Boffo at BofA
Kenneth D. Lewis didn't wait to be officially named as the successor to Hugh L. McColl Jr. at Bank of America Corp. (BAC ) before serving notice to his colleagues that he was watching their performance very, very carefully. At a Goldman, Sachs & Co. conference in late 2000, Lewis alerted the analysts and investors present that Bank of America was going to take a $500 million hit from soured loans to one troubled company--which most knew was Sunbeam Corp. Then he surprised his in-house lenders, not to mention the audience, by chiding them for their poor handling of the account. "To hear him call his own bankers sniveling wimps was pretty stunning," recalls Thomas K. Brown, chief executive of Second Curve Capital LLC, a New York hedge fund.
In his 18 months as chairman and CEO, Lewis, 55, has reshaped the bank's clubby culture to match his own hard-nosed Southern style. As soon as he took control, Lewis began cutting loose roughly $50 billion of the bank's most unprofitable--and in some cases, riskiest--corporate accounts. The prescient move helped the bank limit the fallout from bad telecom and energy loans. At a time when many big banks are still trying to recover, BofA is on track this year to deliver a 15% profit increase, to $8.5 billion. Its 19% return on equity is 3.5 percentage points higher, and loan charge-offs are lower, than the large-bank average. And its move to boost the quarterly dividend by 4 cents, to 64 cents, on Oct. 23 was viewed by Wall Street as a sign of Lewis' confidence that the bank's credit problems have peaked.
As a result, the same investors who had lost faith in McColl have rewarded Lewis with a 13% rise in BofA's stock price this year and a 40% jump since McColl formally tapped him in early 2001. By comparison, the Standard & Poor's Bank Stock Index is flat this year and down 6% since early '01. "We're actually proving we can turn the battleship around," Lewis says with a smile.
McColl chose a successor who is particularly well suited to the times. McColl valued growth above all else: He transformed his original NCNB Corp. from an also-ran North Carolina bank into the nation's second-largest financial institution, serving roughly 30 million households and two million businesses. But for all his success at dealmaking, McColl never shook off the bank's well-deserved reputation as a chronic underachiever.
Lewis, who has been at the bank his entire working life, earned his reputation as McColl's troubleshooter. He helped oversee the difficult integration of acquisitions in Texas, Florida, and Missouri--and handled the 1998 megamerger with the old San Francisco-based BankAmerica Corp. He brought that same bottom-line approach to his new job: He ousted a number of underperforming executives, instituted a Six Sigma quality-improvement campaign to inject order into the bank's sprawling operations, and overhauled a bonus system that rewarded lenders for simply booking loans. Now, bonuses are largely based on whether an individual generated a 12%-or-better return from their area of responsibility. "Ken is big on discipline. He says repeatedly: `No excuses,"' notes Edward J. Brown III, BofA's president of corporate banking.
For all of his success, some former execs question whether Lewis can instill the same loyalty among his troops as the gregarious McColl. McColl focused on team-building, and handed out crystal grenades for jobs well done. Lewis is far more reserved. "Ken is the most dispassionate man I've ever met. He has ice water in his veins," says a former exec. A BofA spokesman disputes the characterization, noting that Lewis spends as much time, or more, meeting with employee groups as did McColl.
And if Lewis is taking a more understated approach than McColl, it's by design. Dallas money manager R. Harold Schroeder recalls a 1996 meeting in which Lewis voiced his frustration over the degree to which the Street's visceral dislike of McColl was coloring its views of the bank. "Ken told me: `At some point, we have to separate the persona of the organization from the persona of the chairman."'
At the same time, Lewis' internal efforts will take the bank only so far. He's working feverishly to cross-sell more services to BofA's vast customer base and is eyeing a bigger role in asset management, which he hopes to nearly double as a share of revenues and profits, from 7% to 8% now. Analysts say he may eventually need to acquire a Wall Street firm to beef up investment banking. Indeed, sources close to Credit Suisse Group say that Lewis last summer put out feelers to the Swiss financial giant expressing interest in its Credit Suisse First Boston unit, which were rebuffed. Lewis won't comment on specific talks and downplays expectations that he'll manage a Wall Street deal. "I am highly skeptical that I'll ever think an investment bank is worth what they think it's worth," he says.
Unlike McColl--whose father, a wealthy farmer, pulled a favor with a top bank executive to get him his first job--Lewis has had to make most of his luck. After his parents divorced when he was seven, Lewis helped his mother, a nurse in Columbus, Ga., make ends meet by delivering newspapers, bagging groceries, and selling Christmas cards door-to-door. But his toughest job, he admits, was selling women's shoes as a teen. "I made a 6% commission and the most expensive shoes were $5.99," he says. "You quickly learn how good a salesman you are." After earning a business degree at Georgia State University, Lewis spurned an offer from blue-blood Wachovia Corp. (WB ) in favor of NCNB. "They were the scrappy underdogs, which is not inconsistent with the way I view myself," he says.
Nicknamed "Kiddle" for both his initials and boy-wonder status, Lewis by age 30 was entrusted with the bank's $1 billion international department in New York--even as he was taking international banking classes at New York University at night. It was in the late 1980s that Lewis won notice for helping to oversee the delicate integration of failed First RepublicBank Corp. in Texas, McColl's breakout deal.
As CEO, Lewis has already distanced himself from his former boss. If he can keep BofA outperforming its peers, he'll soon be well clear of McColl's shadow.
By Dan Foust in Charlotte, N.C., with David Fairlamb in Frankfurt