Negative Balance

Money has many uses . Among other things, it can buy cooperation. It can buy loyalty. It can buy silence. Early this year, North Carolina-based Bank of America found another use for its assets: buying into the heart of New England.

After B of A ponied up about $48 billion worth of its stock to take over FleetBoston Financial, this city's last big independent bank, it staked billions of dollars of cash to buy cooperation, loyalty, and silence. At first, it worked. Fleet investors were offered a handsome reward to approve the deal: $1.40 worth of B of A stock for every dollar of Fleet shares. The board of directors went for it. Piles of cash were put on the table to keep key Fleet executives on board. Enough of them stayed put to help smooth the takeover. Bank of America, which is headquartered in Charlotte, vowed to lavish money on civic groups, too. Since April, when B of A took control of Fleet, a steady stream of funds has flowed for low-income housing and to museums and other nonprofits. But B of A faltered as it sought to build what it couldn't buy: trust among Boston's community, business, and political leaders. Last spring came word of massive job cuts — 12,500 nationwide, including some in New England.

That's when it dawned on Boston's leading citizens that just because a certain executive remained at his or her desk in Boston, it didn't mean the thousands of people working for that executive would keep their jobs here, too. And soon it became clear that Boston was not to be a hub in Bank of America's universe, not by a long shot. It was apparently never intended to be.

Fleet's last vestiges around town will disappear this month, when B of A's red, white, and blue supplants Fleet's green, blue, and white on hundreds of area branches. Everyday customers don't appear to miss Fleet, which rarely won praise for being consumer-friendly. Internal surveys show a 20 percent improvement in customer satisfaction since B of A took over, according to Anne Finucane, the former Fleet marketing executive who is president of B of A's northeast region. B of A says it has picked up more than 150,000 new checking and savings accounts in Fleet's old territory. Banking analysts acknowledge that B of A has a reputation for providing better customer service than Fleet ever did. They say it offers service with “a friendly face” and does things “fast and efficiently.”

Brutally, too, in the eyes of Congressman Mike Capuano of Somerville. Vexed by B of A job cuts, vague responses, and broken promises, he plans to press for straight answers at a December 14 House committee hearing on bank mergers. “Their actions have been ruthless,” Capuano says. “I just want the truth.”

Such bitterness wasn't always hovering around Bank of America's arrival. In October of 2003, when the bank's purchase of Fleet was hatched, executives from the two banks laid out a plan that was to put six significant business units in Boston, churning out $12 billion a year in revenue. And though some job losses were expected, Fleet executives insisted they had won a commitment from B of A to maintain New England employment levels at about 18,000. When B of A and Fleet executives were asked about job cuts, says Newton Congressman Barney Frank, “they told us it wasn't going to happen.” On the day the deal was made public, Chad Gifford, then Fleet's chairman, promised in the Boston Globe, “It is my absolute conviction that employment levels will not go down as long as I'm here.” As for the business units to be based in Boston, Gene McQuade, Fleet's president, told the newspaper, “There is no squirrelly talk going on here. . . . These are real promises, and these are substantial businesses that will be here.”

That was then. McQuade, who was to have led major Bank of America operations in Boston, quit in June. When he walked away, he collected about $25 million in pay and severance. Two months later, two business units scurried off to Charlotte and New York. One of Fleet's executive vice presidents, Brad Warner, in line to run small-business lending from Boston for B of A, also left. Warner got about $20 million on his way out.

At Bank of America , buying loyalty is a tried-and-true method. B of A's leaders “have a long history of bribing upper management to take the deal” when they move in on a takeover target, offering bonuses and golden parachutes, industry analyst Richard Bove says. At lower staff levels, money buys silence, if not loyalty. Former Fleet managers who made more than $75,000 a year could collect up to 52 weeks of salary, while workers who made less could walk away with as much as 39 weeks' worth. But one stipulation commonly found in those agreements, called a non-disparagement clause, leaves many workers tongue-tied. Several say the clause is so vaguely worded it makes them worry that any public comment could cost them their severance pay.

Money buys a lot of things for B of A, but it couldn't defuse mounting tension over the bank's failure to live up to assurances it made shortly after concluding the deal. By late summer, Frank, the top Democrat on the House Committee on Financial Services, complained about what he called lies coming from Bank of America. State Treasurer Tim Cahill threatened to pull $120 million in state funds from former Fleet accounts inher ited by B of A. Other political leaders openly fretted over broken promises. Then, in late August, hundreds of Fleet branch workers believed to be safe suddenly lost their jobs. In October, B of A said another 4,500 jobs would be eliminated nationwide, 140 in Massachusetts alone.

