Big it is. But bank stock analysts and investors have been complaining bitterly that its profitability is not what it should be. They say they want no more excuses, just better results. And Lewis is promising them just that. In an interview with U.S. Banker Editor-in-Chief Robert A. Bennett, Lewis—a 31-year veteran of the company—says 2001 is "the year of no excuses and the year of execution."

USB: What changes might we expect under your leadership? LEWIS: I see my role as CEO as a continuation of what we've been doing for the last two or three years. But that is very different from what we had been doing prior to 1998 when we were building by acquisition as opposed to building by organic growth, as we are today.USB: Could you elaborate? LEWIS: Let me go back a year or two. When we announced the merger of Bank of America and NationsBank in April of 1998, we were not yet finished with the integration of Boatmen's [Boatmen's Bancshares, St. Louis]. And it wasn't until October of 1998 that we fully converted Barnett Banks in Florida, which we acquired in 1997. Each was a $50 billion bank. So we spent 1998 and 1999 in the transition stage for all three banks. That gives you some idea of the magnitude of the challenge. It was a transition unlike any company has ever seen, at least in the banking industry. That changed in 2000, when we really began to focus on the customer. That's when we began making people and organizational changes, and began laying the groundwork with new customer-centric measures that dealt with customer satisfaction, deepening of relationships, selling more products—doing things that any truly customer-centric company would do. That laid the groundwork for 2001—the year of no excuses, and the year of execution.USB: So, you're saying you are a different kind of bank today. LEWIS: We've changed the profile of the company and have been very, very focused on the things that I just mentioned. We've also been focused on shareholder value-added; that's a major way we're going to judge ourselves going forward.USB: Are there further steps to be taken in the integration process? LEWIS: I would say the merger transition is done, and most of the integration is done. We are trying to make it easier for our customers to do business with us and rewarding them for doing more business with us. That would mean, for instance, that customers get higher CD rates and lower loan rates as they bring more business to us. We're also looking to bring all of our investment management capabilities to our customer base. We have a lot further to go in that particular category.USB: Are you shooting for a particular ROE or ROA? LEWIS: For 2001, we've just narrowed it down to one thing, and that is, we're saying there will be a "5" in front of our earnings-per-share number (EPS was $4.72 in 2000 and $4.68 in 1999). We're just leaving it at that. That mainly reflects the economic environment and the uncertain economic outlook. As we go forward, recognizing that we will probably have somewhat slower growth rates than we had in the last few years, we would think a 18% to 20% return on equity and a 10% to 12% EPS growth rate would be reasonable. That would be less than our previous objectives, but we have to adjust them given the environment we envision for the next few years.USB: Do you think the market will find a 10%-12% EPS growth rate acceptable? LEWIS: Yes. The market has been telling us for some time that we would be rewarded if we would set less ambitious targets for growth, targets that are reasonable relative to the operating environment in which we find ourselves.USB: So you're not talking about ROE at this time? LEWIS: We're not at this moment, but as I said, as we go into 2002 we'll begin talking about those numbers again. Now we're focused on making sure there's a "5" in front of the EPS number.USB: My understanding is that most of your experience has been on the retail side of the bank. LEWIS: That is a common misperception. I will have been with the company 31 years in September, excuse me, 32 years in September. The first 16 years of my career were in the large corporate market. In fact, I ran our large corporate unit at one time.USB: Looking at retail versus wholesale, where do you see most of the bank's profits coming from? LEWIS: The real stable piece, the one that should produce consistent earnings—although at slower growth rates—will be our consumer and commercial group. That's the regional franchise, and I see that always being the largest component of our net income. The second largest piece is our global corporate investment bank, which on average should produce 30% to 33% of our earnings. The other major piece, 8% to 10% at the moment, is our asset management group; we would like to see that grow significantly over time. The fourth is our principal-investing piece, which we see as continuing to have very good ROEs, but not growing as fast as some of the other businesses. But the single best opportunity for growth is our asset management group.USB: Let's say the stock market doesn't rise as dramatically as it has in recent years, or doesn't rise at all, do you still see the same sort of growth in asset management? LEWIS: Yes. If people get out of equities, they go into cash, and that's a strength of ours — so that plays to our strength. Secondly, we have been adding capacity, such as the Marsico Funds that we acquired over the