Tuesday, September 18, 2007

How BofA Can Avoid Being the Next Macy's

A question: What do Bank of America and the Macy's department store chain have in common? The answer: Both companies are screwing up their Chicago-area expansion efforts.
In Macy's case, the retailer's parent company bought Marshall Field's & Co. in 2005 and soon replaced the beloved Field's name with the Macy's brand. At the same time, Macy's dumped favorite Field's products and gutted longstanding business practices, which alienated shoppers and gave rise to a grassroots protest that is in full bloom.
It is probably too late to save Macy's from itself. But Bank of America--which is acquiring Chicago's LaSalle National Bank--still has a chance to avoid such self-inflicted damage, provided it's willing to learn from Macy's mistakes and back off from some entrenched business strategies that won't work in Chicago.
Unfortunately, BofA seems determined to follow Macy's down a broken path. If it doesn't stop and rethink that plan, the banking giant will be making a big, dumb and costly blunder.
Like Macy's, BofA is buying a local institution with a respected record for community involvement. Known primarily for sponsoring marathons and cultural events, LaSalle has also backed--and has been intimately involved in managing-- neighborhood community redevelopment and affordable housing loan initiatives. It did the same for small business, when in the late 1980s, LaSalle was among the first downtown lenders to make micro-loans to upstart and minority-owned companies.
Through these efforts, LaSalle maintained a good working relationship with the city's affordable housing advocates and other activists. And while it didn't cave in to every demand, LaSalle gave as good as it got from the community.
BofA's CEO Kenneth D. Lewis is sending signals that those days are over once his Charlotte, N.C.-based banking concern completes its estimated $21-billion-in cash purchase of LaSalle, a deal that's only weeks away from getting final regulatory approval.
Indeed, BofA is manning a hard line with activists by reportedly refusing to meet with them to discuss their concerns or agendas. Showing even more disdain for the local gentry, BofA has dismissed overtures from U.S. Senators Richard Durbin and Barack Obama, who want to talk with the bank's brass about future lending and business commitments to the area.
On the back channel, BofA executives are hearing from local civic and community leaders who are pushing Lewis' team to play ball, according to sources.
So far, BofA will not budge. The bank is satisifed with its community reinvestment efforts and doesn't see a reason to make side deals with local power-brokers.
I think Lewis is letting the tough fight to buy LaSalle, and his ambitions of transforming BofA into a national franchise, cloud his better judgement. Yes, he fought like a tiger to win the bidding for LaSalle, which was being pursued by a Eurpoean-based competitor. And he showed guts in making a buyout deal with LaSalle owner, Dutch-based ABN AMRO, even though his bid was sure to be challenged in court.
Having won the takeover war in Europe, Lewis must now set his sites on winning in Chicago and that requires a different corporate mindset.
To start, BofA's CEO needs to drop his defenses and engage local activists from non-profits, churches and neighborhood groups. Lewis should personally take a meeting or two with these activists and do more listening than talking. And it wouldn't hurt BofA to get on board with Illinois' U.S. Senators, especially since one of them may soon end up being president (and I don't mean Dick Durbin).
From there, it's a matter of getting down to cases.
Activists and politicians want BofA to promise there won't be massive lay-offs once it takes over LaSalle. Frankly, that's not going to happen. No acquiring company would make that promise, nor should it. To do so would only tie its hands and stop it from making committments in other areas.
(There's talk of 4,500 LaSalle lay-offs after the buyout and and thousands more in related job losses. I think that number is way too high. It's unlikely a growing bank is going to decimate its workforce to that extent.)
But where should BofA commit?
I'd like to see it churn out some viable, low-income mortgage lending or programs. Despite the subprime fallout, there continues to be a need for affordable housing and rehab loans, especially for apartment buildings, and BofA can help advance that plan.
More than that, BofA could assist in helping subprime mortage-holders, who face foreclosure, to move into more affordable, fixed rate 15 or 30-year mortgages. South Side-based Shorebank is launching such a program. Perhaps BofA can partner with Shorebank to help underwrite or assist that effort?
BofA could also commit to a micro-loan or affordable small business loan program aimed specifically at helping rebuild or start commercial projects within ailing neighborhood business districts in Chicago and bordering suburbs.
And BofA can agree to put more ATMs, or branches, into the neighborhoods that are under-banked. Such facilities would provide low-income residents with a safe haven to open a checking or bank savings account. It would also help keep residents out of the clutches of the local currency exchanges, which charge hefty rates for basic bill paying and check-cashing services.
That's only a couple of ideas. The point is there's lots that can be done and BofA, like LaSalle before it, is in a position to do it. What's more, none of these efforts puts BofA in conflict with its mission as a community bank, which is to originate loans and make a reasonable return on them.
Failure to engage, however, will result in some nasty community backlash and bad publicity. And while it's hard to get people to move their bank accounts, don't underestimate the impact an economic boycott could have on BofA's customer base.
So the choice is pretty clear.
BofA can swagger into town like like a arrogant conqueror. Or it can drop the pretense and become a serious member of the community.
Which course is best? Just ask Macy's.