A chastened BankAmerica makes slow, sure comeback
No one believed it could be done, but it appears that BankAmerica Corporation, the troubled San Francisco-based financial giant, is slowly but surely coming back. It's not out of the woods yet, but the beleaguered bank is showing the strongest signs of advancement ever, since that momentous day in September 1986 when the bank was rumored to be on the verge of collapse.Skip to next paragraph
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The progress in 1988 has been solid. After losing close to a billion dollars last year, Bank of America (also known as B of A) is expected to end the year with a sharp improvement in earnings. For the first year since 1984, the bank will show a profit. This follows eight consecutive quarters of improvement in operating results, including five that have been in the black.
Indeed, there is a bullish wind adrift these days about the bank's prospects.
``I was a bear for a long time on B of A,'' says Michael Abrahams, senior bank analyst at Bateman Eichler, Hill Richards Inc. in Los Angeles. ``Now I'm a bull.'' Not that there aren't risks, he adds, but he says the new management team has done quite a job at turning the bank around.
Wall Street apparently agrees - the stock has moved steadily upward throughout 1988 and is expected to triple by year's end. It has gone from 6 in January, reflecting its post-plunge valuation, to 18 in October. ``If nothing blows up south of the border, the stock could be in the low to mid-20s by the end of the year,'' Mr. Abrahams says. ``For people who can take the risk, that's really cheap.''
Analysts are basing their optimistic 1988 forecast on the expectation that the bank will recognize $300 million in back interest from Brazil in the fourth quarter. Recognition of these payments resulting from the September debt accord could balloon earnings per share to an estimated $2.90, from 97 cents in the third - and give the bank a good boost for the year.
But some analysts note that the recovery would not seem so large without income tax credits the bank received from prior losses. Without a $45 million tax credit, they say, BankAmerica's return on each dollar assets would have been just 0.6 percent because of high costs and nonperforming assets. This contrasts with a 1.16 percent for its California competitor, Wells Fargo & Co.
Still, it is an amazing comeback story in banking history that a bank that fell as far as BankAmerica did could spring back so fast. Barring a recession or a major default by the less-developed countries, all signs point to continued progress in the next year. Major achievements have been made in reducing loan losses, trimming overhead expenses, and improving operational efficiencies.
A key part of the turnaround strategy has been to concentrate narrowly on traditional California markets rather than continuing to develop a grand global strategy. Offices in places like Abu Dhabi, United Arab Emirates; Asunci'on, Paraguay; La Paz, Bolivia; and Nairobi, Kenya, are gone, as the bank has rediscovered California.
``They're refocusing on areas where they feel they have real strengths,'' says Abrahams, ``instead of trying to be all things to all people.''
BankAmerica, many say, was a victim of its own grandiose vision of global empire and the drive to become the largest bank in the world. But rapid, uncontrolled growth took its toll on internal systems and operations. By 1986, the bank was widely viewed as the basket case of the financial world, having lost major market share to aggressive California super-regionals like Wells Fargo Bank and First Interstate Bank.
Even today, Bank of America has not regained the market share it lost in the California middle market - now 28 percent versus 38 percent a decade ago. ``But they appear to have stabilized their California market share,'' says Lawrence Cohn, a bank analyst at Drexel Burnham Lambert Group in New York. ``They've stopped the erosion - and that's a major achievement.''