last year or so. Last year we opened 10 new offices in California, for instance. We'll be opening new offices in Connecticut and Boston this year. We'll be adding one or two in Scottsdale also. We see so many possibilities from our overall franchise that just by converting wealthy customers who are in our consumer bank into the appropriate segment—that is, the private bank—holds great potential for us. There are about 900,000 of them. That is a built-in source of growth for us that others don't have. And when you have a great suite of products and a full range of channels through which they can deal with us, that's a great combination. So it's a very exciting time for our asset management group.USB: Do you see your loan syndication business as important going forward? LEWIS: It plays to a core competency. We are as good as anybody in the world at raising capital for our clients in many ways, including through the syndication unit. And although it will change and evolve—we'll probably tap more funding from non-bank sources—it still will play a very key role and be a very important product for our clients.USB: You seem to hold onto a fairly large amount of the loans you syndicate, considering some of the losses that you've experienced. It seems that Chase, also a very big syndicator, has avoided some of those. LEWIS: Our stated hold positions are no larger than any of our competitors—although in absolute terms that could be just because of the sheer size of Bank of America compared with some others. The point is we've brought two huge companies together that were both in the loan syndication business. In some cases the reason we seem to be holding large positions is that we had pieces from two banks and—because of the circumstances into which the borrowers got themselves, or changes in the economy—we weren't able to reduce our holdings to the levels our policies call for.USB: You mentioned that you may be syndicating loans beyond banks. Would you elaborate on that? LEWIS: We expect to sell loan participations to a variety of funds and to non-bank financial institutions. The good news is that this will create a greater discipline on pricing and structure than bank purchasers, who were looking at other opportunities such as treasury management or international or investment banking deals with the companies that do the borrowing. You will see over time, I think, a much more rational pricing structure driven by non-banks.USB: By "rational pricing" you mean prices being higher? LEWIS: Higher, right.USB: Do you have the experienced personnel in the bank needed to do that kind of work? LEWIS: Oh, clearly—particularly in the syndications area we have the expertise. We're as good as anybody in the world. In a broader sense, do we have the skill sets in every position to take us to the heights that I want to go—meaning being one of the world's great companies? The answer would be no. And while we have a great cadre of expertise, my plans are to sprinkle that cadre with additional capabilities from outside the banking industry. We have had several examples of that in recent months. We've added a person to run our asset management group who comes from Morgan Stanley. He in turn will also recruit a person from outside the banking industry to head our private client group. We brought in the head of quality control from Eastman Kodak, who will be in charge of quality and productivity for Bank of America. We brought in a person who was in charge of FedEx logistics to run our transaction services. We brought three new people into our marketing area, one from Fidelity, one who was a consultant, and one who was from M&M/Mars. We also just hired a new person from GE Capital to run our insurance group. The consistent thing about that array of individuals is that not one came from banking.USB: Do you see commercial lending becoming a smaller part of the bank? LEWIS: Our exposure to large corporate lending will become relatively less in relation to our balance sheet, although the levels of origination and distribution may not become smaller. We will also not be taking nearly as much real estate product, or at least consumer real estate product, on our balance sheet. What we originate we will be selling in the secondary market. So what you'll see going on our balance sheet will be consumer loans, including credit card loans, small business loans, and the lower end of the middle market. The rest, we will originate and distribute.USB: Where do you see the credit card going? LEWIS: We see it as a growth business and have seen that take place particularly over the last few quarters. We talk about three different segments. First is the debit card piece. We account for about 25% of all VISA debit transactions in the United States, so that is a very, very large business for us and it's growing and generating great fee income. Second is the credit card business—and we break that into two pieces: one, the purchased volume piece, and the revolving piece, which is growing also. So we view cards as a growth engine that we see not only as a credit piece, but as a payments piece as well.USB: It seems that many card issuers are having a hard time growing that business. Why are you so confident that it can be a growth vehicle at Bank of America? LEWIS: We do better than others at marketing the card. Our focus is mainly on our existing consumer franchise. And given that our