Wellesley banker faces challenge to his Bank of America leadership
Some shareholders wonder if the CEO is best able to lead the bank into a new era
Brian T. Moynihan, the Boston banker and lawyer who became chief executive of Bank of America, is facing the first shareholder challenge of his five-year tenure as concerns mount over his leadership and the bank’s performance.
Moynihan, a Wellesley resident, has shepherded the nation’s second-largest consumer bank through the financial crisis and its aftermath, settling billions of dollars in federal lawsuits over bad mortgages and faulty foreign-exchange practices, shedding unprofitable units, closing hundreds of branches, and shoring up capital to withstand another economic shock.
But shareholders are wondering whether the 55-year-old executive, known for hard work and sharp thinking rather than salesmanship, is best able to lead the bank into a new era of growth.
On Tuesday, they’ll vote during a special meeting on whether to bless a decision made last year — without consulting shareholders — to expand Moynihan’s authority by making him chairman of the board of directors as well as CEO.
On paper, it may be a vote about corporate governance, but analysts and bank observers say that it has become much more, a test of the confidence shareholders have in Moynihan, the board, and the bank’s direction.
“The stakes are exceptionally high,” said Cornelius Hurley, the director of Boston University’s Center for Finance, Law & Policy. “Is this a referendum on him? Absolutely.”
Moynihan is expected to win the vote, and even if he doesn’t, he would still run the bank’s operations, fetching a $13 million salary. But a smaller margin of victory — less than 60 percent of the vote — could weaken Moynihan, analysts said.
“Now, if he loses the vote, it does mean a damn thing. He’s gotten a clear no vote of confidence,” Richard Bove, a financial analyst with Rafferty Capital Markets LLC, a New York brokerage firm. “The board of directors has gotten a clear vote of no confidence. It’s going to create a crisis for the management for Bank of America.”
Bank of America officials seem well aware of stakes.
Anne Finucane, a Lincoln resident who is global chief of strategy and a vice chairwoman of Bank of America, has been rallying support among the bank’s largest shareholders. One very prominent Bank of America investor, Warren Buffett, has spoken out in favor of Moynihan, crediting him last week with resuscitating the bank.
Former US representative Barney Frank, the Newton Democrat who crafted the post-financial crisis banking law that bears his name, has also backed Moynihan, doing a round of interviews during the past few days. Frank noted that the bank has settled federal charges over its mortgages and that Moynihan was one of the few top banking officials to publicly support the formation of a federal financial watchdog agency, the Consumer Financial Protection Bureau.
“He’s done a pretty good job,” Frank said. “He’s managed problems he has inherited.”
Other banks, including JP Morgan Chase & Co. of New York and Wells Fargo & Co. of San Francisco, have dual CEOs and chairmen, and no research suggests that splitting the roles improves performance, Moynihan supporters add. But several institutional investors, including the Massachusetts pension fund, plan to vote against combining the chairman and CEO roles.
The California public pension funds, the largest in the country, are telling shareholders that management needs stronger oversight from an independent chairman. The pension funds point to the bank’s poor financial performance and a $4 billion accounting error made last year.
The bank has also struggled with its Federal Reserve stress tests, earlier this year earning a warning from regulators about deficiencies in its ability to predict how it would perform in a severe downturn.
Bank of America’s share price closed at $16.33 Wednesday, a 4 percent increase from January 2010, when Moynihan took over. The stock fell 2.9 percent Thursday, to $15.86.
Meanwhile, the stock of its competitors has soared. Shares of Wells Fargo, the nation’s third-largest bank by assets, have nearly doubled in price during that period. The share price of JP Morgan Chase, the nation’s largest bank, has climbed almost 50 percent.
Aeisha Mastagni, portfolio manager for the California State Teachers’ Retirement System, said directors should hold Moynihan accountable for this performance.
“They need to make the decision who’s best positioned to lead Bank of America going forward,” Mastagni said. “Whether they win or lose, it’s going to be close. They’re going to have to reflect on that and what they need to do.”
Moynihan’s rise was somewhat circuitous. As a lawyer, one of his primary clients was Fleet Financial Group, which he advised on acquisitions that helped make Fleet the largest financial institution in New England. Fleet eventually hired Moynihan as deputy counsel and later put him in charge of the bank’s investment and wealth-management unit. Bank of America bought Fleet in 2004; Moynihan continued to lead the combined company’s wealth management operations and then consumer banking.
When former chief executive Ken Lewis abruptly retired following the disastrous acquisition of the mortgage lender Countrywide Financial Corp., the purchase of the investment company Merrill Lynch, and multiple investigations by state and federal authorities, the board turned to Moynihan. He took over as CEO of the sprawling bank in 2010, but by that time shareholders angry with Lewis had already separated the roles of chairman and CEO.
While managing the company — with headquarters in Charlotte, N.C. and a significant presence in New York — Moynihan has remained rooted in Wellesley. He still goes to the dump on the weekends, attends Mass, and on Thursday chaired a Boston gala to raise money for priests’ retirement and health care costs.
Under him, the bank has spent about $70 billion on fines, settlements, and legal costs and cut 15 percent of its employees and 20 percent of its branches and offices. His supporters say Moynihan spent the first two years of his tenure cleaning up past problems and putting the bank on firmer footing.
Deposits have grown by nearly 25 percent to $1.2 trillion, and profits are up nearly 70 percent to $5.3 billion in the second quarter, from $3.1 billion in the same period in 2010.
“A simpler, straightforward business model is at the heart of the company’s turnaround since the financial crisis,” said Lawrence Grayson, a spokesman for Bank of America. “Our balance sheet has never been stronger.”
Correction: An earlier version of this story misstated the amount of deposits at Bank of America. The correct amount is $1.2 trillion.