Biz02-BAC-0901-newscom_345.jpg.cms 2Bank Of America: Leadership Vacuum

 

This is a seekingalpha.com article.

 

Bank of America has performed abysmally over the past seven years and shows little or no sign of real improvement.

The leadership of the company, which includes the board, seems to be a closed-shop that is primarily concerned with protecting itself.

Chairman and CEO Brian Moynihan has experienced huge turnover with his appointments and seems to believe that the only way to increase profits is to cut costs.

As readers of my posts know, I have never been a big fan of Brian Moynihan, Chairman and CEO of Bank of America Corp. (NYSE: BAC). Consequently, I have never, in recent years, been a fan of Bank of America.

The events of the past two weeks have just cemented my impression of the vacuum that exists within the upper reaches of the organization.

And, the performance of the organization reflects this fact.

Yes, Mr. Moynihan inherited a disaster. Ken Lewis, Mr. Moynihan’s predecessor, led the organization down the tubes. But, Mr. Moynihan, who took over in 2010, has sorely failed the owners of the company.

The worst that can be said of the leadership, I believe, is that it is, basically, a closed shop. It promotes from insider; it backs each other up; and it is blind to the performance it is providing the shareholders.

The problem begins with the board. For one, four current members of the board are carryovers from the Ken Lewis days. One of the carryovers is Charles K. Gifford, the former chief executive officer of FleetBoston, a bank that was acquired by Bank of America in 2004.

Note that Mr. Moynihan came to BofA as a part of that acquisition. He had joined FleetBoston in 1993. So, Mr. Moynihan and Mr. Gifford have ties.

Mr. Moynihan asked the BofA board to wave the banks rules on retirement age for Mr. Gifford. Retirement age is 72. The reason given for the exception for Mr. Gifford is “because of his extensive expertise.”

According to Michael Corkery of the New York Times, “Mr. Gifford is seen by some as a key supporter of Mr. Moynihan.”

This is not a confidence builder.

Ben McLannahan of the Financial Times writes “Some big investors contacted by the Financial Times have singled out the four long-serving board members who sanctioned the 2008 acquisition of Countrywide, which saddled the bank with billions of dollars in charges for fines, settlements, and provisions.”

Then there was the Lewis’ acquisition of Merrill Lynch…which was approved by these board members.

This board has overseen the continued decline in bank performance since 2006.

In 2006, Bank of America earned 15.6 percent return on shareholder’s equity. In 2008, given the advent of the Great Recession, ROE dropped to around 2.0 percent and in 2009, the bank posted a loss.

By 2014, the bank’s ROE was almost up to 5.0 percent and the latest earnings in 2015 show this number has dropped to 4.6 percent.

The stock price of the bank is where it was in 2008.

Bank of America is now in its eighth year where it’s return on shareholder’s equity is below five percent with its stock price doing little or nothing. And, they still have a board that is still internally orientated and that continues to support internal management.

Unbelievable.

And, what has Moynihan done to improve on this. Well, he can point to his efforts to re-structure. Since he became CEO he has had four chief financial officers, four chief risk officers, and four heads of the wealth division.

Something is wrong here.

Now, we read that Mr. Moynihan is confronting its Merrill Lynch, the bank’s investment banking wing.

Seems as though Mr. Moynihan believes that the only way he can make more profits is to continue to cut costs. Formerly, BofA’s “investment banking and trading units in recent years routinely generated as much as 40 percent revenues with less than 10 percent of the bank’s staff.”

The leader of this, Thomas Montag, had received sufficient attention, so much so that “In July, when Mr. Moynihan shook up his management team, Mr. Montag was the first executive named in the memo leading many investors and analysts to assume that he is the leading candidate if Mr. Moynihan were to step down in the near term.”

Now, however, BofA “is the only large U. S. bank to post a decline in revenue from trading, investment banking and related activities for the first half of this year.”

The consequence: “Bank of America on Tuesday began laying off about 200 employees-all in Mr. Montag’s trading and invest banking units.

The Merrill group has long chaffed under the tight rules that the BofA commercial bankers has imposed on its operations, also found that things had gotten even tighter. Mr. Montag, in an interview on Tuesday stated “The rules have changed.”

Does Mr. Moynihan see Mr. Montag as a internal competitor and so is moving to put him at a disadvantage with fewer people and more restrictions.

Perhaps Mr. Moynihan is “feeling his oats” with his proxy victory two weeks ago that strengthened his position as both Chairman of the Board and Chief Executive Officer.

This just doesn’t read right for me.

Bank of America is not performing well, the top of the organization seems to be a closed-shop that has now fully moved behind Brian Moynihan, and Mr. Moynihan seems to have little or no leadership capabilities as exhibited by the high turnover of his executive choices and his continual focus on cost cutting as the primary way to achieve more profits.

Bank of America needs a change, but that change needs to begin with the board and then needs to filter down to the CEO. But, it appears, that won’t happen for a long time.

Summary

Bank of America has performed abysmally over the past seven years and shows little or no sign of real improvement.

The leadership of the company, which includes the board, seems to be a closed-shop that is primarily concerned with protecting itself.

Chairman and CEO Brian Moynihan has experienced huge turnover with his appointments and seems to believe that the only way to increase profits is to cut costs.

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