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“Bank of America is the purest reflection of the United States economy of any of the largest financial institutions,” observes John A. Kanas, the chief executive officer of privately held BankUnited. BofA owns or services one in five home loans in the U.S., operates more than 5,700 retail branches, and serves 58 million customers. “As America goes,” says Kanas, “so will Bank of America.”
Then there’s Countrywide Financial, the worst corporate acquisition in living memory. BofA’s former CEO, Kenneth D. Lewis, bought the California subprime cesspool in 2008; its stench has permeated the Charlotte-based bank ever since. Rampant fretting over whether BofA has sufficient capital and needs to sell more stock traces primarily to fear that it can’t quantify its mounting write-offs and losses connected to hundreds of thousands of mortgages gone bad. So far, the aggregate Countrywide damage exceeds $30 billion.
“Obviously there aren’t many days when I wake up and think positively about the Countrywide acquisition,” Moynihan said on Aug. 10 during a conference call arranged to reassure anxious investors. Even some of his loyal aides concede that the call, like a series of other pronouncements he has made this year, didn’t comfort many uneasy money managers. Moynihan received his CEO stars in a battlefield promotion in December 2009, after Lewis was perceived as losing investor confidence. A compact 51-year-old former rugby player at Brown University, he has admirers who praise his herculean work ethic and intelligence. Charismatic he is not. Moynihan displays little if any humor in public and swallows many of his words. His out-of-earshot nickname within the bank, according to several employees, is “the Mumbler.” Asked for a self-evaluation during the Aug. 10 conference call, he said: “I think my performance with the management team in terms of transforming the company, I think, has been strong. Our performance on the share performance has not been strong.”
More serious than his bouts of verbal artlessness, Moynihan has overpromised on critical occasions, most notably in predicting prematurely that he would raise the bank’s penny-a-share dividend this year. Such mistakes have obscured his reasonable attempt to remake the bloated organization he inherited. To his credit he is different from the generation of hubristic bankers typified by Lewis, 64, and former Citigroup CEO Sanford I. Weill, 78. During a prolonged era of bipartisan antiregulatory ideology, the Lewis-Weill cohort built the behemoths that were too big to manage and ultimately too big for Washington to allow to go under. The instability of those institutions contributed to the panic of 2008 and its messy, unfinished cleanup.
Moynihan, who for six years toiled as Lewis’s lieutenant, seems determined to learn from his former boss’s mistakes. The younger man came into his job planning to sell off extraneous assets acquired by Lewis. In the process he has made the bank a more focused institution that in the long run ought to be less dangerous to the financial system. Whether he has the dexterity to survive the current crisis and complete the task is an open question.
In the space of only a dozen years, Bank of America transformed itself from an unremarkable regional business into a financial supermarket of gargantuan proportions. Charlotte, in turn, grew into the country’s second-biggest banking center after New York.
Lewis, who never concealed his Southerner’s disdain for hifalutin Wall Street types, capped an extraordinary acquisition spree in 2008, first by absorbing Countrywide, a subprime-mortgage factory on the verge of bankruptcy. Then, with encouragement from the Bush Administration, he took over Merrill Lynch, the faltering brokerage and investment bank. Merrill turned out to be Lewis’s undoing; he lost his job in 2009 when questions arose over whether he fully disclosed its precarious financial condition as he pushed BofA shareholders to approve the $29 billion deal.
