30 Apr 2009
April 30 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, picked a 16-year board veteran and academic as chairman after shareholders chased Kenneth Lewis from the post. Still, it's Lewis, the president and chief executive officer, who must calm angry investors.Walter E. Massey, 71, president-emeritus of Morehouse College in Atlanta, was named to lead the board. Shareholders, riled by Lewis's handling of the Merrill Lynch & Co. takeover and a 77 percent plunge in the bank's stock over the past year, voted to install an independent chairman yesterday at a four- hour annual meeting in Charlotte, North Carolina.
Lewis, 62, was re-elected to the board with 67 percent of shareholder votes. The company issued a statement saying the board "unanimously expressed its support for Lewis" as president and CEO. Even so, he may yet be forced to step down, said Sean Egan, president of Egan-Jones Ratings Co.
"It's plausible that's the next step, but it very well may not happen for as long as a couple years," Egan said yesterday in an interview. "Ken Lewis won't have as much control over the board any more." Egan's firm has estimated the Charlotte-based bank needs as much as $100 billion in additional capital.
Lewis and Massey weren't available to comment, said Scott Silvestri, a bank spokesman. Bank of America rose 53 cents, or 6.5 percent, to $8.68 yesterday in New York Stock Exchange composite trading.
At the meeting, Lewis praised the acquisitions of Merrill Lynch and Countrywide Financial Corp. for helping offset increasing losses in the credit-card and small-business-lending units. The bank could earn a $30 billion annual profit under "normal" economic conditions, greater than its record $21 billion in 2006, said Joe Price, the chief financial officer.
Fighting On
"We have built the best financial company in the industry," said Lewis, who has worked at the bank for 40 years. "We are doing everything within our power every day to fight through today's adversity and drive toward tomorrow's promise."
Lewis, who's been CEO for eight years, drew fire from investors including the TIAA-CREF investment fund and the California Public Employees' Retirement System for agreeing to buy Merrill Lynch last September on the same weekend Lehman Brothers Holdings Inc. failed. Further undermining his position, the bank reported a fourth-quarter loss of $1.79 billion, its first quarterly deficit in 17 years.
Criticism of Lewis mounted this month after revelations that he failed to disclose deepening losses at Merrill Lynch, the world's largest broker, before shareholders voted on the acquisition. New York Attorney General Andrew Cuomo released testimony by Lewis that U.S. government officials pressured him to keep quiet about the losses and complete the deal.
Should Have Said No
"Ken Lewis should have said no to the government," Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based research firm that tracks banks, said in an interview. "He didn't want to do that, but at some point, somebody had to say no."
Lewis deflected criticism from shareholders yesterday about his dealings with regulators, saying he couldn't discuss the matter because of pending lawsuits. In a speech, he said the Merrill Lynch purchase "was not about a selfish desire to keep our jobs. Every member of this board, including me, would be all right if we had to leave the company."
All 18 directors were re-elected with more than 72 percent of the vote except for Lewis at 67 percent, and Temple Sloan Jr., the bank's lead director, who got 63 percent.
The size of the opposition to Lewis and Sloan "symbolizes the deep level of discontent with the management of the company," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. Shareholder activists "made their point," he said.
Chairman Massey
By installing Massey as chairman, Bank of America is putting a loyal company insider with connections to U.S. government officials in a visible role. "He is one to bring folks together, building a consensus and coalition," said Sam Williams, president of the Atlanta Chamber of Commerce, where Massey was on the executive committee. Leading the bank's board "is going to require diplomacy and a calm, firm hand and he has that."
Massey joined the Bank of America board in 1993, before the company's 1998 sale to NationsBank Corp. He's a former president of the National Science Foundation and head of Morehouse, a historically black university whose students included civil rights icon Martin Luther King Jr., former Atlanta Mayor Maynard Jackson and director Spike Lee. He's also a director of McDonald's Corp.
Massey may be an easy target for critics and an ineffective chairman, said Charles Ortel, managing partner of Newport Value Partners, a New York-based research firm and former investment banker with Dillon Read & Co.
Need a Veteran
"To select someone from the academic environment is the last person I'd want to stand up to dollar-oriented executives," Ortel said. "What you want is a seasoned veteran of the financial world."
Lewis remains the best person to run Bank of America because of his 40-year track record, Hugh McColl Jr., his predecessor as CEO, said yesterday in a Bloomberg TV interview. Brian Moynihan, head of investment banking and wealth management, and Barbara Desoer, who runs mortgage lending and insurance, as the most likely successors to Lewis, according to bank analysts including Nancy Bush of NAB Research.
Possible outside candidates cited by Tony Plath, a finance professor at the University of North Carolina at Charlotte, include Al De Molina, the CEO of GMAC LLC, and James Hance, a former CFO at Bank of America who is non-executive chairman of Sprint Nextel Corp. Both De Molina and Hance live in Charlotte.
Not About Lewis
James Mahoney, a bank spokesman, said shareholders who voted for the independent chairman were expressing concern that the bank had adequate corporate governance. "This isn't a vote on Ken Lewis," he said.
Michael Holland, founder and chairman of New York-based Holland & Co., said Lewis for now remains firmly in charge after the vote.
"It's a small victory for the people who had a campaign against Lewis but it's not particularly significant in terms of how the bank will continue to be run," said Holland, whose firm oversees more than $4 billion in assets and doesn't own Bank of America stock. "I don't know how much more of a voice Mr. Massey will have as chairman than he had as a board member."