By then it was apparent inside the bank that news about the branch job cuts had been mishandled. Public mistrust was building. “To his credit, [B of A CEO] Ken Lewis knew he had to do something,” says one insider. So Lewis flew to Boston with a new plan. Once again, the Hub was to take a central role in the bank's operations, this time housing an expanded wealth-and-investment-management group under a former Fleet executive, Brian Moynihan.

This beefed-up unit, producing about $6 billion a year in revenues, will bring some 100 high-level jobs to the city to run B of A's mutual funds and advise wealthy depositors, among other things. There are also dozens of support jobs that will come with the executives. Never mind that the wealth-management unit, though in a smaller form, was promised to Boston in Lewis's first plan, too.

Boston might have been prepared for this kind of corporate head fake if it had paid more attention to San Francisco's experience with the folks from Charlotte. They ran what was called NationsBank when it bought BankAmerica, at that time B of A's corporate name, in 1998.

“Within a few months, management was changed, NationsBank took the Bank of America name, and most functions promised to be run out of California were pulled out and moved to Charlotte,” says one former Fleet executive. In fact, according to city auditors, Bank of America's performance in San Francisco was so lacking that it had to give back more than $10 million in municipal tax credits because it failed to meet local employment requirements.

Was Boston just gullible and naive? Or were we misled, as Capuano, the Somerville congressman, believes. When issues arose earlier this year, the usual response from bank officials, he says, was, “Don't worry about that. It'll be taken care of.” But by September, both he and Frank had become highly skeptical.

“Bank of America's strategy coming into this was that they were going to make very vague statements,” says one source who was privy to closed-door discussions inside the bank. When it came to handling public officials, this source adds, “the bank's strategy was to feed them as little as possible.” And Frank, Capuano, and the rest of the congressional delegation, the source says, never asked tough questions.

On other fronts , B of A took a different tack. It vowed to provide a staggering $750 billion in housing loans and other assistance in low- and moderate-income areas throughout its territory over the next 10 years. It also pledged to give $1.5 billion to charities during that time. Numbers like this can silence even the most vocal community activists.

Then again, those figures can be “very misleading,” says a former senior Fleet banker. That's because the totals include the face value of loans made to low-income recipients and nonprofits, not just outright donations. In other words, that $750 billion includes every $150,000 cut-rate mortgage deal B of A makes, even though that money is expected to be repaid — with interest. Such details often go unreported.

Lewis and Gifford, who was named B of A chairman in April, worked with a platoon of PR experts and other executives to keep the press mollified. Gifford had labored for years to build relationships with key people in the media, from reporters to publishers. He skillfully used those contacts to reassure skeptics that the B of A deal was the best that could have been gotten for Fleet. He also took pains to make clear that B of A didn't pay him a windfall sum to stick around. But as with other Fleet stockholders, Gifford's thousands of Fleet shares gained 40 percent in value through the deal. He now owns $31.5 million worth of B of A stock, plus another $6.5 million worth given to him in February as a gift that will vest in three years.

Value of a different sort has made Bank of America alluring to Fleet's old branch customers, as well as other consumers in the region. In a speech to the Greater Boston Chamber of Commerce, Lewis outlined B of A's plans to offer free Internet banking and bill paying, free checking, and a special mortgage program for cops, firefighters, teachers, and medical workers. And Finucane says the bank was careful to make sure that customers wouldn't face changed account numbers or even new personal identification numbers.

After “a period of conversion, integration, that could prove to be disruptive,” former Fleet customers can expect to receive improved service, says banking analyst Gerard Cassidy. But, he says, branch customers at B of A and other big banks can also expect to start paying more within a few years for the greater convenience such national giants offer — more than 16,000 B of A cash machines, for instance, and nearly 5,700 B of A branch offices nationwide. Alternatively, Cassidy says, consumers might have to settle for lower interest rates on deposits.

Even if they're unconcerned about the prospect of paying a little more or reaping a little less, industry observers say, consumers should keep a wary eye on their bank statements. Earlier this year, a jury in San Francisco convicted B of A of illegally dipping into social security direct-deposit payments received by as many as 1.1 million customers; the illegal assessments were meant to cover bounced checks and other fees, a violation of California law. Bank of America was ordered to repay $284 million. It is appealing the decision.

By the end of next year, all the transitional issues involving B of A's takeover of Fleet should be history. More flare-ups over job losses and other changes could occur before then, though some insiders say the transition is going smoothly. As Lewis labored to pacify restive elements around Boston in August, September, and October, the irony wasn't lost on Fleet veterans. Long regarded as the Pac-Man of Boston banking, Fleet swallowed dozens of New England banks before it was sold.

“We probably broke more eggs in some of the deals we did,” says one Fleet insider. An ex-Fleet manager, thinking of his old coworkers, adds, “Anyone who thinks he's safe is being a little bit delusional.”