March 31st, 2009 10:24 am
Wagoner's exit puts BofA CEO Lewis in hotseat
By Elinor Comlay
NEW YORK (Reuters) - Bank of America Corp Chief Executive Kenneth Lewis may be the next corporate boss to feel the heat after the administration forced General Motors Corp Chief Executive Rick Wagoner to resign in return for further government assistance.
The second-largest U.S. bank has received $45 billion from the government, making it one of the biggest recipients of government bailout money in the banking system.
Big shareholders have been calling for Lewis to step down since Bank of America announced in January it took a $20 billion government bailout to secure the acquisition of troubled Merrill Lynch & Co, which lost almost $16 billion in the last quarter of 2008.
The government may now add to the pressure from shareholders, analysts said. The sudden departure of Wagoner after nine years in the top job at GM signals the Obama administration is looking for management changes at bailed-out companies.
"His longevity in the job is probably very much in question," said Keith Wirtz, chief investment officer of Fifth Third Asset Management and a former CIO at a Bank of America subsidiary. Fifth Third holds shares in the bank.
The bank disagreed with the assessment. "We do not see the parallel with the U.S. auto industry," said a Bank of America spokesman, noting that since 1991 the bank has been profitable in every quarter except one, and made a $4 billion profit in 2008.
Still, shareholders say Lewis is in a precarious situation, citing both the government bailout as well as the fourth-quarter losses at Merrill, which suggest Bank of America did not perform adequate due diligence.
"It makes him look like he wasn't fully aware of what was going on," said Malcolm Polley, CIO of Stewart Capital Advisors, which owns Bank of America shares.
Bank of America stock closed at $33.74 before the Merrill merger was announced in September. The shares, which have lost more than 80 percent since then, dropped $1.24 to $6.10 on Monday.
The government's total cash injection amounts to more than Bank of America's market capitalization of about $41 billion.
The bank wants to repay the $25 billion from the government's Troubled Asset Relief Plan (TARP) in October "as soon as we can," Lewis told CNBC last week after bank executives met with President Barack Obama.
"He will end up leaving the organization, whether it's of his own volition or not," said Polley.
SHAREHOLDER UNREST
Wagoner's forced exit, announced Sunday, may indicate the government's strategy if other companies like Bank of America ask for more money. "It's a warning," said Robert Lutts, CIO of Cabot Money Management.
Citigroup Inc has also received $45 billion in capital from the U.S. government, and its CEO may also face pressure to step down. But Citigroup's Vikram Pandit became CEO about a year ago, and is suffering from the bad judgment of his predecessors.
Lewis would have no one to blame but himself since he has been Bank of America's CEO for about eight years.
In the last eighteen months, Lewis has spent about $43 billion to buy Merrill, mortgage lender Countrywide Financial Corp and LaSalle Bank Corp, a large lender in the U.S. Midwest. The purchases increased Bank of America's exposure to mortgages and other loans that have driven losses at U.S. banks in the last year.
"He has put the financial health of the balance sheet of Bank of America very much at risk," said Fifth Third's Wirtz.
Investors voted to approve the acquisition of Merrill on December 5, but since Merrill announced details of its losses in the fourth quarter, influential shareholders have called on Lewis to step down.
The Finger family, who are long-time shareholders, has called for Lewis to be replaced as chairman. The family includes Jerry Finger, who founded Charter Bancshares, which was acquired by Bank of America predecessor NationsBank in 1996.
And two of the three largest U.S. pension funds, California Public Employees' Retirement System and the California State Teachers Retirement System, are plaintiffs in an investor lawsuit against the bank over its Merrill acquisition.
Lewis ousted former Merrill CEO John Thain as head of Bank of America's investment banking and wealth management on January 22 in a bid to ease lingering investor concerns about the acquisition.
Yet as Bank of America's annual meeting on April 29 draws closer, investor calls for Lewis to step down may grow louder.
"The (Obama) administration has now flexed its muscles," said Darren Robbins, partner at law firm Coughlin Stoia Geller Rudman & Robbins in San Diego, which filed a class action against Bank of America on behalf of an institutional investor.
"Lewis is under excruciating pressure," he added.
