Risks and Profits

In San Francisco last week lights blazed brightly all night in the building occupied by Amadeo Peter Giannini's giant Bank of America. The bank's 493 branch managers were telephoning in reports, and statisticians were preparing to issue Bank of America's six-month financial statement. Few days before, six major Los Angeles banks, pleading hard times, cut their maximum interest rates on time and savings deposits from 2% to 1 1/2%, but Mr. Giannini swore up & down he would not cut his. "A. P." did not need to, he boasted, for Bank of America was making its greatest profit in years, might make more money in 1938's first six months than any other U. S. bank.

When the semi-annual report was issued, it supported the board chairman's optimism. In the most successful six months of its history, Bank of America shattered a flock of previous records: capital funds were up $4,963,000 to $112,231,000; deposits totaled $1,357,778,000, $77,058,000 increase over June 30, 1937; total resources were $1,498,527,000, compared with 1938's $1,415,559,000. Half-year earnings of $12,321,000 beat last year's first six months by $2,314,000.

Main reason for the Bank of America's glowing report was that since 1935, along with such other big U. S. banks as Manhattan's Manufacturers Trust Co. and National City Bank of New York, it has been in the personal loan business. To date Bank of America has loaned more than $200,000,000 for consumer purchases, more than $124,000,000 on FHA loans. Loans to individuals. Banker Giannini believes, are the best of all credit risks--and personal loans pay 5% to 10%, well above the 1% to 3% conservative investments bring. Hence, Bank of America has plugged personal financing for all it is worth; its credit department approves 1,000 to 1,500 loans a day.*

*Original developer of the modern field of personal financing were the Morris Plan banks. Two years ago New York Supreme Court Justice Ferdinand Pecora ordered Founder A. J. Morris and four other directors of Industrial Finance Corp., parent of Morris Plan banks, to pay stockholders $400,000 they had made in a side-deal (TIME, Nov. 30, 1936). Last week the Appellate Division unanimously reversed Judge Pecora, found "no dereliction of duty."

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