April 29 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis is losing shareholder support heading into today’s annual meeting amid speculation that government stress tests will show the bank needs more capital.

Lined up against Lewis’s re-election as chairman of the biggest U.S. bank by assets are the California Public Employees’ Retirement System, the nation’s largest public pension fund, proxy advisers Glass Lewis & Co., RiskMetrics Group Inc. and Egan-Jones Proxy Services, and other investors. Shareholders also have targeted 70-year-old lead director Temple Sloan Jr.

Ballots will be cast at the bank headquarters in Charlotte, North Carolina, on whether to re-elect directors and split the chairman and CEO jobs held by Lewis. Dislodging Lewis after eight years as chairman may depend on how mutual funds and brokerages vote their shares.

“It’s largely up to the big mutual fund companies and they are usually very hesitant to cross with the management of financial services companies,” said William R. Atwood, executive director of the Illinois State Investment Board, which will vote its 1.5 million shares against Lewis’s re-election.

Lewis, 62, may face demands from regulators to raise capital after results of government stress tests are released May 4. The bank needs $60 billion to $70 billion of capital, according to Friedman, Billings, Ramsey Group Inc. analyst Paul Miller, who cited separate tests performed by his firm, which assumed a 12 percent jobless rate, compared with about 10 percent used by the government.

Stress Tests

Bank of America is among 19 U.S. financial institutions assessing the results of the Treasury’s stress tests. Lewis has vowed the bank can recover without any more U.S. aid, while Treasury Secretary Timothy Geithner has said regulators may replace management and directors of banks that need “exceptional” assistance.

Lewis has presided over a 79 percent drop in Bank of America shares during the past year amid a worldwide credit crisis and recession. The bank gained 3.3 percent to $8.42 a share in early New York trading today.

The CEO has come under fire for failing to divulge losses at Merrill Lynch & Co. before shareholders voted in December to endorse Bank of America’s purchase of the largest brokerage. The Merrill Lynch acquisition was completed on Jan. 1, after the U.S. government provided loan guarantees to prop up the deal.

Lewis’s Future

Lewis’s future “is probably out of his hands at this point,” said Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based research firm that tracks banks. “The time for Ken Lewis to hang tough was when he could have told the government, ‘No, I won’t buy Merrill Lynch,’” he said.

Bank of America’s 18-member board solidly supports Lewis and shares his view that the acquisitions of Merrill Lynch and mortgage lender Countrywide Financial Corp. will be among its best long-term purchases, said company spokesman Robert Stickler.

Both sides have said the vote may be close. Stuart Plesser, an analyst at Standard & Poor’s Corp., said a move against Lewis could deprive the bank of a 40-year company veteran skilled at handling acquisitions.

“Ken is the guy to integrate this thing, now that they own Merrill and Countrywide,” Plesser said in an interview. “He’s great at this kind of stuff.”

Splitting Job

Included in today’s vote is a resolution to divide the jobs of chairman and CEO. Such a split, whether by shareholders or at the behest of the board, has been a precursor to the ouster of other bank CEOs, including Wachovia Corp.’s Kennedy Thompson and Washington Mutual Inc.’s Kerry Killinger.

Lewis probably will win re-election to the board by a wide margin, the Wall Street Journal reported, citing unidentified people familiar with preliminary results of the investor vote. With about 75 percent of the shares outstanding counted, slightly more than 50 percent favored splitting the chairman and CEO positions, the newspaper said.

Lewis may be helped by improvements at Merrill Lynch’s bond-trading business and an increase in home-loan refinancings that spurred a $4 billion profit in the first quarter. Because the earnings included extraordinary gains from selling shares of a Chinese bank and accounting changes, the results didn’t quiet critics or impress investors who drove shares down 24 percent on April 20, when the figures were disclosed.

Merrill Lynch Deal

“Now is the appropriate time to change management because Mr. Lewis has lost the confidence of the investing public and the confidence of his employees,” said John Moore, a Charlotte insurance-agency owner who urged Lewis to drop his chairman’s title at last year’s annual meeting.

Lewis also may face pressure from federal regulators, whom he accused of pushing Bank of America to keep the losses at Merrill Lynch a secret and complete the acquisition, according to New York Attorney General Andrew Cuomo. The Wall Street Journal reported yesterday that stress-test results show that Bank of America may need billions of dollars in capital.

“The timing of this leak a day before the annual meeting is not any coincidence,” said Tony Plath, a University of North Carolina finance professor. “This is a clear attempt to bring down a sitting CEO.”

Board Members

Lewis’s opponents include pension funds representing judges in Illinois, teachers in Ohio and state government employees in Virginia, and the TIAA-CREF investment fund for educators. Yesterday, Lewis lost the support of Calpers, the California pension fund, which said it will vote its 22.7 million shares against the entire board.

The largest group to announce public opposition to Lewis’s re-election, TIAA-CREF, controls less than 0.6 percent of the bank’s 6.4 billion shares. Phone calls to Hye-Won Choi, TIAA- CREF’s head of corporate governance, weren’t returned.

Proxy adviser RiskMetrics Group’s ISS Governance Services has advised a vote against Lewis; Sloan, the lead director; and board members Frank P. Bramble Sr., 59, a former vice chairman at MBNA Corp.; Monica C. Lozano, 52, publisher of Impremedia LLC’s La Opinion magazine; Robert L. Tillman, 65, former CEO of Lowe’s Cos.; and Jacquelyn M. Ward, 69, a former managing director at Intec Telecom Systems Plc.

In addition to Lewis and Sloan, proxy adviser Glass Lewis opposed directors Virgis W. Colbert, a former executive vice president at Miller Brewing Co.; Joseph W. Prueher, a retired Navy admiral; and Charles O. Rossotti, a Carlyle Group Inc. adviser.

Union Opposition

Supporters of Lewis include North Carolina Treasurer Janet Cowell, who plans to vote for all the directors, according to spokeswoman Heather Franco. The state held 4.8 million shares as of last June.

Lewis and Joe Price, chief financial officer, will make presentations on the bank’s strategy and performance at today’s meeting, said Stickler. Sloan is not expected to address shareholders, he said. Stickler declined to provide preliminary vote totals or speculate on the likely outcome of today’s elections.

Houston investor Jerry Finger and his son, Jonathan, plan to speak today after running a TV and Internet campaign aimed at removing Lewis and Sloan from the board. The Fingers acquired more than 2 million shares of Bank of America after selling their Houston-based bank to the lender in 1996. They have since sold about half of their shares.

Close Vote

Much of the opposition to Bank of America’s board slate has been stirred by the CtW Investment Group, a group of unions whose pension funds own shares in the bank, said Atwood of the Illinois investment board. CtW expects a significant shareholder vote against Lewis and Sloan, though not a victory, said Michael Garland, the group’s director of value strategies.

To bolster the case for its slate of directors, Bank of America hired proxy solicitors Georgeson Inc. and Laurel Hill Advisory Group. Most of their attention probably is focused on institutional investors, who control about 60 percent of the bank’s shares, Atwood said.

While shareholders meet inside a theater next to Bank of America’s 60-story headquarters in downtown Charlotte, the Service Employees International Union and political-activist group MoveOn.org plan a protest nearby, according to union official Steve Lerner.

To contact the reporter on this story: David Mildenberg in Charlottet ; or dmildenberg@bloomberg.net

Last Updated: April 29, 2009 09:14 EDT