|
|
Get Four
|  | JUNE 8, 2004
By Mike Brewster A.P. Giannini: A Farsighted Banker From his original Bank of Italy in San Francisco, Giannini built the giant BofA and brought banking services to the masses Bank of America (BAC ) CEO Ken Lewis no doubt had little time for ruminations on historical symmetry when BofA completed a $48.8 billion purchase of FleetBoston Financial on Apr. 1 of this year, creating a 5,700-branch behemoth that serves one in four U.S. households. But the acquisition, almost 100 years to the day after BofA's founding by Amadeo Peter (A.P.) Giannini, echoed Giannini's lifelong dream of bringing banking services to the entire nation's working class. Giannini, recognized today as the father of modern consumer banking, was born in San Jose, Calif., in 1870, the son of immigrants from Genoa, Italy. The roots of his future success were grounded in his stepfather's San Francisco produce business, where Giannini started working nights as a young teenager. He completed just one year of high school before joining the business full-time. He stayed in the produce business for 17 years, selling his half-share in the company at the age of 31 with the facetious announcement that he was "retiring." Casting about for another business to enter, Giannini accepted an offer to become a director of the Columbus Savings & Loan Assn. After a falling out with the other directors, Giannini started the Bank of Italy in 1904, directly across the street from the savings and loan. The necessary $150,000 in financing came from a group of 10 friends living in San Francisco's Italian enclave, North Beach, as well as from his father-in-law. DISASTER AVOIDED. Based on his experience dealing with farmers, merchants, and laborers in the produce business, Giannini recognized that entire groups of workers were denied ready access to bank loans. He also understood that his Italian brethren would not saunter into a bank to request a loan. Their business had to be solicited and encouraged. At the time, pursuing banking business was considered unseemly and borderline unethical. The Bank of Italy's -- and Giannini's -- sterling reputation was forged in the chaotic aftermath of the great San Francisco fire and earthquake on April 18, 1906. Relatively unscathed by the earthquake itself, the bank was directly in the path of the fire that was leveling the city's downtown. Using a horse and wagon full of vegetables as camouflage (that produce training again), Giannini secreted $2 million in gold and securities through streets filled with looters and dazed citizens. He opened the next day from a wharf on San Francisco Bay, notified depositors that their savings were secure, and began making the many loans needed to rebuild the city. From then on, the Giannini name stood for resourcefulness and integrity. Those characteristics were on display again in the Panic of 1907, when Giannini was one of the few bankers who had retained enough gold and hard cash to meet depositors' needs during a run on the city's banks. That experience also instilled in Giannini a belief in the benefits of scale: that only big banks, with significant assets, would be safe in the event of future panics. After a trip to Canada to observe how banks there had created effective branch systems, Giannini started buying small banks and converting them into new branches of the Bank of Italy, creating the first effective branch network in the U.S. BofA BACKLASH. "Giannini understood that with the single, stand-alone banks at the time, the amount of capital was very limited," says Kathleen Collins, corporate archivist at BofA. "Rural agricultural towns could only lend the amount of money they had in deposits. By building a large branch network in California, Giannini helped spur the growth of industries like aeronautics and wine." Giannini hoped to extend his empire of branch banks all over the world, and he scoured the country for partners. In 1929 he finally cracked the New York market, joining with the Bank of America and adopting its name. He also created a string of holding companies, including Banc Italy Corp. in 1919 and Transamerica Corp. in 1930, to combat the bank's growing legal challenges. As the BofA empire grew, competitors argued that the branching trend would hurt customers, and factions within the California State legislature proposed bills to limit bank branches. Threatened by his inroads into their backyard, the New York banking Establishment also emerged as a fierce opponent of Giannini, trying to belittle him with epithets like "Sicilian fruit merchant." "It was very frustrating for these big New York banks to watch as the Bank of America, started as a small business a few years before, became the largest bank in the country," Collins says. "And they used anything they could to try to discredit him, including racial slurs." PROVEN FORMULA. But BofA's popularity with small businesses and individuals was the key to its growth. It was certainly hard to make a case that Giannini, who pioneered consumer-friendly products like home mortgages, auto loans, home-equity loans, and installment credit, was acting against the public interest. Giannini died in 1949 at the age of 79, but he lived to see the BofA become at the time the largest bank in the world, with assets of $7 billion and 526 branches in more than 300 U.S. cities and towns. Giannini's innovations gained even more posthumous credibility, as banks have been concentrating on getting bigger and offering more diverse kinds of financial instruments ever since he introduced the concepts. As for the future of Bank of America, the strategic wisdom of this latest merger will be played out in the months and years ahead. But Giannini would no doubt approve of a branch network stretching all the way from Los Angeles to Boston.  As part of its 75th anniversary celebration, BusinessWeek is presenting a series of weekly profiles for the greatest innovators of the past 75 years, from science to government. BusinessWeek Online is joining in by adding more online-only profiles of The Great Innovators. In late September, 2004, BusinessWeek will publish a special commemorative issue on Innovation Brewster is a New York-based writer
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
