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Moynihan’s Gambit

October 4, 2011

From Shawn Tully at Fortune in July, interviewing Bank of America‘s Brian Moynihan:

Moynihan also aims to make the retail experience more customer-friendly, free of hidden “gotcha” fees that make people hate their banks. A crucial move is his decision on debit card fees. For years the big banks have been reaping billions of dollars by charging overdraft fees to customers who buy a cup of coffee or a dress with their debit card without a sufficient balance to cover the charge. Last year Congress enacted legislation requiring banks to ask customers if they’d accept or decline being allowed to overdraw their accounts. If customers chose to “opt in,” banks could keep charging the fat fees.

Virtually all of the big banks, including J.P. Morgan Chase and Wells Fargo (WFC), gave customers the choice to opt in, and are still charging overdraft fees for folks who said yes. BofA is the rebel. Moynihan eliminated debit card overdrafts on purchases. That gambit erased $1 billion a year in revenues and astounded the competition. It’s all part of a campaign to nurture long-lasting relationships with customers. “We can’t be the biggest bank in America and have people thinking we’re taking advantage of them,” he says.

From Halah Touryalai at Forbes, yesterday:

Back in March, BofA’s online banking system was been down for over 24 hours in some states. And two months before that the site was down for about a day with the bank saying that the problems were not because of malware and that customer information was not compromised.

All three of those outages took place on pay-day for alot of folks. The March outage was on the first of the month, the January outage on the 14th (a Friday) and last week’s outage was also around the first of the month on Friday. BofA would not say how many folks were affected in any of those incidents but the most recent outage is by far the longest disruption to its online banking system.

Making the timing of the outages even stranger is that BofA’s most recent weekend outage started a day after the bank said it would start charging consumers a $5 monthly fee for debit card use. The fee, of course, hasn’t been received kindly with many consumers threatening to take their deposits elsewhere. And after the outage in January rumors swirled that about the possibility of the website being hacked by WikiLeaks’ advocates “Anonymous.”

From Touryalai a few days ago on the bank fee:

The inevitable happened today. Bank of America said it will start charging customers a $5 monthly fee on debit card purchases.

Where’s this coming from? Well, anyone paying attention to the Durbin Amendment (which came out of the Dodd-Frank Act) as it was moving through Congress would have seen this fee coming. The Durbin Amendment essentially limits the amount of money banks collect from merchants, like Target for instance, each time you use your debit card there.

There’s the $50B lawsuit for securities fraud.

And then there’s the $8.5B fraudclosure settlement, about which some important news has gone unnoticed:

We believe BAC is “setting the bar” for the other major banking institutions by globally settling the mortgage and underwriting issues because they are best positioned for it. A look deeper into the issue reveals that BAC is actually in the “best negotiating position” because Countrywide’s problem mortgages are so large relative to Bank of America’s legacy loans. BAC could bankrupt Countrywide and write off $8.5B (their $2B investment plus $6.5B of guarantees) if negotiations/litigations fail, whereas the others don’t have that luxury since their legacy mortgages are a far higher percentage.

Remember, BAC has over $2T in assets and over $1T in deposits.

From JGBHimself in the comments:

What you either assume or are trying to forget is that BoA “services” vast numbers of RE mortgages – for FMae&FMac, for private Wall Street investment banksters “securitized” packages; and for a very small number of their own original RE loans. And, as The Servicer bought forged and fraudulent RE docs in order to cover up their and the MERS problems; and then paid to have their attorneys fraudulently filed those fraudulent docs with the foreclosure courts. Countrywide had absolutely nothing to do with that fraud & criminal behavior. Nor with “robo-signing”. But, BoA did.

In other words, bankrupting Countrywide in no way deals with the problems of mortgage document destruction through MERS or the generation of MBS containing subprime loans.

Therefore, the current furor over debit card fees and problems with their website are mere sideshows to the real legal problems they face as reflected in the stock price.

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