BofA to Cede Top Rank as Moynihan Disowns Bigger-Is-Better
Bank of America Corp. (BAC), the biggest U.S. lender by assets, will likely lose that distinction as Chief Executive Officer Brian T. Moynihan partly dismantles the money-losing empire built by his predecessor.
The firm previously was No. 1 in deposits, mortgage lending and credit cards. Those honors are already gone as Moynihan trims operations added by former CEO Kenneth D. Lewis at a cost of more than $130 billion. When Moynihan is done with his reorganization plan, called Project New BAC, the bank will have pared its workforce by tens of thousands and probably relinquished its lead in assets, jobs and mortgage servicing.
Being the biggest doesn’t matter, Moynihan said in an interview last week. Project New BAC, details of which the CEO may disclose today at a New York investor conference, is designed to make the Charlotte, North Carolina-based bank easier to manage, more focused -- and smaller, said Moynihan, 51. That’s fine with Rebel Cole, a former Federal Reserve economist.
“What kind of stupid business plan is it to be the biggest?” said Cole, now a finance professor at DePaul University in Chicago. “I’d much rather be the most profitable. They wanted to be the biggest and show they could beat Wall Street at its own game -- and they did it until Lewis let his ego destroy the company.”
Making Bank of America larger was a hallmark of Lewis, who was CEO from 2001 through the end of 2009. Lewis, 64, took over industry leaders that ranged from credit-card vendor MBNA Corp. to mortgage lender Countrywide Financial Corp. and acquired securities firm Merrill Lynch & Co. The first two led to operating losses and writedowns totaling about $50 billion; the Merrill deal triggered a U.S. bailout and shareholder revolt that led to Lewis’s departure.
Mary Jo White, an attorney at Debevoise & Plimpton LLP who has represented Lewis, didn’t respond to phone and e-mail messages. An attempt to reach Lewis through Bank of America wasn’t successful.
Fed officials support Moynihan’s plan for shrinking the company and selling assets, according to regulators familiar with the bank. That’s consistent with a view in the Fed system and among regulators globally that the biggest lenders need to simplify their operations. Lewis had also added LaSalle bank in 2007, and FleetBoston Financial Corp. in 2004 for more than $45 billion.
Moynihan’s sales have impressed investors such as J. Dale Harvey, founder of Pasadena, California-based Poplar Forest Capital, who said the CEO’s strategy is appropriate.
“He’s focusing on the long-term franchise businesses and getting rid of assets that don’t fit,” said Harvey, whose firm owns Bank of America shares. “The unfortunate reality is he’s had to spend the bulk of his time cleaning up messes made by his predecessor.”
Shares of Bank of America have declined 48 percent this year through Sept. 9 as investors focused on costs tied to the 2008 takeover of Countrywide and speculated the lender may issue new stock to bolster capital. The lender slipped 28 cents to $6.70 in early trading at 8:23 a.m. in New York.
Bank of America became the largest home lender when it bought Countrywide, only to cede the title to San Francisco- based Wells Fargo & Co. (WFC) Moynihan’s bank slipped to No. 2 in deposits at midyear behind New York-based JPMorgan Chase & Co. (JPM), and Wells Fargo’s expanding branch network has eclipsed all others as Bank of America was closing unwanted retail locations.
Measured by assets, Bank of America remained first as of June 30 with $2.26 trillion, just ahead of JPMorgan’s $2.25 trillion. In terms of market value, Bank of America was fourth as of Sept. 9 at $70.7 billion. JPMorgan was the most valuable commercial bank at $125.1 billion, followed by Wells Fargo at $124.2 billion and Citigroup Inc. (C) at $78 billion.
As of midyear, Bank of America still ranked as the largest employer among U.S. lenders with about 288,000 people. Wells Fargo and New York-based Citigroup followed, with more than 260,000 employees each at the end of June. JPMorgan, the most profitable U.S. bank, had about 250,000 workers.
Bank of America last employed fewer than 280,000 at the end of 2008, when the staff was about 243,000, company filings show.
Moynihan said last month during a conference call held by fund manager Bruce Berkowitz that the firm intended to shutter 750 branches over the next few years. Bank of America had 5,742 banking centers as of June. Moynihan is scheduled to speak at 9 a.m. today in New York at a conference held by Barclays Capital.
‘Banks are Shrinking’
“The last thing the administration wants them to do is have headcount reductions, especially in North Carolina, which is a huge swing state,” said Matt McCormick, a money manager and bank analyst at Cincinnati-based Bahl & Gaynor Inc., which oversees $4 billion. “The financial industry is shrinking and banks are shrinking and part of it is because the government says, ‘We want you guys to be like utilities.’”
Moynihan has sold off about $40 billion in assets plus a $5 billion preferred share stake to Warren Buffett’s Berkshire Hathaway Inc. Cole at DePaul University said Bank of America may still wind up needing federal help, something Moynihan vowed would never happen again.
“At some point, being too big is being too unwieldy and too difficult to govern; Moynihan has had that epiphany,” Cole said. “The only thing you get from being the biggest is ‘too- big-to-fail,’ and they have that.”