Wagoner's exit puts BofA CEO Lewis in hotseat
By Elinor Comlay
NEW YORK (Reuters) - Bank of America Corp Chief Executive Kenneth Lewis may be the next corporate boss to feel the heat after the administration forced General Motors Corp Chief Executive Rick Wagoner to resign in return for further government assistance.
The second-largest U.S. bank has received $45 billion from the government, making it one of the biggest recipients of government bailout money in the banking system.
Big shareholders have been calling for Lewis to step down since Bank of America announced in January it took a $20 billion government bailout to secure the acquisition of troubled Merrill Lynch & Co, which lost almost $16 billion in the last quarter of 2008.
The government may now add to the pressure from shareholders, analysts said. The sudden departure of Wagoner after nine years in the top job at GM signals the Obama administration is looking for management changes at bailed-out companies.
"His longevity in the job is probably very much in question," said Keith Wirtz, chief investment officer of Fifth Third Asset Management and a former CIO at a Bank of America subsidiary. Fifth Third holds shares in the bank.
The bank disagreed with the assessment. "We do not see the parallel with the U.S. auto industry," said a Bank of America spokesman, noting that since 1991 the bank has been profitable in every quarter except one, and made a $4 billion profit in 2008.
Still, shareholders say Lewis is in a precarious situation, citing both the government bailout as well as the fourth-quarter losses at Merrill, which suggest Bank of America did not perform adequate due diligence.
"It makes him look like he wasn't fully aware of what was going on," said Malcolm Polley, CIO of Stewart Capital Advisors, which owns Bank of America shares.
Bank of America stock closed at $33.74 before the Merrill merger was announced in September. The shares, which have lost more than 80 percent since then, dropped $1.24 to $6.10 on Monday.
The government's total cash injection amounts to more than Bank of America's market capitalization of about $41 billion.
The bank wants to repay the $25 billion from the government's Troubled Asset Relief Plan (TARP) in October "as soon as we can," Lewis told CNBC last week after bank executives met with President Barack Obama.
"He will end up leaving the organization, whether it's of his own volition or not," said Polley.
SHAREHOLDER UNREST
Wagoner's forced exit, announced Sunday, may indicate the government's strategy if other companies like Bank of America ask for more money. "It's a warning," said Robert Lutts, CIO of Cabot Money Management.
Citigroup Inc has also received $45 billion in capital from the U.S. government, and its CEO may also face pressure to step down. But Citigroup's Vikram Pandit became CEO about a year ago, and is suffering from the bad judgment of his predecessors.
Lewis would have no one to blame but himself since he has been Bank of America's CEO for about eight years.
In the last eighteen months, Lewis has spent about $43 billion to buy Merrill, mortgage lender Countrywide Financial Corp and LaSalle Bank Corp, a large lender in the U.S. Midwest. The purchases increased Bank of America's exposure to mortgages and other loans that have driven losses at U.S. banks in the last year.
"He has put the financial health of the balance sheet of Bank of America very much at risk," said Fifth Third's Wirtz.
Investors voted to approve the acquisition of Merrill on December 5, but since Merrill announced details of its losses in the fourth quarter, influential shareholders have called on Lewis to step down.
The Finger family, who are long-time shareholders, has called for Lewis to be replaced as chairman. The family includes Jerry Finger, who founded Charter Bancshares, which was acquired by Bank of America predecessor NationsBank in 1996.
And two of the three largest U.S. pension funds, California Public Employees' Retirement System and the California State Teachers Retirement System, are plaintiffs in an investor lawsuit against the bank over its Merrill acquisition.
Lewis ousted former Merrill CEO John Thain as head of Bank of America's investment banking and wealth management on January 22 in a bid to ease lingering investor concerns about the acquisition.
Yet as Bank of America's annual meeting on April 29 draws closer, investor calls for Lewis to step down may grow louder.
"The (Obama) administration has now flexed its muscles," said Darren Robbins, partner at law firm Coughlin Stoia Geller Rudman & Robbins in San Diego, which filed a class action against Bank of America on behalf of an institutional investor.
"Lewis is under excruciating pressure," he added.
