Banks & Finance

Corporations1

Table 6 - Key Competitors and Strategies in the US/NC Finance Industry

Bank of America2

Charlotte-based Bank of America Corp., the nation's largest financial institution as measured by deposits, controls nearly $1.3 trillion in assets, operates neraly 5,800 banking centers and more than 17,000 ATMs in 30 states and the District of Columbia. It employs more than 203,000 in the United States, and operates in 44 countries worldwide. Bank of America holds the number one market position in seven states. Recently, Bank of America has concentrated its expansion efforts internationally in order to develop a competitive and strategic global network of local banking operations to cater to the banking needs of increasingly global customers. It has established a presence in the Cayman Islands, China, Germany, India, Malaysia, Mexico, Panama, Singapore, South Korea, Switzerland, Taiwan, Thailand, United Arab Emirates, United Kingdom, and Venezuela.

Bank of America has always been tied to the NC banking industry and continues to demonstrate a sincere interest in maintaining its headquarters in Charlotte, despite recent merger activity. The 1998 merger between Nations Bank Corporation of Charlotte and Bank America Corp. of San Francisco led to the creation of Bank of America and constituted the largest financial merger in the history of banking to that point. Nations Bank Corp. was established in 1874 as Commercial National Bank and developed into a $284 billion bank with strong market presence in southern states. Similarly, Bank America Corp. pursued an expansion strategy to gain a dominant market share in the West Coast after its creation in 1904. Two of its most notable accomplishments were the 1975 invention of the first bank credit card and the acquisition of Security Pacific Corporation, which turned the bank into the largest in the nation. Recently, Bank of America extended its market reach with its merger with Fleet Boston, the previously dominant financial institution in the Northeast.

Bank of America has invested heavily into expanding its product offerings to go beyond retail banking into corporate and investment banking. In addition, since the 2000 introduction of Global Advice, a web-hosted internet site that allows corporations to provide detailed payment information to global trading partners electronically, Bank of America has been at the forefront of electronic web banking for both personal and corporate banking clients. Enhancements developed since the original introduction have secured Bank of America significant profitable contracts with multi-national corporate clients. In October 2004, Bank of America announced that it plans to invest over $600 million into its corporate and investment banking operations, located in Charlotte and New York City. Their efforts have paid off: net income from corporate and investment banking more than tripled from 2003 to 2006, and now makes up 32% of the bank's net profits. An additional 53% comes from consumer and small-business banking (checking accounts, credit cards, mortgages). This renewed run on Wall Street is part of Bank of America's greater strategy of growth into a truly integrated financial giant offering diverse products to many financial clients.

Internationally, Bank of America has strengthened its 2002 partnership ties with three information technology companies located in India in an effort to secure an advantage in personal and commercial electronic global web-banking (Infosys, Tata Consultancy Services (TCS), and Accenture). These partnerships allow Bank of America to focus on core competencies as well as to cushion volatile business cycles with resource flexibility. In early 2004, Bank of America also announced its intention to set up a wholly owned subsidiary in Hyderabad, India, The Continuum Solutions Pvt. Ltd., which will perform some low-value added, relatively expensive back office operations, such as transaction and high-end complex processing. This decision falls in line with recent trends in the US finance industry. The finance industry as a whole plans to relocate up to 500,000 jobs offshore, which accounts for 8% of their total work force by 2010.

Please see the included document for a more detailed case study of Bank of America.

BB&T3

BB&T is the nation's 9th largest bank holding company (ranked by total domestic deposits) and is headquartered in Winston-Salem. BB&T has approximately $121.4 billion in assets and more than 1,400 branches in the Southeast. In North Carolina, BB&T is the second largest in terms of market share behind Wachovia. Annual sales have increased from $5.1 billion in 2000 to $9.5 billion in 2006, while net income has increased from $626 million to $1.5 billion over the same period.

