The Decent Man Who Built the Bank of America

Many distinguished economists of the mid-20th century predicted an American economy that would be dominated by a relative handful of giant companies, soon nicknamed on Wall Street the Nifty Fifty. And, certainly, the waves of mergers in the last generation have concentrated economic power in fewer and fewer corporate hands, right?

Well, no, actually, they have not. In 1967, the top two hundred non-financial companies held 41 percent of the country’s business assets. By 1988, they held only 32 percent, and that number has continued to drop in the last decade.

The reason, of course, is that the economy has grown even more quickly than its largest companies have merged. And new companies, which tend to grow fastest of all, have been appearing like mushrooms after a rain. In 1967, after all, neither Intel nor Microsoft even existed, and now both are being sued by the federal government as monopolies.

An exception to this has been the banking industry. The number of American banks reached its peak in 1921, when we had no fewer than 31,076 of them. A little more than a decade later, after the Armageddon of the Great Depression, a mere 14,771 still operated. By 1996, although banking assets had soared to $4.6 trillion, there were only 9,528.

That, to be sure, still gives the United States more banks than the rest of the world combined. But that is an artifact not of economics, but of history and of the deep fear of banks held by Thomas Jefferson and his political heirs. Banks were from the country’s earliest days greatly restricted by state regulations in their ability to grow and merge. Many states limited branch banking, and some forbade it altogether.

Slowly, under the pressure of sheer economic necessity, these restrictions have been easing. Recently even giant banks have been allowed to merge, and this year has seen this trend accelerate even more. Most notable has been the merger of Nationsbank, based in Charlotte, North Carolina, and Bank-America, formerly the Bank of America, based in San Francisco, to form what is, at least for the moment, the largest American banking corporation.

The Bank of America has an only-in-America history. American bankers traditionally have had Waspy names like Peabody, Morgan, and Stillman. But the Bank of America was founded by a man named Giannini.

Amadeo Peter Giannini was born in San Jose in 1870. His father, Luigi, had come to California from Italy and bought a 40-acre truck farm, only to be murdered by one of his workers in a dispute over two dollars in wages.

Giannini’s mother married Lorenzo Scatena, a self-employed teamster. Scatena proved to have no talent as a farmer, and his wife suggested that he try his hand at being a commission clerk, working for a wholesale firm.

This turned out to be a very good idea, for Scatena had the gifts that make a good broker, an unerring sense of how the market is moving and an ability to make quick decisions. He was soon earning $250 a month, a comfortable middle-class income at that time, and when he went into business for himself, he made a profit of $1,500 by the end of his first month.

After completing eighth grade and five months at Heald’s Business College, A. P. Giannini decided to leave school and go to work for his stepfather. “The old waterfront commission business was a pretty stiff school for men,” he remembered long afterward. “I used to study them down there, and I suppose I picked up the knack of sizing up men.”

It quickly turned out that he, too, had what it took to make a great broker. In the summer of 1887, when he was only 17, Giannini, sure that there would be a shortage of pears that autumn, persuaded his stepfather to trust him on a buying trip to the Sacramento Valley, where he promptly bought up all the pears he could get his hands on for future delivery. It was a huge gamble, but he was right; the firm cleared a profit of $50,000 on pears alone that year.

Not surprisingly, Giannini was soon in charge of all buying trips to the Sacramento Valley. He quickly demonstrated that other requirement for economic success, the capacity for hard work. “I used to take a loaf of bread and a big Italian cheese along with me for my lunch and supper,” he said. “I never aimed to arrive at a place when they were having meals. It would have meant a serious loss of time.”

Giannini soon proved himself indispensable. His stepfather gave him a one-third interest in the business in 1889 and two years later raised it to one-half. In 1892, Giannini married Clorinda Cuneo, the daughter of an Italian immigrant who had made a fortune in real estate. At the turn of the century, Giannini had income from investments of about $250 a month, plus his half-interest in his stepfather’s firm. That, Giannini decided, was enough. “I don’t want to be rich,” he said. “No man actually owns a fortune; it owns him.” He sold his interest in the family firm to a group of employees for $100,000, and, at the ripe old age of 31, retired.

