Anniversaries are poignant. In September 2008, the financial world came close to collapsing. As Lehman Brothers flailed and AIG floundered, most of us watched and waited, powerless but petrified. A year later the phrase ‘you’ve never had it so good’ echoes around bank boardrooms and trading floors, regulators ruefully bite their lips and central bankers wonder how they are going to stuff the genie back in to the bottle. It looks like the end of the world is off the table. Whether there will be a new normal or the usual boom and bust, I don’t know. But occasionally, I cast my mind back to those who were trampled underfoot in the rush for the exit: obviously the deposed bank chief executives but also all those infantrymen who were culled in round after round of savage job cuts. The phrase reversal of fortune is in some cases too true. A mole reports meeting Dick Fuld recently and asking how he was doing. "How the hell do you think I’m doing after losing $1 billion?" the former Lehman Brothers chief executive rasped.
Ken Lewis, the chief executive of Bank of America, has been both a winner and a loser in the crisis. He’s a winner because he still has a job but a loser because he has been stripped of his chairman title and his supportive ‘good old boy’ board has been diluted. Euromoney has consistently probed the probity of bank boards, starting in May 2006 when we expressed disbelief at the anaemic composition of the Lehman board (half the board were sprightly septuagenarians).
The composition of Bank of America’s board was a muddle. Indeed it was not obvious that this was the board of a financial company. According to the 2008 annual report, a retired general and a retired admiral were juxtaposed with North Carolina dignitaries such as Meredith Spangler, Temple Sloan and Robert Tillman. Since then, there has been rapid turnover in board members: 10 of the old guard have stepped down. Did you know that Tommy Franks, the US general who led the Iraq and Afghanistan campaigns in 2003 was a member of the Bank of America board until June?
Nevertheless, I still have concerns. Walter Massey, the 70-year-old chairman, an academic and an administrator, is a long-serving Bank of America director. My instinct is that he will side with Lewis on important decisions. Frank Bramble, former executive officer of MBNA, and Charles Gifford, former chairman of Bank of America Corporation, are still on the board and will be powerful allies of Ken. It will be interesting to see therefore how new members with financial credentials such as Susan Bies, William Boardman, Donald Powell and Robert Scully line up.
The new BofA board intrigues me because I wonder how much longer Ken will survive as chief executive and, if he steps down, who will succeed him? In a way, the fate of bank chief executives is now tied to the economy. If we see a strong recovery, Ken-slayers will dwindle. His mistakes (overpaying for Merrill Lynch and Countrywide) will shrink in the rear-view window. If we face a double-dip, it could be a double-barrelled shotgun for King Ken. Bank of America has a mound of nasty worms squirming below the surface: consumer banking (Bank of America), credit card debt (MBNA), mortgage foreclosures (Countrywide) and toxic investment banking assets (Merrill Lynch). It is also exposed to American corporate lending and commercial real estate. Yet, should the US economy bounce back, the firm has the potential for strong earnings growth, albeit that it still has to repay over $40 billion in Tarp funds. "You could be looking at a $55 stock in a few years," a financial institutions specialist told me. It is ironic that Ken’s fate probably lies not in his own hands but in the hands of the Democratic administration and the Federal Reserve. If Obama overplays his hand on healthcare, if Ben Bernanke’s soothing soundbites lose their lustre, we could all be looking in to the abyss again. And that includes Ken.
Bank of America however has been at pains to assure the world that it has a stalwart succession plan in place. In August, a memo from Lewis announced changes that "position a number of senior executives to compete to succeed me at the appropriate time". Brian Moynihan, who had been running half of Merrill Lynch following John Thain’s brutal ejection, is himself ejected and moves to become head of consumer banking. This means that Tom Montag, a former Goldman Sachs trader who was rumoured to have received an enticing $90 million to join Merrill Lynch in August 2008, will now have sole charge of Merrill Lynch. So is this a promotion or a demotion for Moynihan, whom one source describes as a "feisty Irishman"? Although Moynihan may be the shortest-ever serving CEO of an investment bank (having lasted a mere six months at messy Merrill), my sources say he could be well positioned to take over from Lewis.
Moynihan is a lawyer who used to work for FleetBoston, which Bank of America purchased in 2004. At BofA, his initial role was president of global wealth and investment management. He now broadens his experience with retail banking. The consumer division is a key business for Bank of America, contributing more than $58 billion, some 80% of total revenues, in 2008. Any future chief executive will need to understand the drivers of this business. The good news is that Moynihan will be based in Boston not Charlotte, North Carolina. Although the two cities are a hop apart on one of the bank’s private jets, anything which makes Bank of America less parochial is fine with me. Is it appropriate to have a major global financial institution headquartered in Charlotte? A Bank of America spokesperson said: "Brian lives in Boston. The reality is that his new job has him in various markets every day: this week he will be in Charlotte, Wilmington Delaware, San Francisco and Los Angeles. This is the nature of the consumer business at Bank of America – very hands-on. Bank of America has branches in 30 states."
