The decision by Ken Lewis, Bank of America chief executive, to step down at the end of the year took most of the bank’s directors and top managers by surprise, but was almost inevitable given the avalanche of regulatory issues descending on him.
As a result, BofA’s board, which has been almost entirely reconstituted since shareholders voted in April to strip Mr Lewis of his title as chairman, was caught flat-footed, and now has to launch a search for his replacement.
The bank says a new CEO will be named before December 31, the date of Mr Lewis’s departure. But the timing of his announcement late Wednesday – less than two months after he hired Sallie Krawcheck as part of a plan to clarify his succession – suggests Mr Lewis acted before his strategy had played out.
The bank insists the succession plan will work smoothly, and that the only reason directors will take extra time is because eight members of the board are new and need to become familiar with the internal candidates.
The lead internal candidate appears to be Brian Moynihan, who shifted from head of global investment banking to lead BofA’s retail banking operations in August.
Mr Moynihan is one of the few top executives from Fleet Financial who stayed on after BofA acquired it in 2004. Several powerful board members, including Charles Gifford and Thomas Ryan, were directors at Fleet and have expressed support for Mr Moynihan in the past.
Some critics of Mr Lewis doubted that his departure was voluntary, including Jeffrey Sonnenfeld of the Yale School of Management. “If you believe the bank’s spin, then no CEO in American history has been fired. This is not his board anymore. It’s a government-imposed board,” he said.
Mr Lewis’s regulatory woes stem less from his decision to acquire Merrill Lynch in September 2008 after only 36 hours of due diligence, than from what he and his board did – and did not – tell investors in the run-up to the shareholder vote on the deal.
A nine-month investigation by Andrew Cuomo, attorney-general of New York, reaches a critical stage next week when members of the BofA audit committee during the last months of 2008 give sworn depositions about what they knew regarding mounting losses at Merrill.
Mr Lewis told regulators last December, after shareholders approved the deal, that the losses at Merrill prompted him to consider a “material adverse change” clause to scuttle or renegotiate the deal.
Mr Lewis eventually cut a deal with the US Treasury and Federal Reserve allowing him to tap an additional $20bn in taxpayer funds to complete the Merrill acquisition. Shareholders have sued him and BofA’s board, complaining that the depths of Merrill’s problems should have been disclosed.
Mr Lewis’s allies say that in the second quarter, BofA – helped by booming revenues at Merrill – made more money than JPMorgan, although its profits undershot Citigroup, another bailed-out bank. Perhaps more importantly, its capital ratios are well above regulatory requirements. But that has not convinced regulators, notably the Federal Reserve, that BofA is ready to break free of government support.
People close to the situation said the authorities have been reluctant to let BofA repay at least $20bn of the $45bn in government aid it received last year.