BB&T operates as a group of community banks, each with a regional president. This loose structure grants considerable autonomy to individual branches to provide loans and other services. However, BB&T also acts with considerable force on the acquisitions front. Since 2003, BB&T has acquired First Virginia (with assets of $11.3 billion), Equitable Bank ($446.9 million), Republic Bancshares ($2.9 billion), Main Street Banks ($2.5 billion), First Citizens Bancorp ($686 million) and Coastal Federal Bank ($1.7 billion). In the last fifteen years, BB&T has acquired more than 50 community banks and thrifts, nearly 80 insurance agencies, and nearly 30 non-bank financial services firms.

These efforts point not only to a strategy of regional expansion, but also to a strategy of product expansion. Mergers and acquisitions have been a key component of BB&T’s strategies for the last two decades. After a respite from mergers in 2004 and 2005 designed to help integrate existing bank systems and concentrate on internal growth, BB&T management defined its plans for strategic mergers and acquisitions with its self-defined geographic footprint. BB&T's acquisition strategy is based on three key objectives:

• to pursue acquisitions of banks and thrifts in the Carolinas, Virginia, Maryland, Washington D.C., Georgia, West Virginia, Tennessee, Kentucky, and Florida with assets of $500 million to $15 billion, with an informal target of growing approximately 5% of BB&T's assets through acquisitions
• to acquire companies in niche markets that provide products or services that can be offered through the existing distribution system to its current customer base
• to consider strategic nonbank acquisitions in markets that are economically feasible and provide positive long-term benefits

In addition to a focus on geography, BB&T has also pursued produce expansion.

BB&T now provides banking, insurance, investment, trust, mortgage, and asset management services. BB&T acts as a regional powerhouse, and in this role, it has not been significantly active to date in the international banking industry. However, BB&T believes that product expansion allows for the expansion of expertise and fee collections for financial products, which will also lead to financial success.

Citigroup4

New York-headquartered Citigroup, the largest financial institution by assets in the world, has actively pursued an aggressive acquisition strategy over the past few years to raise market share in existing products and to diversify into regional retail banking operations and global financial markets. Citigroup recorded record asset growth in 2006 of 21.8%, to $1.9 trillion, despite growing competition from megabanks. In North Carolina, Citigroup operates customer service centers in 17 select cities, including Asheville, Charlotte, Durham, Greensboro, Raleigh, and Winston-Salem. The two largest centers are located in Charlotte, and in March 2004, the new Greensboro credit card center added 900 new jobs in that region.

Citigroup is the first of the US financial companies to combine banking, insurance, and investments. They offer a number of services, including credit cards, consumer finance, retail banking, capital markets, life insurance, asset management, and private client services. Kevin Kessinger, the president of Consumer Finance North America, has expressed his intention to capitalize on Citigroup's perceived acquisition expertise and low-cost operation platform by consolidating the still very fragmented North American consumer finance industry with strategic acquisitions. For example, Citigroup acquired Golden State Bancorp in 2002 and both Sears Roebuck & Co. credit card operations and Washington Mutual Finance in 2003. These acquisitions added a network of 409 branch offices in 25 states that raised Citigroup's national market share in consumer finance above 20%.

Credit Suisse First Boston5

Credit Suisse First Boston (CSFB) – now known as the Investment Banking segment of parent Credit Suisse – is today the leading global investment bank in the United States. Its business services include securities, underwriting, sales and trading, investment banking, private equity, alternative assets, financial advisory services, investment research, and asset management. Credit Suisse's investment banking arm operates in 57 locations across 26 countries. Credit Suisse was restructured on January 1, 2006 into three divisions: 1) Private Banking; 2) Investment Banking; and 3) Asset Management.

In late 2005, Credit Suisse announced that it was merging its two banking entities – Credit Suisse (private banking) and Credit Suisse First Boston (investment banking) – under the Credit Suisse name as of January 1, 2006. The former CSFB will now be known as the Investment Banking segment of Credit Suisse, though its scope and mandate are largely intact.

Credit Suisse Group's strategy is based on a global position in banking and financial services, targeting global institutional, corporate, government, and wealthy clients with financial services, including securities underwriting, sales and trading, financial advisory services, full service brokerage, derivates and risk management products, and asset management.

