to get a securities license in China in the next few years.

"He recognizes that for every person inside the United States, there are 10 people outside," says Bove, a bank analyst at Rochdale Securities. "The income and wealth of people outside the United States are expanding much more rapidly."

In the U.S., BofA will focus more on its corporate and capital markets operations, Bove predicts. He says the bank will likely maximize profit margins by shrinking its operations — closing branches and shedding a few hundred thousand mass market consumers. Many of those consumers, the analyst argues, have become less profitable due to restrictions on credit card and overdraft fees.

BofA has said it expects to take about a $900 million hit to its bottom line in 2010 due to credit card restrictions. Its service charges will be roughly another $1 billion lower this year due to changes it has voluntarily made to its overdraft policies, as well as those made to comply with a new Federal Reserve rule.

Martin Eakes, chief executive of the Center for Responsible Lending, a consumer advocacy group, says he's been impressed by the bank's promise to "serve customers in the right way." Still, he points out, "The proof will be in the pudding."

The bank, on an analysts' call this month, said it would "mitigate" lower service charge income by considering moves such as imposing account maintenance fees. Michael Moebs, founder of economic research firm Moebs Services, says it's clear to him that BofA is "moving away from the little guy on the consumer side and the really small businesses."

Responding to speculation that the bank is looking to shed unprofitable customers, Moynihan says only that it plans to continue being the largest in the U.S. to serve the mass market and the wealthy.

"A mass market consumer today may be a wealthy consumer in 10 years," Moynihan explains. "Mass market consumers are core to what we do."

Bank of America Goes on Offense

As posted by: Wall Street Journal

Bank of America Corp. reported a fourth-quarter loss of $1.79 billion Friday and went on the offensive to answer critics and shore up support for the giant Charlotte, N.C., lender during a time of crisis.

The loss, the first for Bank of America since its predecessor NCNB Corp. posted a loss in 1991, was down from a net income of $268 million a year ago. It came on the same day details emerged of a new agreement with the U.S. that provides Bank of America with $20 billion in additional federal aid and loss protections on $118 billion in toxic assets.

Bank of America maintains it went back to the government for more support because of larger-than-expected fourth-quarter losses at Merrill Lynch and that the problems came to light after shareholders approved the Bank of America-Merrill combination on Dec. 5. But 25% of the protected asset pool belonged to Bank of America, Chief Financial Officer Joe Price said Friday, a signal that the problems weren't tied strictly to Merrill's disintegration.

The nation's largest bank by assets continues to be weighed down by rising credit costs linked to the economic downturn and an array of problems confronting U.S. borrowers. It set aside $8.54 billion for bad loans in the fourth quarter, up from $3.31 billion a year earlier. Loans written off as unpaid nearly tripled, to $5.54 billion.

It also reported write-downs and trading losses in its capital-markets business, including losses on collateralized debt obligations of $1.7 billion and write-downs on commercial mortgage-backed securities of $853 million.

Investors sent the stock down 14% Friday, to $7.18, undermining the bank's effort to shed the best light on its situation by rushing out the release of its earnings earlier than expected and issuing a memo Thursday to employees titled "Bank of America Remains Strong." Shares fell 18% Thursday.

Chief Executive Kenneth Lewis "has very little credibility with the investor public right now," said Paul Miller, analyst with Friedman Billings Ramsey Group Inc. in Arlington, Va.

Mr. Lewis's credibility among employees may also be suffering. Many are angry not only at how the losses were handled but also that just last week they were issued compensation in the form of shares worth $14.33 apiece, said people familiar with the situation. Several employees questioned how the company could have issued the shares in light of the past week's news, these people said. Bank of America declined to comment.

"While these earnings and these businesses in some cases are substantially lower than earnings in normal times, they're still profitable, even with the significant increases in credit costs, lower customer activity and other market headwinds." --Ken Lewis, Bank of America CEO
Read the full transcript of Bank of America's conference call, provided by Thomson StreetEvents (www.streetevents.com). (Adobe Acrobat Required.).

Executives at both Bank of America and Merrill have indicated the losses at Merrill ballooned in mid-December, leading to a meeting between Mr. Lewis and Treasury Secretary Henry Paulson on Dec. 17. However, the market for various credit-related products began to deteriorate in mid-November, leaving many Merrill insiders to ask what Merrill CEO John Thain knew, and when.

Merrill lost $15.3 billion during the period, and the run-up in losses was concentrated in the firm's sales and trading department, run by Tom Montag, who was hired by Mr. Thain in 2008 to run that division. The two frequently told the firm's other top managers that the losses, while significant, were largely connected to so-called legacy positions at Merrill and the losses were "market-related" and not out of step with Wall Street.

Friday, some top executives and members of Merrill's board questioned privately why they weren't told about the magnitude of the losses or that the deal was possibly in jeopardy. Mr. Thain declined to comment on whether he knew about the Dec. 17 meeting between Messrs. Paulson and Lewis.

Merrill incurred large losses during the fourth quarter from derivative trades with thinly capitalized bond-insurance companies whose financial health deteriorated considerably last year. Many of the derivative contracts were written to cover periods of more than 20 years, which meant the bond insurers wouldn't be on the hook for significant cash payouts for years.

Mr. Lewis rejected the suggestion Friday that he and his team didn't conduct enough due diligence. "We did not expect the significant deterioration in mid to late December that we saw," he said on a conference call with analysts.

Despite the need for more capital and the cutting of the bank's quarterly dividend to a penny, from 32 cents, the consumer-banking and wealth-management operations performed well in the fourth quarter, Mr. Lewis noted. The company made $115 billion in new loans during a time of crisis, he added.

Meanwhile, Merrill said on Friday it will pay $550 million to settle shareholder lawsuits claiming it failed to inform investors about the risks associated with its business in the subprime-mortgage market.

Merrill "vigorously disputed" the allegations, but agreed to pay $475 million to settle a suit brought by the Ohio State Teachers' Retirement System, and another $75 million to Merrill employees who held company stock in retirement programs.