BofA's CEO faces a stress test of his own from impatient investors
When Bank of America Corp shareholders gather next month to decide if Brian Moynihan can keep his chairman title, they won't be the only ones about to weigh in on his career.
The Sept. 22 vote comes a week before the bank has to prove it has a firm grip on risk as it resubmits a capital plan to the Federal Reserve. If the Fed finds the lender didn't fix weaknesses disclosed in March, it could crimp dividends or share buybacks for the third time during Moynihan's tenure as chief executive officer.
That's already a sore point for investors getting one of the smallest payouts among U.S. banks. "If they fail this time, I'd call for his head," said E.E. "Buzzy" Geduld, who owns 2.5 million Bank of America shares as head of New Yorkbased hedge fund Cougar Capital. "At the very minimum, you split the CEO and chairman roles, and I'd like to see someone from the outside who's smart enough and strong enough that Moynihan's going to have to answer to."
Moynihan, 55, is deeply involved in the resubmission, leading weekly steering meetings on the topic, according to two people with knowledge of the projects. The bank is spending several hundred million dollars overhauling sprawling data systems, rebuilding databases so the origin of information is clear and enhancing controls, the people said. Larry DiRita, a Bank of America spokesman, declined to comment and said Moynihan wouldn't be interviewed for this article.
The board is asking shareholders to ratify a change in bylaws last year that allowed Moynihan to become chairman. Bank of America's submission to the Fed is due Sept. 30. Even if Moynihan clears the first hurdle, he can't afford to disappoint investors with another stumble in the Fed exam.
His longest-serving chief financial officer, Bruce Thompson, stepped down last month after presiding over two of the firm's unsuccessful stress tests. Investors say that means Moynihan would own full responsibility for another failure.
One worry within the bank is that regulators haven't specified what they want, leaving executives uncertain their work will be deemed satisfactory, according to a person involved in the effort. The overhaul spans a half dozen projects across the Charlotte, North Carolina-based firm's institu- tional and consumer businesses, the people said.
Bank executives described the changes as shifting from assuming their risk models are accurate unless proven otherwise to the opposite, which requires more rigorous attention to the data underlying models. The firm is scouring data from companies it has acquired, after a 2014 stress-test stumble was caused by mistakes in information from Merrill Lynch & Co. dating back years, another person said.
In his sixth year as CEO, Moynihan appears to have finally shaken the litigation costs tied to his predecessor's 2008 purchase of Countrywide Financial Corp. Buying the biggest U.S. mortgage lender just as the housing bubble burst saddled Bank of America with a litany of legal disputes, fueling most of the bank's $70 billion in postfinancial crisis legal costs. Cleaning up the mess has been what Moynihan called his biggest accomplishment to date. He's also cut expenses while attempting to reverse a drop in revenue by boosting cross-selling between retail, wealthmanagement and corporate-lending units. The firm made progress in the second quarter, reporting that profit rebounded to $5.32 billion.