America is the second largest bank in the U.S.

today. Shares of the company have seen

astonishing gains of over 290% in the last

decade.

Bank of America is truly massive.

They've got something like two trillion in

deposits and another trillion dollars in

loans. They have one of the world's largest

wealth management firms, and they're a commercial

bank of pretty good scale. And all of that's

under one roof under the Bank of America roof.

But Bank of America's rise to success has been

anything but smooth sailing.

The 2008 financial crisis pushed the bank to

the brink of collapse.

It was a loss so catastrophic that it

required a $45 billion bailout from the U.S.

Treasury.

Bank of America was one reason why much of the

investing public and consumers and government

lost faith and trust in banking.

If the government did not intervene for Bank of

America and the other banks, Bank of America

would have failed.

Fast forward to today, Bank of America is

thriving despite concerns over inflation

and threats of a possible recession.

The bank reported a net income of $31.9 billion

in 2021, compared to just $4 billion in 2008.

As the rates have gone up and if the recession is

shallow, then we're going to see widening

spreads and the ability of Bank of America to

have a significant earnings from net

interest income.

This is unique to the banking industry.

And Bank of America being one of the largest

banks stands to benefit the most.

So how was Bank of America able to stage

such an impressive comeback? And where is it

headed next?

Bank of America's Story dates back to 1904, when

Amadeo Giannini founded the Bank of Italy, which

sought to provide banking for working

immigrants facing discrimination.

Bank of America's original business model,

when it was still Bank of Italy in 1904, was

this notion of finding underserved individuals,

groups and communities.

The immigrant community in San Francisco at that

time was not welcome in the established banks, so

most of them kept their extra cash, if they had

any, in mattresses or mason jars in their

apartments. A.

P. Giannini knew that this money wasn't earning

interest, and so he went to the people he knew

from his years working on the wharf and said, if

you will deposit your money with me, I will pay

you a small amount of interest every month.

Bank of America was the first bank to establish a

statewide branching system which allowed it

to rapidly expand across the state of California.

From there, the company began relying on

acquisitions to grow across the nation.

There is a very ambitious young banker named Hugh

McColl, who in the eighties and nineties

basically tried to create his own version of

what Bank of America had on the West Coast, which

is essentially gobbling up competitor banks in

the southeast region.

So in 1998, Hugh McColl leads the acquisition of

Bank of America. So this was essentially

NationsBank, his institution, which was

the roll up of the Southeast acquiring Bank

of America on the West Coast.

So for the first time, you had the

coast-to-coast branch network.

Today, Bank of America has grown to become a

giant in the banking industry.

It is the seventh largest bank in the world

based on total assets and the second largest in

the United States, serving approximately 68

million consumers and small business clients.

Bank of America has four main divisions.

They've got the consumer bank, they've got the

Wall Street division, they've got an asset

management division, and they've got a commercial

banking business.

But you could really kind of divide what they

do into two big buckets.

The first bucket is interest income.

Retail banking still remains Bank of America's

main focus and source of revenue, contributing to

more than a third of its net income.

Bank of America held more than $1 trillion in

average deposits from retail consumers during

the third quarter of 2022.

Bank of America is a powerhouse in retail

banking. They increased their deposits equal to

the size of the sixth largest bank over the

last two years. There's no press release, no

merger announcement. This was all organic.

They are making spreads or what is called net

interest income off of the difference between

what they offer as a deposit rate and then

minus the cost of funds that they have either

through the markets or the Federal Reserve.

In the third quarter of this year, in fact, they

made about $14 billion in net interest alone.

The other bucket is something that is

referred to as fees, which really is inclusive

of a wide variety of things. So everything

from overdraft fees, credit card, to advisory

fees for advising on huge M&A deals.

You know, in the third quarter, they made about

close to $11 billion in non-interest income.

Bank of America found itself on the brink of

collapse just more than a decade ago.

Shares of the bank were trading for as low as

$2.53 in 2009.

And net income dropped from a high of $21

billion in 2006 to just $4 billion in 2008.

The financial crisis was catastrophic because it

was a perfect storm where banks were taking

very high speculative risk in certain areas of

lending, and the government oversight or

regulation really did not keep pace with

complex markets.