CSFB also has dedicated itself to maintaining its research strength, which is why it has entered into North Carolina. It recently won a commitment for millions of dollars in incentives to locate its facility in Research Triangle Park. North Carolina has committed to it $3 million from the governor's discretionary One North Carolina Fund, and the company will receive $8.9 million in Job Development Investment Grant funding over 10 years. The company also will get a cash grant worth around $2.25 million over eight years from Wake County. In October 2004, CSFB announced that it would invest in a $100 million global business center in Research Triangle Park. The facility now employs about 400 workers. CSFB will pay employees an average annual salary of $72,000 and help provide jobs to Research Triangle Park following lay offs of 4,500 employees since 2000 by Nortel Networks.

Mechanics and Farmers Bank6

Mechanics and Farmers Bank was established in 1907 and is a full-service commercial bank that offers business and consumer loans, checking accounts, certificates of deposit, money market accounts, Internet banking, and other products and services. M&F operates branches in Durham, Winston-Salem, Charlotte, and Raleigh. M&F had 85 employees and $268 million in total assets at the end of 2006. Though smaller than the other companies profiled, this bank is important due to the role it plays in the industry in contrast with the other firms in this study. Mechanics and Farmers is strictly a local bank, located within the larger cities of North Carolina. As such, its product offerings capture the traditional activities the banking industry provides. Mechanics and Farmers provides consumer lending, consumer accounts, mortgage services, and some small business financial services.

Mechanics & Farmers Bank holds the distinction of being the first lending institution in North Carolina to receive a Certificate of Authority from the Federal Housing Administration in 1935. Mechanics & Farmers Bank continues to be a dominant force in stimulating entrepreneurship and home ownership in North Carolina. In 1996, the Bank began to position itself to compete aggressively with technology. Beginning with a wide-area network, to reach all four cities in its branch network, the Bank gradually built many other services, becoming one of the first community banks in the state to offer consumer Internet banking and statement imaging. The size and strategy of Mechanics & Farmers is clearly focused on a different role within the industry from most of the banks mentioned above. This bank targets its actions at the local level, and in many ways, it resembles the type of activity that is found in most states.

RBC Centura7

RBC is a global bank with aggressive goals of expanding its brand across the Southeastern United Sates. As the owner of RBC Centura, the bank offers a wide range of financial services and advice, including a complete line of banking, investment, loan, mortgage, life insurance, and other services, to individuals, businesses and public institutions throughout the Southeast. RBC Centura's multifaceted customer access network includes more than 335 full-service banking centers, an extensive ATM network, and telephone and Internet banking. In addition, RBC Centura offers builders finance products through its RBC Builder Finance division.8

The Royal Bank of Canada (RBC) executes most of its operations in North Carolina due to its acquisition of Centura in 2001. The new entity, RBC Centura, has 30% of its branch network in eastern North Carolina. Its assets total more than $20 billion, and it operates branches in six states - Virginia, North Carolina, South Carolina, Georgia (metro Atlanta area), Florida and Alabama. The bank has tried to evolve with the changing economy of the region. Its predecessor, Centura Bank, evolved in the 1960s and 1970s from an agricultural bank, seeking to grow with the demands of a changing market. RBC's Acquisitions, such as Centura, Dain Rauscher (investment services), and Liberty Life (insurance), have allowed RBC to increase its income stream from the United States from 7% of total revenues in 2000 to 23% in 2006. As these acquisitions continue and as the United States becomes more important to RBC Centura, North Carolina's role within the United States market should increase, as it will serve as a base for RBC's future activities.

Like BB&T, RBC Centura has attempted to provide a diversity of services to its clients in order to take advantage of expertise important to banking and related services. RBC Financial Group is one of the largest financial institution in North America employing 60,000 people in North America and 30 countries around the world.

As of 2005, banking provided 51% of total income for RBC Centura, investment 14%, insurance 8%, corporate services 16%, and global services composed the final 6%.