But, the following year, his father-in-law died intestate, and the family asked Giannini to handle the estate, which amounted to about $500,000. Giannini took over his father-in-law’s seat on the board of the Columbus Savings and Loan Society, a small bank in North Beach, San Francisco’s Little Italy. He quickly noticed that a competitor, the Italian-American Bank, was growing rapidly by catering to small borrowers.

When the board of directors refused to go after this business—which very few banks at that time regarded as worth pursuing at all—he, along with five other directors, resigned. They and others, including Giannini’s stepfather, founded the Bank of Italy. Capitalized at $300,000, it opened in 1904 in a converted saloon.

From the first, the Bank of Italy was what today is called a full-service bank, providing both savings and commercial checking accounts, while encouraging small loans, some as small as $25. Giannini realized that, if he was to enlarge his loan business, he would have to enlarge his deposits. To do so, he used the same tactics he had employed so successfully buying fruits and vegetables. He walked the streets of North Beach, schmoozed with recent immigrants in his fluent Italian, and persuaded them to move their small savings from the mattress to his bank. It worked. In December 1904, loans amounted to $178,400 and deposits to $134,413. One year later, the figures were $883,522 and $703,024.

The rapid increases in deposits and loans continued until the morning of April 18, 1906, when Giannini, asleep in his suburban San Mateo house, was thrown out of bed by the San Francisco earthquake. After making sure that his family was safe (his wife was expecting their eighth child), he set out for San Francisco. He found a city in ruins and the fire that was to consume much that survived the quake heading toward his bank. He managed to commandeer two wagons and load them up with the bank’s furniture, records, and, most important, money. Knowing that looters were about, he piled crates of oranges on top and made it safely back to San Mateo. The money smelled of orange juice for weeks after.

The next day, Giannini returned to find his bank a charred ruin, as, indeed, was most of North Beach. Also in ruins was San Francisco’s banking industry. The governor had declared a bank holiday, and many bankers expected it to last weeks. But Giannini, who instinctively understood the immense power of symbolism, put a notice in the San Francisco Chronicle, set a desk out on the sidewalk at the Washington Street wharf with a bag of gold prominently displayed, and posted a banner announcing this to be the Bank of Italy’s temporary quarters.

If Giannini reacted brilliantly to that earthquake, he actually anticipated the next one—the financial earthquake called the Panic of 1907. Seeing it coming, he had been quietly hoarding gold, and when the crisis hit, he let it be known that he was ready and able to pay gold to all who wanted to withdraw their money. As a result, of course, few demanded their money. “Mr. Giannini and his Bank of Italy,” reported a San Francisco newspaper, “were once again the talk of San Francisco.”

In 1909, California adopted a law that allowed banks to branch throughout the state, as long as the state superintendent of banks agreed that it was in the public interest. With a reputation that no money could buy, there was no one better placed to take advantage of this opportunity to create a banking empire than A. P. Giannini. In less than ten years, the Bank of Italy had 24 branches throughout California and was the fourth-largest bank in the state. By the end of the 1920s, with the name changed to the Bank of America National Trust and Savings Association, it was one of the largest banks in the country.

Giannini withdrew from day-to-day management in the 1920s, but, in 1932, when the new management tried to sell off some branches in response to the onset of the Great Depression, he waged a successful proxy fight to regain control. Once more running the show, he got his beloved bank through the banking crisis of March 1933 unscathed and undiminished. Indeed, it was once more poised for expansion, and doubled in assets in the next six years.

When Giannini died, in 1949, true to his beliefs, expressed when he had “retired” at 31, he left no great fortune, only about $500,000. What he did leave behind was what was then, and for many years afterward, the largest privately held bank in the world, a bank that had grown to greatness on the once-radical notion of serving ordinary citizens.