BofA pulls back from investment banking

BY DAVID SPEAKMAN

Looking at recent news churned out by Bank of America’s PR machine, it’s hard to tell the San Francisco-founded bank once dominated corporate financial services in Silicon Valley.

The bank, now based in Charlotte, N.C., is reducing its investment banking portfolio, cutting staff and slashing its corporate loan portfolio in half.

In a recent meeting with analysts, the banking giant said its focus is on improving earnings growth and productivity through what it calls “traditional banking.” And, it said it plans to cut billions from its corporate and investment banking portfolio over the next few months.

As for those press releases, the emphasis on traditional banking is perhaps most evident by the bank’s touting of a major expansion into the Chicago consumer banking arena, which is now dominated by Bank One.

In comparison, the company is relatively quiet about its involvement in tech-related corporate and venture funding.

For instance, there was no press release in the closing days of November when Bank of America Capital Partners was part of a $3.5 million funding round for European startup Plastic Logic, which is developing semiconductors based on plastic — not
silicon.

Looking forward to 2003, Bank of America CEO Kenneth Lewis told reporters during a Dec. 3 investor Webcast that the weakness in investment banking will continue.

Lewis said he thinks 2003 “will be another year where we will be very focused on expense controls and getting productivity gains so we can reinvest in these businesses when they come back.”

He said his company has a goal to squeeze out $1 billion in productivity savings in 2003.

“To say this management team is focused would be an understatement,” says Susan Roth, a New York-based equity research analyst with Credit Suisse First Boston.

After meeting with BofA management recently, Roth came away with numbers that show a major shift in the bank’s Global Corporate and Investment Banking (GCIB) division operations, which could be sobering to Silicon Valley.

In its most recent quarterly report, Bank of America said its GCIB unit’s profit fell 18 percent from last year to $428 million on revenue of $2.04 billion.

Squeezing out productivity, so far, over the past two years has meant BofA slashing GCIB headcount by 12 percent, or eliminating about 1,000 jobs.

As for that reinvesting in its investment banking business, Roth says BofA plans to trim employee compensation and bonus packages. She says that cost savings will most likely be the money reinvested in GIBC.

As for its corporate loans portfolio, Roth says BofA has about $60 billion in outstanding corporate loans, down from its $100 billion peak in August 2000.

Bank of America said recently that it expects to trim an additional $10 billion off its outstanding loans within the next 12 to 18 months.

According to New York-based Goldman Sachs analyst Lori Applebaum, that could mean BofA taking quarterly charges of up to $100 million on bad loans until its portfolio is trimmed sufficiently.

Long term, BofA says it expects a 10 to 12 percent growth rate from its investment banking business, which it sees coming from equity holdings and mergers and acquisitions — not corporate loans.