Moynihan has not met bank’s goals
Brian Moynihan’s two-year tenure as CEO has been marked by slow progress as Bank of America untangles itself from its past
Shortly after he was named chief executive of Bank of America Corp. in December 2009, Brian Moynihan hopped on a stage near the bank’s headquarters in downtown Charlotte, N.C., to rally employees.
The bank had been battered by the housing slump, financial crisis, federal bailouts, and several government investigations. But Moynihan, a Wellesley resident, insisted the future was bright for a company with leading positions in consumer branches, credit cards, investment banking, and other lines of business. It is the largest bank in Massachusetts and one of the largest in the country.
“We have everything we need,’’ he said, receiving a standing ovation from workers. “We just have to flat out execute.’’
Two years later, Moynihan has yet to execute a turnaround. Bank of America remains mired in investigations and lawsuits over its mortgage and foreclosure practices. Losses continue to mount. Its stock has plunged by nearly two-thirds since Moynihan took over, briefly falling below $5 a share last week for the first time since early 2009.
For Moynihan, 52, cleaning up the mess left by his predecessor has been a long, difficult slog, complicated by a weak economy in the United States and the threat of a financial crisis in Europe, which has pummeled bank stocks everywhere. He has moved deliberately to clear the backlog of lawsuits, increase capital reserves, and streamline operations - selling peripheral assets, closing branches, and preparing to cut 30,000 jobs over the next three years.
In an interview with the Globe, Moynihan conceded that progress has been slower than he had hoped or expected, and it could take at least two more years to clear away bad mortgages and related issues.
But he said he has largely completed the sell-off of assets, making the bank leaner, more efficient, and positioned to grow.
“It’s taken longer to get our earnings back to where we want. The stock hasn’t performed like I’d like,’’ Moynihan said. “But the reality is we’re doing the things that we can control and I think the other things will come.’’
Moynihan officially became chief executive on Jan. 1, 2010, succeeding Ken Lewis, whose acquisitions of mortgage lender Countrywide and investment firm Merrill Lynch saddled Bank of America with toxic mortgages and other problems.
A lawyer by training, Moynihan joined Bank of America following its 2004 acquisition of FleetBoston, where Moynihan led the wealth management division. He held a variety of positions at Bank of America, including head of retail banking and general counsel.
In many ways, Moynihan’s tenure represents a new era for a bank that expanded relentlessly for more than a quarter-century, gobbling bank after bank to become one of the nation’s largest financial services firms. Moynihan has sworn off major acquisitions, vowing to make the bank more efficient and profitable.
Moynihan said the bank plans to hold on to major divisions, such as Merrill Lynch. But since Moynihan became chief executive, the bank has sold more than 20 businesses or investments, including First Republic bank; most of the Columbia mutual fund business; portions of its overseas credit card business, and stakes in MasterCard and several other financial services companies. The sales raised $47 billion.
“We have been shrinking the size of the company because I believe it’s the right thing to operate a simpler company,’’ Moynihan said.
He also said the bank is nearly finished selling its “noncore’’ assets. “Most of the identifiable stuff is done,’’ Moynihan said. “There’s a lot of little things to do, but not the big things.’’
David Hilder, a financial analyst who follows the bank, said it makes sense for companies like Bank of America to periodically prune their assets, particularly after making a series of acquisitions.
“It’s like a Christmas tree with lots of little ornaments,’’ said Hilder, who works for Susquehanna International Group, a Pennsylvania financial trading firm. “Periodically, it’s a good time to pick off the shiniest and most valuable ornaments and clean up those that are broken.’’
Like other big banks, Bank of America has been squeezed by the weak economy, reducing demand for loans; ultra-low interest rates; lower earnings from Treasury bonds and similar investments; and new regulations, which have increased expenses and reduced revenues.
Bank of America, however, has been hit harder because of its 2008 acquisition of Countrywide. Many investors who bought Countrywide’s toxic subprime mortgages have sued Bank of America for fraud, while states, including Massachusetts, have accused the bank of failing to properly foreclose on homes.
Moynihan insists the company is working to resolve the lawsuits and help homeowners. He said the bank has modified nearly 1 million loans and has 40,000 employees working with homeowners to avoid foreclosures. In June, the bank struck an $8.5 billion settlement with institutional investors that bought Countrywide mortgages.
But some banking analysts say Moynihan has not moved fast enough, criticizing him for a lack of vision and presentations that fail to inspire confidence among investors and analysts.
He has also made several missteps. For instance, the company told investors it planned to boost its quarterly dividend, now just a penny a share, only to have the Federal Reserve reject the request. He also told investors that the bank had plenty of capital, and didn’t need to sell more stock, only to reverse course and sell 400 million shares of common stock this month.
Moynihan said he needed to switch gears because of the sluggish economy and other factors. “We had to change because the circumstances changed.’’
He also came under fire for signing off on a plan to impose a $5 a month fee for debit cards, provoking outrage and derision when it was announced in September. He rescinded it five weeks later after other major banks backed away from the idea.
“He’s done a poor job and that’s quite evident from the stock price,’’ said Paul J. Miller, a financial analyst with FBR Capital Markets, an investment bank in Arlington, Va.
Despite the grumbling, Moynihan notes that customers are supporting Bank of America with their wallets. The bank has increased the number of checking accounts for three consecutive quarters, while deposits have risen 7 percent over the past year to more than $1 trillion.
“At the end of the day, we provide great service,’’ Moynihan said.
Though Moynihan’s main office is in Charlotte, he has continued to live in Wellesley. He often sports a pair of New England Patriots cuff links and raises money for local institutions, including the American Ireland Fund in Boston.
Colleagues say they are impressed with Moynihan’s work ethic and ability to absorb the details of the bank’s financial statements and sprawling operations. Moynihan, who splits his time between offices in Boston, New York, and Charlotte, often lugs a pair of canvas shoulder bags stuffed with documents. He sends e-mails to colleagues at all hours of the day and night.
“He’s one of the hardest working guys I have ever seen,’’ said Thomas Montag, the banks co-chief operating officer. “He has an incredible mind for the numbers.’’
Thomas K. Brown, chief executive of Second Curve Capital, a New York hedge fund that focuses on financial services, said he initially viewed Moynihan as an insider unwilling to shake things up. But after a slow start, he said Moynihan is taking steps needed to turn things around, including executive changes and asset sales.
“He’s made some great moves,’’ Brown said. “The biggest overall theme of the moves is that he’s downsizing the company.’’
The biggest challenges for Moynihan remain repairing the bank’s reputation and clearing up the mortgage mess, Brown said. Analysts said that Moynihan appears to have support from the board, giving him time to solve the problems.
If anything, Moynihan realizes that the bank’s problems will take time to solve. In a year-end letter provided to employees on Friday, Moynihan wrote: “The New Year will bring its own mix of successes and challenges, but our direction is clear and we know what we must do,’’ he wrote. “Our long-term value will come through and be reflected in our stock price over time if we do that.’’