consumer franchise is so large, and considering that only a third of our customers use our cards, there's great room for expansion. We get much better responses to our mailings to our own customers and we have better credit experience with those customers. It's a built-in opportunity for growth. In addition, having your brand known in your franchise helps get high solicitation responses. And so we think we can get good growth rates in outstandings in the normal, traditional credit card business. Secondly, playing on this momentum, we have more and more of our customers using our debit cards, which is providing double-digit growth, and we see that continuing.USB: Are you doing anything in terms of international? LEWIS: We have an extensive international presence (we're in 38 countries), but the emphasis there is on large corporations. Offshore, we are even more interested in arranging credit as opposed to providing credit. We'll be adding to our investment banking capabilities and consolidating our trading activities in fewer countries to make them more profitable. It's a highly focused niche strategy.USB: Do you see any holes, geographically, in your domestic operation? LEWIS: Nothing we would call strategic. You could make a case that Chicago should be attractive to us because we have everything there but a retail presence. But in any case, any acquisition of any sort is going to be viewed from a strategic perspective: does it create shareholder value? We don't have to be anywhere else. USB: What is the advantage of having your kind of geographic spread? Does the fact that you're in Missouri help you in Charlotte or Florida or wherever it may be? LEWIS: One, we like diversity. We like diversity in people, in product and in geography. Secondly, middle market and large companies that have plants in different locations appreciate the fact that we can bank them in multiple locations and consolidate their funds. And finally, they like the fact that we have an international presence. Sometimes they appreciate that even if they don't currently have substantial international business because they can grow internationally with Bank of America. The consumer is not too different. They like it when they know they can do ATM transactions in 13,000 machines across the country and not have to pay a surcharge. And they like it when they're traveling and have some unanticipated need and can go into a Bank of America banking center and get treated as if they were in their own neighborhood.USB: Switching topics. As you know, Chase felt it had a great need to buy a big investment bank. It seems you don't feel that need. LEWIS: That's correct. We have a very strong foundation now that we have invested in that business over the last three to four years. So it's not as if we haven't been bringing in large cadres of people to build our investment bank. My feeling about buying investment banks—particularly the boutiques—is that you pay twice. You pay for the firm, and then you pay guarantees to keep the players. So if you want to grow a particular area of your investment bank, why not just buy the team and not the brand or the company? That is our philosophy going forward.USB: Of course, investment banking is said to have a tiered structure, with the so-called bulge-bracket firms making the most money advising on deals.... LEWIS: Assuming there are some.USB: Touché. But, assuming there are some big deals out there, it seems that the bulge bracket firms, and Bank of America isn't one on them, earn by far the biggest fees. Is that a problem? LEWIS: First of all, I would not bet my company with 75% of its business in the large corporate market—particularly all in investment banking. That's one way of saying I like our model the way it is. I like the core business providing stability to one that is more volatile, that will have the ups and downs that investment banking will have. We are very large in investment banking and can compete there. We would have to buy something very, very large to change that equation, just because of our sheer size. But I should also say that our Global Corporate Investment Bank produces over $2 billion in after-tax net income, so in and of itself it is very large.USB: Putting it another way, you don't plan to become an advisor on deals like Daimler and Chrysler, deals of that size? LEWIS: We plan to be advisors on any deal in which we choose to compete. However, we're not choosing to compete in all of the brackets.USB: In which ones do you plan to compete fully? LEWIS: The ones in which Bank of America has very particular capa-bilities are in health care, technology, telecommunications, energy, and financial services.Last year, for the first time ever, our M&A and equity fees actually were greater than our syndication fees. That's never happened before.USB: And why is that? LEWIS: A combination of the syndication market not being as active as it had been, combined with our equity fees growing at a much, much faster pace than they had in the past.USB: What was the size category of most of the deals you advised on last year? LEWIS: Across the board.USB: What was the biggest one you did? LEWIS: Probably in terms of fees generated for us—JDS Uniphase. USB: Where do you see BofA five years from now? LEWIS: You will see a company that has gained a reputation for executing day in and day out, one that proved it could grow revenues organically, and