Rise and fall of America's big bank


Boston: Little, Brown

Illustrated, 363 pp. $18.95.

BIOGRAPHY as popular history is hardly a new concept: Millions of college-age students have probably garnered most of what they know about New Deal America from their readings of historian Arthur Schlesinger Jr., in his treatment of Franklin Delano Roosevelt.

Corporate biography as popular history, by contrast, is still somewhat unusual, in terms of reaching vast numbers of people. Granted, the genre is not new. Back at the beginning of the 20th century, muckraker Ida Tarbell shocked the sensibilities of much of middle-class America with her critical history of the Standard Oil Company. But corporate studies have by and large been ignored by the general public, which has left the field to academics. The public now takes its cues about the corporate world from television programs such as ``Dallas,'' or from occasional pop-reminiscences, like the writings of Lee Iacocca and Donald Trump.

Thus, when a truly outstanding corporate biography comes along, it deserves to be read. Such is the case with ``Breaking the Bank: The Decline of BankAmerica.'' The book, although focusing on the largely self-inflicted traumas of one large US banking institution, the San Francisco-based Bank of America, is in many ways a case study of how much of corporate America lost its competitive and intellectual edge in the 1970s and '80s. And if the general reader tends to consider corporate leaders (especially bankers) as somewhat ... well ... bland or passionless, think again. The brutal rivalries and relentless struggles found at BankAmerica - although hidden behind a fa,cade of corporate charm - are equal to anything seen on evening TV.

``There were black hats at BankAmerica,'' says Gary Hector, ``men who sat idle for too long at the highest levels of one of the nation's best known companies, men who accepted large salaries and tremendous responsibility for running a corporation and failed in their duties. They have gone on to other high-paying posts or retired with generous benefits. The people who paid most dearly for these mistakes are the shareholders and employees of BankAmerica who lost their income, jobs, and, in many cases, their pride. Those losses cannot be regained.''

Hector, a well-regarded business journalist, has written for Fortune and the American Banker. One of his most impressive achievements is making the reader care about this particular corporate behemoth, the giant BankAmerica. And rightly so.

The bank itself, we come to find, grew out of the populist origins of its founder, Amadeo Peter Giannini, a first-generation Italian-American. ``Giannini,'' writes Hector, ``brought democracy to banking. He built a bank to serve `the little fellow,' just as Henry Ford had built a company to produce automobiles for Everyman.''

A strapping bear of a man at 6 feet 2, Giannini was a fruit-seller who knew nothing about banking. But he did know about hard work, usually being already at work on the San Francisco docks while most people had not yet gotten out of bed. Giannini also knew people. And he knew how to sell. Thus, he established a bank in part to meet the needs of his own Italian-American people, many of whom were considered ``unbankable'' by the gentry that ran banking in the Bay Area at the turn of the century.

Giannini opened his small Bank of Italy in the North Beach area of San Francisco on Oct. 17, 1904. The bank flourished. He made loans, sometimes as little as $25, to ordinary folks and small-business men who would have been turned away immediately by the larger banks. After the San Francisco earthquake, on April 18, 1906, Giannini told business and city leaders, ``I am putting a desk on Washington Street wharf with a Bank of Italy sign over it. Any man who wants to rebuild San Francisco can come there and get as much cash as he needs to do it.'' Hundreds of local residents, says Hector, saw their dreams restored by loans from Giannini's bank, and, in the process, developed a loyalty that would stay with the bank, which later changed its name to Bank of America, for generations.

Within 40 years Giannini's bank became the biggest bank in the United States - and the world. Along the way, it revolutionized banking. It was the first US commercial bank to introduce statewide branch banking. It diversified into auto insurance, mortgage banking, investment banking. The bank's own credit card is the direct forerunner of today's Visa card. And it was Bank of America that provided the financial backing for a risky depression-era film venture from Walt Disney, ``Snow White.''

The transformation from Giannini's ``people's bank'' to the gentrified Bank of America of the 1960s, '70s, and '80s occupies the main portion of Hector's book. Giannini's populism was replaced by the conservatism of his successors, somewhat more traditional bankers, such as A.W. Clausen and Samuel Armacost. Clausen, who is once again running the bank after a stint at the World Bank, and Armacost, who was finally fired by the board in a momentous meeting in October 1986, quickly become the villains of this book. It was they, and particularly Armacost, who pushed a series of ill-fated loans to giant corporations as well as overseas loans to third-world debtors.

Yet, management was poorly trained to carefully monitor such loans. The crunch finally hit when domestic and overseas bankruptcies in the 1980s found the bank overextended, with inadequate loan loss reserves.

Ironically, during this same period the bank that had been established precisely to aid the disenfranchised and powerless found itself targeted by militant radicals as the bank of the rich and powerful. Nor was that perception without some validity. This reviewer recalls, as a young reporter in the 1960s in San Francisco, the awe he felt venturing into the Bank of America's ornate corporate headquarters. Dockworkers and $25 loans were definitely out. At the Bank of America, pin stripes and vests were definitely in.

Today, BankAmerica has been surpassed as the largest US commercial bank by Citibank, in New York. The Gianninis, in another ironic twist, were once the largest shareholders in Citibank's parent company, Citicorp. But the tides have turned against US banks in general. Japan, not the United States, now boasts having the largest commercial banks.

And while the biggest US commercial banks have been adding to their loan loss reserves to offset dubious overseas loans, many smaller regional banks, such as Bank One, in Ohio, have become the banks of the average consumer, the very people once served by BankAmerica.

Hector is gloomy about BankAmerica's future, concluding that the bank will probably eventually find itself split up, and substantially downsized. Perhaps that will happen, although the bank has begun to show a turnaround. One can only wish this particular bank well, given its remarkable past, and its longtime eagerness to put the American consumer first.

BankAmerica is an American institution whose unhappy decline says much about the mistakes of corporate America in the postwar period - its excess, its overreaching, its inattention to the bottom line. Hector's outstanding corporate biography deserves the widest possible readership.

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