Banking » Bank of America CFO on driving global growth model

When Paul Donofrio was flying US Navy patrol aircraft over the Pacific in the 1980s, Cold War tensions with the Soviet Union were at a peak.

A South Korean airliner had been downed at the start of the decade after straying into Soviet airspace, and in such circumstances Donofrio, now the CFO of Bank of America (BoA), says he learned how to cope in stressful situations.

He says those early experiences prepared him well for the challenges of running finance at BoA, one of the world’s biggest financial institutions, with a market value of over $300bn, through the past year of uncertainty.

A lesson he gained from his time as a naval flying officer was the importance of purpose. “In the military, you know what your purpose is, and that creates the esprit de corps that allows you to function well in stress,” he says.

Purpose is something that Bank of America and other big banks that survived the global financial crisis (GFC), unlike Wall Street peers such Lehman Brothers and Bear Stearns, have been working to develop in the decade since.

That’s because the megabanks that had grew rapidly in a period of deregulation leading up to the GFC were often led by management teams with limited understanding of how their institutions’ vast fiefdoms operated, ultimately contributing to their collapse. So, to be run better over the long term, banks recognised that clarity of mission was necessary.

The surviving big banks also needed to regain trust from stakeholders as critics were questioning the ethics of bailing out banks on a vast scale at a time when trillions of dollars was being wiped off the value of American households.

Bank of America received a total of $45bn through the Troubled Asset Relief Program (TARP), allowing it to absorb Merrill Lynch, another Wall Street giant that was felled during the crisis. BoA paid back the sum by the end of 2009.

“There’s no question that we need to have purpose and values, and we need to share that purpose and those values. If we understand what we’re supposed to do, then we’ll be more effective,” says Donofrio, who joined the bank in 1999.

Although Donfrio says he was not in a senior management position at BoA during the GFC, describing his role then as “a traditional investment banker running a big team”, he was elevated to head of corporate and investment banking soon after the crisis.

Previously, he had been focused mainly on the healthcare sector at rival Kidder, Peabody & Co. and then Swiss banking giant UBS, before becoming head of healthcare, industry, consumer and retail, and the technology, media and telecom (TMT) groups at BoA.

But it was as head of the global corporate credit and transaction banking team at BoA that Donofrio gained experience in managing the assets and liabilities of financial institutions, including loans, leases and other assets, as well as bank deposits.

This would prove vital when in 2015 he was appointed CFO of America’s second biggest bank after JPMorgan Chase, and one of the world’s 30 largest listed corporates. That scale comes from serving individual consumers, and small to large corporations with a full range of banking, investing, asset management and other financial and risk management products and services.

Rebuilding trust

In the aftermath of the GFC, regulators across the world set strict rules limiting bankers’ bonuses and prevented them taking market bets using their bank’s money, in order to reduce risk to the institutions. In addition, capital buffers were imposed on banks worldwide to protect their balance sheets, despite intense lobbying from some quarters of the banking sector to loosen the safeguards.

When the coronavirus pandemic struck, the extra layers of required capital helped cushion banks from the worst economic effects of the global lockdowns, making banking  one of few solid cornerstones of the global economy as most sectors became imperilled.

Donofrio argues that during the past year, BoA has been “part of the solution as opposed to maybe how we were thought of in the past crisis”, and says the bank has been “able to deliver for all stakeholders, including shareholders in the past 12 months.”

That said, in January BoA posted fourth quarter 2020 net income that fell 21.4 percent to $5.5bn compared to the same period in 2019 while revenues were down 9.8 percent to $20.1bn, due to “dramatic effects of the health crisis on the economy,” the bank said in an accompanying statement.

But the major overhaul the bank went through post-GFC has created long term resilience, says Donofrio. In looking at a more balanced portfolio of loans and leases, the split between commercial and consumer is slightly more commercial compared to two thirds consumer a decade ago.

“There were lots of things we needed to do to transform the company, which we have done, so that we could deliver our purpose in a way that was consistent with our values through the cycle, not just in good times. We have a new board. We have substantially a new management team,” he says.

When he became CFO, Donofrio says that fortunately he wasn’t saddled with “issues and potential problems” his predecessors had to deal with, despite “echoes of them here or there”. He says he was fortunate to be in the position of being able to begin finessing the CFO group, which describes BoA’s 5,000 strong global finance function.

Alongside managing the bank’s liquidity position, “which is over a trillion dollars right now,” he says the focus of the CFO group’s mandate is to “provide financial information to the outside world and internally, so that our people can make decisions,” he adds.

“We then figure out how we can improve how we do that. And that boils down to making it more accurate, making it less operationally risky, i.e. reducing the number of errors that can make a bad decision, or doing it in a more efficient way, so that we can deliver that information with less people,” says Donofrio.

On being made CFO, Donofrio launched a review to seek out better ways of working for the CFO group. “We came up with seven or eight guiding principles on how we wanted to achieve that vision,” he says.

Improvements included breaking down silos in finance, as well as upgrading legacy systems and data “that needed to be improved to get granular. There’s room for improvement all over the place. That work never ends,” says Donofrio.

He says automation, in the form of AI (artificial intelligence) or often just improved versions of spreadsheets, can not only improve efficiency but also accuracy, as he says manual steps “are usually where the errors are found”.

Risk management

Donofrio says the role of BoA’s CFO group in identifying opportunities and risks, in harness with the bank’s risk management team, was sharpened by the onset of coronavirus at the start of 2020.

When the pandemic first struck, he sought to increase the frequency of information imparted by finance to the rest of the bank, “because things were happening very quickly,” says Donofrio. “We very seamlessly went from providing the most critical information to our business heads once a month to doing it every day.

“We also developed new routines. I was on the phone with the bank’s most senior people multiple times a day, reviewing that information, and making sure that there wasn’t other information that they needed. Re liquidity and capital, I was making decisions about whether we had enough or needed to get more,” he says.

Donofrio says the ability of BoA’s finance function to respond rapidly to the challenges created by the pandemic resulted from improvements delivered beforehand. “We spent a lot of time looking at our data and making sure that it was accurate and fit for purpose, and that it was coming from authorised data sources, years and years ago,” he says.

When it comes to navigating the complex global environment ahead, Donofrio says BoA is well placed. “We’ve developed a plan, which changes often because things change, for this health crisis in terms of how we’re going to deal with customers, what we’re going to do for our employees and their families and what we’re going to do for communities,” he says.

“So there’s different outcomes, all around the world. But we’re a big bank with huge scale. We are in the fortunate position of having built years ago a market structure in the US, and we have products and services that cut across 50 million customers in 93 local markets.

“That allows us to bring innovation, and low prices and capabilities that you wouldn’t otherwise be able to bring unless you have that sort of scale, and we deliver that through a local market team, who understands what’s going on in their market.

“We’re not meeting as frequently as we were in the middle of April. But at any moment, within minutes we could ramp it all back up.

“Because I do feel like, what we’ve done in finance is help lead in some ways the rest of the company to make improvements, that were done well before this health crisis,” he says.

Regarding prospects for the US economy, Donofrio says: “Our view is that we are grinding out of this. We can see it’s getting better in our customer data and now it’s going to be incremental progress we think every quarter, in terms of more people getting back to work,” he adds.