The whole industry essentially started to

maximize leverage, started to kind of push

the boundaries. All of this is based on the

premise that housing in this country would never

decline, that housing prices in this country

would never fall. What we saw was that, sure, it

could fall and it could collapse.

The ill-timed acquisitions of several

companies, including Countrywide Financial

Corporation and Merrill Lynch, only added fuel to

the flame.

Bank of America participated in a broader

merger mania.

In 2005 it acquired MBNA, the credit card giant,

and in that process took on a whole bunch of bad

consumer debt. In 2008, Bank of America acquired

Countrywide Financial.

Countrywide had been implicated in the

mortgage crisis.

Countrywide had also engaged in predatory and

racist lending practices. And when Bank

of America took that on, it took on a huge burden

of debt and that sort of toxic environment and

toxic asset that in many ways dragged the bank

down. And then, of course, in 2008, Bank of

America acquired Merrill Lynch.

Mortgage derivatives, CDOs, brought down

Merrill Lynch to almost failure before Bank of

America stepped in.

After that acquisition, Bank of America had to

digest both Countrywide and Merrill Lynch while

dealing with its own problems and talk about a

headache, talk about ill-timed acquisitions.

As a result, Bank of America saw provisions

for credit losses rise from just $5 billion in

2006 to more than $48 billion by the end of

2009. After the recession ended, Bank of

America also faced legal problems stemming from

its various acquisitions, one of

which led to a historic $16.65 billion

settlement, holding the bank responsible for

financial fraud during the 2008 financial crisis

. Bank of America was unavailable to

participate in this documentary.

Bank of America paid $4 billion for Countrywide

in 2008, and the final price tag, including all

legal costs, was probably 15 times that

close to $50 to $60 billion.

To put that in context, that's more than the

tangible equity the entire Bank of America

had at the time in 2008.

Ultimately, the Treasury Department stepped in to

provide $45 billion and a guarantee of protection

for potential losses to help Bank of America

through its struggles.

Warren Buffett also played a pivotal role in

boosting confidence in the bank.

I recall talking to Warren Buffett about ten

years ago for a magazine piece I was writing about

B of A. It really struck me how he loved their

deposit base.

He thought that was their killer advantage.

Their coast-to-coast network of branches

provided such cheap funding that this is

really the reason why he decided to invest at the

time and ultimately decided to save the

industry by investing 5 billion back into 2011.

But the hard-learned lessons from the

financial crisis have led Bank of America to

undergo significant changes.

The big change at Bank of America is that they have

gone from irresponsible growth to responsible

growth.

What they really decided to do after that was say,

look, we've got a complete franchise, we're

big in all the product lines we want to be in.

We have the scale we need to.

Now we just need to make it run and make it work

together.

A more conservative lending standard is just

one example of the bank's aim for

sustainable growth.

One key aspect of Bank of America responsible

growth is to say no and to say no more often and

say no to subprime lending and say no to

transactions that have too much debt.

Say no to clients that might be causing a lot of

risk so that when they say yes, it results in a

lot more growth that's sustainable, responsible

and better for their reputation.

Another example is the bank's meaningful

investment in its future.

B of A has, perhaps better than than most,

has done a good job of digitizing their

businesses. They're spending money in

technology. They're using those savings to

buy back stock and to improve their financial

performance. And that's been the story of

certainly the last five or so years of B of A.

These changes have allowed Bank of America

to earn its position as the second largest bank

in the United States.

The bank's most recent earnings for the third

quarter topped expectations, with $24.61

billion in adjusted revenue.

Coming into this year was one of the favorites, if

not the favorite, among bank analysts.

Because of that coast-to-coast branch

network, of that that cheap deposit funding,

they were seen as one of the big beneficiaries of

the Fed is raising interest rates.

It's going to allow the industry to make more

money in terms of just that net interest income

that we talked about.

And despite the threat of a looming recession, Bank

of America's rise might just be beginning.

This is a decade in the making in terms of

preparation for a recession.

So Bank of America has de-risked their loans,

they've de-risked their trading, they've

de-risked their risk appetite.

They've been preparing their technology for more

business volumes and they've been preparing

the strength of their customer relationships

for the time when rates rise. And I estimate that

so long as loan losses don't more than triple.

Bank of America's earnings will grow

through a recession.

And if that happens, on the other side of that,