Next Bank of America CEO must rebuild firm's image

[October 01, 2009]  NEW YORK (AP) -- Ken Lewis' legacy as CEO of Bank of America Corp. will likely be determined by whether his successor can do what Lewis couldn't: prove that the bank's messy acquisition of Merrill Lynch & Co. was worth the money.

Bank of America said late Wednesday that Lewis, 62, will leave the company at year's end, a decision the bank said Lewis reached on his own. The move capped nearly a year of turmoil for the embattled CEO, who has endured withering attacks for his handling of the Merrill deal and is entangled in several state and federal probes into whether he and other bank executives misled shareholders by allowing the payment of billions of dollars in bonuses to Merrill employees.

The company did not announce a successor, saying one would be selected by the time Lewis steps down Dec. 31.

Analysts said a leading candidate is Brian Moynihan, head of the bank's consumer and small business banking unit. Moynihan joined Bank of America in 2004 through the bank's acquisition of FleetBoston Financial. He served as president of Bank of America's global wealth and investment management operation before taking on his current role.

Other potential successors include Sallie Krawcheck, a former Citigroup chief financial officer who took over Moynihan's previous job in August, and Tom Montag, a former Merrill executive who runs the bank's corporate and investment banking unit.

"They have a have a fairly deep talent pool in the bank, and certainly there are a number of outsiders that could take the job," said Donald Thomas, senior research analyst at Gradient Analytics.

Regardless of who replaces Lewis, his departure seemingly makes easier the task of rebuilding the bank, the nation's largest by assets. The mounting scrutiny into Lewis' handling of the Merrill deal had become a distraction for the company and an embarrassment for Lewis, who joined a predecessor of the bank as a credit analyst in 1969 and rose to CEO in 2001.

"I don't know what his legacy is going to be and I don't think we'll really know until we get to the bottom of the Merrill Lynch acquisition and what really happened there," Thomas said.

Though the timing of Lewis' decision caught some off guard, the move itself wasn't a complete surprise. Shareholders had stripped Lewis of his chairman's title earlier this year amid an outcry over the Merrill Lynch deal, including criticism about billions of dollars in bonuses given to Merrill Lynch employees. At that time, many observers started wondering how long Lewis would last.

Change to Win Investment Group, which holds about one half of 1 percent of the bank's shares and had called for Lewis' ouster earlier this year, called Lewis' departure "the overdue but inevitable result of the overwhelming shareholder opposition registered at Bank of America's 2009 annual meeting. "

"The onus is now on the board of directors to engage with shareholders to name a successor who can quickly restore the bank's credibility with investors, regulators and Congress," the group said.

Lewis had said he would stay on as CEO until after the company's financial problems were resolved, a process expected to take years. However, with the bank also under heavy criticism from government officials, Lewis was increasingly seen as vulnerable.

"He's had a big target on his chest for the whole Merrill Lynch deal, and I can only imagine the emotional stress he's endured " said Alan Villalon, senior research analyst at Minneapolis-based First American Funds, which owns Bank of America stock.

Bank of America spokesman Bob Stickler said Lewis wasn't asked to leave by the board or the bank's regulators.

"He made the decision himself," Stickler said, adding that Lewis informed the bank's board during an unscheduled meeting conducted by telephone Wednesday evening. "The board was surprised when Ken told them what he wanted to do."

Stickler said Lewis began thinking about stepping down after returning from vacation in August. Stickler said Lewis' decision was driven by the fact that the bank is in better shape to recover from the recession and because "I think he's just feeling a little burned out for pretty obvious reasons."

The Merrill Lynch deal was first questioned after Bank of America disclosed that Merrill's losses were far more than expected. Bank of America then asked for and got an additional $20 billion from the government, in part to offset those losses. The brokerage lost $15 billion in the fourth quarter and more than $27 billion for the year. Bank of America ultimately received $45 billion in government assistance.

But Lewis came under even greater attack after Merrill, with the knowledge of Bank of America executives, gave billions in bonuses to Merrill employees even as Bank of America asked for more bailout money from the government. The deal was forged a year ago at the height of the financial crisis and closed Jan. 1; the bonuses, which would normally have been paid in January, were moved up and paid out in December.

Months later, the criticism is still intensifying. New York Attorney General Andrew Cuomo in September subpoenaed five members of Bank of America's board as part of an investigation into the Merrill deal. Lewis' departure won't affect the investigation, Cuomo said in a statement.

Bank of America had settled a separate investigation last month into disclosures about the Merrill bonuses with the Securities and Exchange Commission, but a federal judge threw out that $33 million settlement, saying it was unfair and needlessly penalized the bank's shareholders. The judge ordered the case to go to trial Feb. 1.

Shares of Bank of America rose 19 cents to $17.11 in after-hours trading Wednesday, after falling 24 cents to end the regular session at $16.92.

When the stock market peaked in October 2007, Bank of America's stock was trading at about $53 a share. It then began a decline that accelerated with the financial crisis, and joined other big banks whose stocks fell into the single digits. Earlier this year, it fell to $2.53 a share before starting to recover.

Analysts said the bank would likely be pressed to quickly name Lewis' replacement.

"You can't leave a $3 trillion company in jeopardy without knowing who the CEO is until December," said Tony Plath, a finance professor at the University of North Carolina at Charlotte.

[Associated Press; By STEVENSON JACOBS]

AP Business Writer Sara Lepro in New York, Ieva M. Augstums in Charlotte, N.C. and Martin Crutsinger in Washington contributed to this report.

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