one that is very, very focused on shareholder value—knowing that the management team's legacy will be what that stock price is when they leave the company at retirement. So a very shareholder-friendly, customer-friendly company that's growing organically and winning market share throughout the business. USB: Now that the barriers separating banking and commerce have been reduced somewhat, might Bank of America be interested in buying a non-financial company? LEWIS: No. I see no model around the world that makes a compelling case to be able to own commercial companies. I don't see the need for a bank to own an automobile company or something of that nature. USB: Do you consider yourself a bank? LEWIS: We consider ourselves a bank with a redefined version of what most people view as a bank. In some cases, banks aren't perceived to be good at investment banking or in investment management. We're good in both and we're big in both. So we want to keep the Bank of America name, but we want to redefine the perception of banking. USB: How would you compare yourself with Citigroup? LEWIS: First, we are the dominant bank in the United States on the consumer side and on the middle market and corporate side. Citi would have a different profile in that it's in more businesses—they're much bigger in consumer finance, for instance, and they're much bigger on the consumer side offshore, and bigger on the investment banking side as well. USB: Do you see Bank of America getting into the finance company field? LEWIS: No. USB: Why? LEWIS: It is not a business that we have proven we know how to run well. Secondly, I don't think the politics are working in favor of that area. USB: How do you compare Bank of America and Chase? LEWIS: Chase has about the same percentage of its revenues from global corporate investment activities as we have from consumer and commercial. So we are very different, two very different bets. I think we will be proven right over time. USB: There's some talk that Chase might spin off its retail banking side. Might you be interested in buying its branch network in the New York metropolitan area? LEWIS: If it made economic sense, yes. USB: What about your level of loan reserves? I just read some analysts' reports saying the reserves are on the low side. How do you feel about that? LEWIS: Some people think they're on the low side until they analyze the portfolio, and then I think they'd change their minds. A large part of our non-performers, for instance, are consumer real estate secured, which generate very, very low losses over time. And so if you segment or separate the portfolio into its various categories, you get a whole different answer as opposed to just looking at it in aggregate. And nobody in the industry is quite like us in that way. USB: How important is insurance and brokerage? LEWIS: Well, brokerage first: we announced today that we're ex-panding our brokerage activities. We'll be adding about 25% to our sales force. We're also having more and more of our banking center associates get 6- and 7-Series licenses so they, in fact, can give advice and sell particular investment products. There's a big effort going forward in that regard. On the insurance front, as I mentioned, we've just hired a new person to lead that effort. I don't see us necessarily buying an insurance company, but I do see us expanding the products that we sell in the insurance arena and getting better at that. We generate now about $200 million in insurance revenues each year, and we do it almost without trying. I think there's huge upside potential in selling products into our customer base without having to buy an insurance company. USB: Can a bank as big as Bank of America well serve the small businesses in all your markets? LEWIS: Absolutely, a large bank can serve a small-business market, and you can rest assured Bank of America will. And you do that by segmenting the market and then assigning the dedicated sales force and service force to that marketplace and measure and reward them and hold them accountable. And that's what we have in place now. To be self-critical, that would be the area that we've been slower to really get into and exploit; but we're doing that as we speak. USB: What do you think the U.S. financial system will look like five years from now? Today there are 8,000-9,000 banks. How many banks do you think there might be in five years? And who do you think will be the big players? LEWIS: There will be fewer of everything. There will be fewer investment banks, there will be fewer insurance companies, and certainly there will be fewer commercial banks. Over that period of time, you could well have fewer than 10 that really mattered nationally. USB: How many do we have today? LEWIS: That matter nationally? Really only us—the rest are regional in scope. So you'll have others that will rival us in size in five years, but not many $50 billion to $100 billion-dollar banks left. USB: What do you think the fate will be of banks like First Union or a Bank One? LEWIS: I don't know the answer to that because I think you almost have to be inside a bank to know the extent of somebody's opportunities or problems. So I really don't know. But I would guess over time that banks of that size would consolidate and come together at some point or fashion. I have no idea what the mix will be.

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