Analysis: BofA shake-up a crucial test for CEO Moynihan

Published September 07, 2011

| Reuters

By Joe Rauch

CHARLOTTE, North Carolina (Reuters) - Bank of America Corp <BAC.N> Chief Executive Brian Moynihan is running out of time to fix the largest U.S. bank.

After reorganizing senior management and creating chief operating officers -- a move straight out of the playbook of former Citigroup Inc <C.N> Chief Executive Charles "Chuck" Prince -- Moynihan has few excuses if the bank fails to reverse course.

"This is a make-or-break type move," said Andrew Ward, associate professor and corporate governance chair at Lehigh University.

Investors are pressing Bank of America to improve its performance after it lost money in four of the last six quarters and its stock has fallen by half this year.

"Any CEO whose stock is down where Bank of America's is will be under some pressure," said Jason Goldberg, bank analyst with Barclays Capital. "But you can't turn an oil tanker around over night."

And that's the problem. It has 280,000 employees and more than $2.25 trillion of assets, making it tough to maneuver.

Investors have been spooked by worries the bank could need to raise as much as $50 billion in capital, by some estimates, to meet new global capital requirements. Bank of America has said it can raise the money it needs through selling assets and generating earnings, but tepid U.S. economic growth and mounting mortgage lawsuits may cut into earnings.

On August 8, Bank of America shares plunged more than 20 percent after insurer American International Group Inc <AIG.N> alleged a "massive" mortgage fraud.

The stock price drop was temporarily arrested by a $5 billion investment -- and public vote of confidence -- by billionaire investor Warren Buffett in late August. But shares fell on Tuesday below the $6.99 closing price on August 24 before the Buffett investment was announced, erasing the boost from his purchase.

Bank of America shares closed up 7 percent at $7.48 on Wednesday amid a broader rise in bank stock prices.

"(Moynihan is) in charge of a big castle that's under siege from this army of lawyers and he has to protect the throne," said James Ellman, president of Seacliff Capital, a San Francisco-based investment manager.

A Bank of America spokesman declined to comment.

THE NEW PRINCE?

Moynihan and Prince have a lot in common. Both are lawyers charged with cleaning up the messes of acquisitive predecessors.

Both had some initial success as chief executives, followed by a period of failure. When times got tough, both added chief operating officers and shuffled senior management.

For Prince, the story did not end well -- he resigned in November 2007.

Analysts said Moynihan may be under less immediate pressure because Bank of America has more capital than Citi had entering the 2008 global financial crisis and its operations outside its home loan business are profitable.

Bank of America has worked to resolve large portions of its mortgage and litigation exposure, but progress has been slow for some investors.

The restructuring is the third management change under Moynihan since he replaced Kenneth Lewis in January 2010. It has included four chief financial officers and creating a new division to cope with a $1 trillion portfolio of troubled loans the bank holds and services for other investors.

In October, the bank is expected to outline its cost-cutting program, known as New BAC, a play on its ticker symbol.

The expense control program will include job cuts.

Bank of America has entered into an $8.5 billion settlement with large institutional investors who purchased Countrywide bonds, although that deal is facing mounting opposition from investors and others.

Bank of America has also settled with Assured Guaranty Corp and Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB> over similar repurchase issues earlier this year.

But if the bank is unable to rein in its mortgage and litigation costs, analysts said Moynihan's job could be in jeopardy and either Montag or Darnell could be potential successors from the co-COO post.

"If this doesn't work and he can't make progress, the board has two natural replacements," said Marty Mosby, a bank analyst with Guggenheim Securities LLC.

(Editing by Andre Grenon)

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