Bank of America's chief of consumer banking, Brian Moynihan, takes over the largest U.S. bank at year's end after the external candidate to succeed CEO Ken Lewis drops out of contention
By David Mildenberg
(Bloomberg)— Bank of America (BAC) the biggest U.S. lender, promoted Brian T. Moynihan to chief executive officer, opting for an insider to repair the company after the tumultuous takeover of Merrill Lynch & Co. prodded Kenneth D. Lewis into early retirement.
Moynihan, the 50-year-old head of the consumer banking unit, takes over at year's end, the Charlotte, North Carolina- based bank said yesterday in a statement. Lewis, 62, said in September he'd step down Dec. 31.
"Our core businesses are the right ones, we just have to execute," Moynihan said in an interview after the board gave him the title of president and CEO. "As the recovery takes hold, we need to do a better job with risk management."
Bank of America's new boss must stanch defaults on consumer loans tied to the recession, which led to two losses in the past four quarters. He must also integrate Merrill Lynch and smooth relations with regulators after they clashed with Lewis over the purchase. The bank paid back $45 billion to the U.S. Troubled Asset Relief Program on Dec. 9.
Moynihan takes charge of the biggest U.S. lender by assets and deposits, the No. 1 home lender and the largest issuer of debit cards. He'll also oversee underwriting, trading and retail brokerage operations of New York-based Merrill Lynch. The bank counts 53 million consumer and small-business customers in 150 countries at 6,000 offices, and the company's stock is a component of the Dow Jones Industrial Average.
"The good news is that he knows the company and isn't coming from the outside," said Mike Holland, chairman of Holland & Co. LLC, which manages more than $4 billion. "The fact that he has a background in wealth management and corporate banking is a very good order for what they need." Holland doesn't own any shares and said the appointment may turn him into a buyer.
The board's six-member search committee, led by Chairman Walter Massey, chose Moynihan during an early afternoon meeting in Charlotte yesterday. The full board assembled at 6 p.m. New York time and after presentations from lawyers, its executive search consultants and Massey, voted unanimously for Moynihan, according to spokesman Robert Stickler.
Moynihan, who had been working with Lewis earlier in the day, said he left his 58th floor office at about 7:30 p.m. after being called into the meeting and was greeted with applause by Lewis and the 13 other directors who were attending; one undisclosed member was connected by phone.
"I was pleased," Moynihan said when asked about how he responded. The 10-week selection process was worthwhile, he said, "as long as it had a good outcome."
Internal and External
Bank of America sorted through half a dozen internal candidates including Gregory Curl, 61, the bank's chief risk officer, who was initially favored by Lewis because of his lengthy experience, a person familiar with the matter has said. Lewis strongly endorsed Moynihan at the meeting, the person said, and repeated it in the company's statement.
Robert Kelly, 55, CEO at Bank of New York Mellon Corp. and the leading outside candidate, dropped out on Dec. 14 after the board offered a $20 million compensation package, the person said. Kelly was among at least five industry executives who rebuffed the board's overtures.
An internal candidate usually is the best choice because "the transition is easier and you usually have to pay the new CEO much less than if you have to go outside," said Mike McCauley, senior corporate governance officer at the Florida State Board of Administration, which owns 25.4 million Bank of America shares.
Moynihan wasn't among the bank's five highest-paid executives in 2008, so his compensation wasn't disclosed at the time and the statement yesterday didn't discuss the matter.
Moynihan joined Bank of America through its 2004 purchase of FleetBoston Financial Corp., where he led the brokerage and wealth management unit and directed strategic development for six years. At Bank of America, he has been president of the global wealth and investment management unit, spent a month in 2008 as general counsel, then replaced former Merrill Lynch CEO John Thain in January to head the investment bank and wealth management units. In August, he was assigned to head the retail bank, including oversight of credit card operations.
Since Lewis's resignation announcement, analysts including Richard Bove of Rochdale Securities LLC had cited Moynihan as a favorite for the CEO post because of his ties to search committee directors Charles "Chad" Gifford, Thomas May and Thomas Ryan, three Bostonians who had been on the Fleet board.
"The fact that regulators would accept this is a complete indictment of the Fed and Office of the Comptroller of the Currency," said Chris Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based research firm. "Ken Lewis's cronies were allowed to pick his son."
Moynihan must show investors that Bank of America's diverse businesses can be effectively managed rather than broken into smaller pieces, said David Kotok, chairman of Vineland, New Jersey-based Cumberland Advisors, which oversees $1.2 billion. "There is a question whether this model even works in the post- crisis world," Kotok said. "He has a task ahead of him."
Bank of America posted losses in last year's fourth quarter and the third quarter of 2009. Still, the bank posted a cumulative profit of $6.5 billion for the first nine months of this year, aided by gains at Merrill Lynch from trading stocks, bonds and currencies.
The U.S. injected $45 billion into Bank of America through the purchase of preferred shares, including $20 billion approved in January after the Merrill Lynch takeover to keep the deal from collapsing. The bank redeemed the shares earlier this month after raising $19 billion through a stock sale.
Documents released during a congressional investigation of the Merrill purchase show Moynihan as general counsel played a role in conducting the transaction and advising Lewis. The CEO was later criticized by investors and regulators for not telling shareholders about Merrill's $3.6 billion in employee bonuses and mounting losses.
Moynihan's relations frayed with Representative Edolphus Towns, a New York Democrat who leads the House Oversight Committee. After Moynihan testified on his role in the Merrill takeover at a Nov. 17 hearing, Towns said he didn't believe some of the banker's answers and that Moynihan "didn't show the kind of leadership a company would seem to need."
"I hope Mr. Moynihan appreciates the debt Bank of America owes to U.S. taxpayers," Towns said in a statement yesterday.
Bank of America is addressing consumer and political concerns by providing more clarity to customers in credit cards, home loans and other retail businesses, Moynihan said. His own success as CEO will be measured by whether customers, investors and employees "say we are doing a better job," he said.
Moynihan is an Ohio native, a graduate of Brown University and the University of Notre Dame School of Law. The CEO and Bank of America will be based in Charlotte, and there are no plans to move the headquarters, Stickler said.
Moynihan praised Tom Montag, who heads the bank's capital markets unit, for helping retain senior bankers and noted that Bank of America has ranked second in investment banking fees for three straight quarters.
"To perform that way in these tough economic times is a real testament to that business," he said.
The bank needs brokerage and investment-banking fees to overcome higher losses in its credit-card and home-loan businesses, which make up about 36 percent of revenue this year. The U.S. unemployment rate stood at 10 percent in November, and
Lewis told employees in September when he announced his departure that "a near double-digit unemployment rate is bad medicine for a bank that serves consumers." He predicted that "the next two quarters will be difficult."
To contact the reporter on this story: David Mildenberg in Charlotte at email@example.com.