Wachovia9

Since its 1879 founding in Winston (now Winston-Salem), NC, Wachovia has expanded from its North Carolina roots to become a national banking leader. Its 2001 merger with First Union Corporation made Wachovia Corporation a major force in American banking and financial services. In 2006, Wachovia held assets of $707.1 billion under management, making it the nation's fourth largest bank holding company. Wachovia offers full financial services available in fourteen states along the East Coast from Connecticut to Florida, plus Texas and California. Wachovia services are divided into four major businesses (in order of 2005 revenue): General Bank, Corporate and Investment Bank, Capital Management, and Wealth Management:

• General Bank:  Wachovia's General Bank held $232.7 billion in average core deposits and $223.4 billion in average loans in 2006. The business strategy of the General Bank focuses on the extension of banking products and services to a larger client base while retaining and extending long-term relationships. This segment is also concerned with increase the range of services that each client uses within the bank and thus reducing the number of single-service users.
• Corporate and Investment Bank: Wachovia’s Corporate and Investment Bank maintains relations with 3,600 corporate clients and 2,500 institutional investors, providing them with services in corporate lending, investment banking, and international trade finance. These clients generally have revenues of over $250 million and operate in key industries like healthcare, defense/aerospace, energy/power, and finance. This segment’s long-term goal is to become a lead investment bank to clients.”
• Capital Management: Wachovia's Capital Management is a major U.S. full-service retail brokerage firm. In 2006, it held $276 billion in assets under management, and maintained a presence in 47 states and Washington, DC. Capital Management aims for a growth in assets under management while maintaining a balanced offering of proprietary and nonproprietary investment products.
• Wealth Management: Wachovia's Wealth Management manages $72.4 billion in assets, and administers $143.9 billion in assets. This segment provides a wide range of investment management and advisory services, which include private banking, trust management, financial planning, insurance services, and retirement planning, to high net worth individuals, families, and businesses.

Through its mergers and acquisitions, Wachovia has become a more diverse bank offering a wider range of services to a much broader base of clients. Wachovia's 2003 Annual Report describes its business as one in which "in addition to the typical and deposit-taking activities of traditional banking companies, we also offer investment products and services for retail customers, and capital markets financing alternatives for institutional and corporate clients." However, in addition to its national expansion, Wachovia is also making efforts to maintain relations with smaller clients in its core regions. Wachovia has invested in "both mass-affluent and small-business banking" in effort to develop a closer relationship with clients at a more local level and consolidate all their financial services with Wachovia. Wachovia is aggressively pursuing this strategy particularly in its largest markets like Charlotte, Raleigh, and Charleston, SC.

References

1. In addition to the sources cited, the following source was consulted for all institutions: Hoover's. Company Profiles.[Downloaded July 29, 2007].
2. Bank of America. Summary Annual Report 2006 [Downloaded July 29, 2007]; Bank of America. Security and Exchange Commission Form 10-K, 2006 [Downloaded July 29, 2007]; Bank of America Corporate Web Site, various pages [Last viewed July 29, 2007].
3. BB&T. Annual Review 2006. [Downloaded July 29, 2007]; BB&T. Security and Exchange Commission Form 10-K, 2006 [Downloaded July 29, 2007]; BB&T Corporate Web Site, various pages. [Last viewed July 29, 2007].
4. Citigroup. Annual Report 2005. [Downloaded July 29, 2007]; Citigroup. Security and Exchange Commission Form 10-K, 2006 [Downloaded July 29, 2007]; Citigroup Corporate Web Site, various pages. [Last viewed July 29, 2007].
5. Credit Suisse. Business Review 2006. [Downloaded July 29, 2007]; Credit Suisse. Annual Report 2006 [Downloaded July 29, 2007]; Credit Suisse Corporate Web Site, various pages. [Last viewed July 29, 2007].
6. M&F Bancorp. Securities and Exchange Commission Form 10-KSB, 2006. [Downloaded July 29, 2007]; M&F Bancorp Corporate Web Site, various pages. [Last viewed July 29, 2007].
7. Royal Bank of Canada. Annual Report 2006 [Downloaded July 29, 2007]; RBC Centura Corporate Web Site, various pages. [Last viewed July 29, 2007].
8. RBC Centura, CEO reaffirms commitment to eastern NC. Press release. March 24 ,2006.
9. Wachovia. Annual Report 2006. [Downloaded July 29, 2007]; Wachovia Corporate Web Site, various pages. [Last viewed July 29, 2007].