As rumours about the Bank of America CEO’s potential resignation swirl, Ken Lewis-bashers have taken to the internet.
That’s www.BACPROXYVOTE.com — a web site started by BofA investor Jerry Finger. The 76-year-old Finger and his family control about 0.02 per cent of BofA shares, according to a Wall Street Journal story from last month, via their unfortunately-named investment manager firm, Finger Interests Ltd.
Finger was friends with BofA’s former CEO, Hugh McColl, encouraging him to buy a $6m stake in Finger’s own bank, Charter Bancshares, in 1986. Finger is now outraged at the actions of the bank’s current management — especially the decision by Lewis, named Banker of the Year by the American Bankers’ Association in October, to buy Merrill Lynch for $50bn in September last year.
Here’s Finger’s reasoning.
Kenneth Lewis – Chairman & Chief Executive Officer
Reason #1 – Reckless and Overpriced acquisitions — as Chairman and CEO, we believe that Mr. Lewis was wrong to encourage the Board of directors to approve (and close) the LaSalle, Countrywide and Merrill Lynch transactions. For a full discussion, click here [link broken].
Reason #2 – Failure to Disclose Material Information – We believe that Mr. Lewis failed to disclose to the shareholders material information regarding the losses that had occurred at Merrill Lynch prior to the December 5th, 2008 shareholder vote related to approving the Merrill Lynch transaction. From press reports, it appears that Bank of America had a full team at Merrill Lynch and was monitoring the Merrill portfolio on a daily basis. Therefore, Ken Lewis and his senior officers were aware of the deterioration in the Merrill portfolio prior to the December 5th shareholder vote.
Reason #3 – Equivocation on Merrill Bonuses – We believe that Mr. Lewis was aware at all times of the $3.6 billion in controversial bonuses that were to be paid to Merrill employees at a time when Merrill was hemorrhaging money. While we cannot judge from our vantage point whether such bonuses were appropriate or necessary to reward or retain key Merrill employees, we do believe that Ken Lewis’ credibility has been damaged by his initial assertions that he did not know the details of such bonuses. The subpoena of Mr. Lewis by New York Attorney General Cuomo and BAC’s refusal to turn over documents further shrouds the issue and undermines the confidence of employees and investors in Mr. Lewis at a critical moment for the Company.
Reason #4 – Management of Bonuses for BAC Employees – after richly rewarding their Merrill Lynch counterparts for a job poorly done, Ken Lewis turned around and reduced the bonuses payable to Bank of America employees and then deferred their bonuses over 4 years. This change in compensation to Bank of America employees damaged employee morale, caused defections of key employees and, in our opinion, reduced Ken Lewis’ standing with employees and thus reduced his ability to effectively lead and govern the Company.
While Ken Lewis has garnered support from the unlikeliest of places in recent months (bank-slayer Meredith Whitney, for instance) the pressure is certainly intensifying. The Wall Street Journal is even running a profile of his possible successor — one Brian Moynihan, a lawyer currently in charge of Merrill Lynch.
Meanwhile, Lewis himself is putting up a rather weak fight. This was the CEO commenting on his potential successors on Fox Business News Wednesday night:
[Moynihan] absolutely could be, as well as several others on the management team. I think the world of Brian. He’s outstanding. He’s got so much talent. He’s so bright. But, we have a lot of people on my management team that would fit that description as well.
What Lewis really needs now is the time to prove the Merrill Lynch acquisition was not a mistake. We’re not sure if that’s possible. What we’re more sure of is that shareholder and internal pressures will probably build up to a resignation-inducing crescendo before he gets that chance.
Related links:
Bank of America divides analyst opinions – FT Alphaville
Ken Lewis resignation rumors swirl – Clusterstock
BofA’s CEO defends decision to buy Merrill – Fox Business News
Mr. Finger pokes at BofA’s Lewis - The Wall Street Journal
“We’re good at this” – FT Alphaville