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Bank of America © Daniel Acker/Bloomberg News/Landov // Bank of America © Daniel Acker/Bloomberg News/Landov

Extra8/13/2009 3:00 PM ET

Is B of A the most toxic bank?

It's tempting to impose a culture of frugality to rein in Wall Street. But the bigger harm to the public interest comes from banks that punish customers and employees.

By Mark Gimein, The Big Money

First came the shock over how badly our financial system messed up. Now comes the outrage over how well it got paid for doing so.

We've always known that Wall Street bankers got paid too much. Now we know a lot more about how much. Thanks to New York State Attorney General Andrew Cuomo, we have a count of the million-plus earners at the big banks: 953 at Goldman Sachs (GS, news, msgs) last year, more than 1,600 at JPMorgan Chase (JPM, news, msgs) and 738 at Citigroup (C, news, msgs), the country's biggest recipient of government disability aid.

Bonus rage is a natural reaction to hearing just how out of sync with ordinary life Wall Street salaries are. It's freighted, understandably, with huge political symbolism. Unfortunately, it's also a major distraction from a lot of the real problems of the banking system.

The rhetoric of bonus rage says that we can fix the financial system by cutting mega-paychecks and going back to basic principles of moderation. That sounds great. But look more closely and some of the very companies that are now being lauded for their relative frugality, such as Bank of America (BAC, news, msgs), are among the worst actors on the financial stage -- costly to the government, dangerous to financial stability and poisonous to consumers.

A spate of stories has examined how hard it will be to integrate Merrill Lynch's well-paid "thundering herd" of brokers into Bank of America's "culture of thrift." At first glance the numbers in the Cuomo report seem to back this notion of the Charlotte, N.C., company as a thrifty institution and a stark contrast to its profligate New York cousins. While JPMorgan Chase paid out $1 million or more to 1,626 of its employees in 2008, Bank of America, with slightly more workers, kept the number of $1-million-or-more earners to 172. Surely this "culture of thrift" and relatively moderate compensation must be a good thing, right?

Well, for Bank of America's customers, no. B of A has long been the pacesetter in consumer-bashing bank practices.

Take any metric you like. The first bank to raise ATM charges to $3? Check. Minimum payments structured so that credit card borrowers unwittingly exceed their limits and get hit with interest-rate boosts to 30%? Check. Arbitrary credit card rate increases to sky-high rates? Check. (Though when I "opted out" of the preposterous rate increase on my own Bank of America credit card, at least their customer-service rep had the grace to good-naturedly say that I was doing the right thing. Give 'em citizenship points for that.)

The pièce de résistance is loan modification. While JPMorgan Chase has begun making modifications for 20% of its mortgages and Citi for 15%, Bank of America has moved to adjust a meager 4% of its loans.

You would imagine that Bank of America, so careful with its salaries and so stingy with its customers, would have to have done stunningly well for shareholders. But no.

True, unlike some other institutions, at least Bank of America remains in business. But its share price is now not just much lower than it was at the height of the bank bubble (no surprise there), but less than half of what it was in 1996. Incredibly, even at its inflated share price of about $50 at the peak of the bank boom, Bank of America had underperformed the market for a decade. Driven by CEO Ken Lewis' still unsated mania for acquisition, B of A has grown bigger, but investors sure haven't benefited.

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talk back © Larry Dale Gordon/zefa/Corbis
In defense of Ken Lewis
'Populist fury' over the banking industry should not be directed at the Bank of America chief, who has done a lot of good for shareholders, says banking analyst Dick Bove. (Aug. 7)
In sum, the poster child for bank industry thriftiness has managed to achieve the trifecta of a) punishing its customers, b) punishing its investors and c) still requiring a massive federal bailout.

Since the collapse of Bear Stearns and Lehman Bros. and the beginning of the financial crisis, the country's leading commercial bankers have tried mightily to spin the collapse of the financial system as the doing of a small coterie of highly paid Wall Street investment bankers.

Henry Paulson © Mark Wilson/Getty Images
After then-Treasury Secretary Hank Paulson's (pictured) hashing out of a rescue plan with bank leaders, Wells Fargo (WFC, news, msgs) Chairman Richard Kovacevich loudly complained that stable, well-capitalized banks such as his shouldn't be tarred with the same brush as failing institutions. Lewis missed no chance to express his utter shock at the enormous bonuses he had somehow, mysteriously inherited in buying Merrill Lynch.

In fact, the commercial bankers' protests have been revealed as some of the most baldfaced lies in business history. Wells Fargo continues to owe the government $25 billion in TARP funds -- money that it's not at all close to repaying. The Treasury's stress tests showed it was not nearly as well-capitalized as Kovacevich insisted. Meanwhile, Bank of America just paid $33 million to the Securities and Exchange Commission to settle charges that Lewis misled investors with his bogus claims of having had nothing to do with the Merrill payouts.

Continued: The culture that has to change

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