January 13, 2010
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News: Moynihan Faces Major Challenges in CC Business
Bank of America's new Chief Executive Officer, Brian Moynihan, begins his new journey with the company agonizing over what to do about the bank's faltering credit card division. Moynihan is no stranger to the credit card business; he previously managed the consumer and small business banking division as president. Although Moynihan had only headed that division for four months, he maintains it was enough time to recognize some of the mistakes the company made. A major error on the part of the company was issuing credit cards to customers without adequately considering their ability to repay debt. In his own words, "a lot of cards…..to too many people."
Moynihan's plans to rejuvenate the credit card business are based more on the process of card transactions rather than the historical interest income. The company expects to reposition itself in the card business which will most likely be less profitable than in the past. In the past, Bank of America's credit card business accounted for more than 23 percent of the bank's revenue. In recent months during the first three quarters of 2009, the bank suffered a whopping 13 percent write-off rate amounting to card revenue losses of over $4.5 billion. Bank of America suffered the highest card defaults of its major competitors including JPMorgan Chase & Co. and Citigroup.
Bank of America is the nation's second largest credit card issuer. In its enthusiasm to become the largest U.S. card issuer, in 2006 the bank purchased MBNA Corp, one of the nation's largest card issuer. The acquisition was part of the company's strategy to become number one in market share in mortgage lending, home equity loans, card lending and commercial lending. However, the plan backfired under the weight of some poor underwriting decisions which contributed significantly to the banking crisis. Hit particularly hard were the small business loan division along with the card division.