Brian Moynihan has been on a brutal cleanup mission at Bank of America (BAC) for three years, but his toughest task still lies ahead.
Moynihan, who in January 2010 became chief executive of one of the country's biggest and most troubled banks, has cut costs, raised capital levels and tried to placate waves of angry investors, bondholders and government agencies.
In the coming weeks, he will have to convince regulators that Bank of America has solved enough of those problems to start rewarding loyal — and increasingly impatient — shareholders with higher dividends or stock buybacks. Even if he succeeds, many investors, analysts and employees doubt that Moynihan is the kind of aggressive executive who can transform B of A into an earnings machine.
"He's been admirable, considering," is the verdict of William B. Smith, whose Smith Asset Management owns Bank of America shares. Still, in terms of running a diversified megabank long term, "there's very few people who can pull it off."
Though bank watchers praise Moynihan's recent capital-raising prowess — and the bank's doubling share price this year — predictions are mixed on how much time he has left before investors demand new blood. No one blames him for the problems that got Bank of America into this mess; those would be the fault of Countrywide CEO Angelo Mozilo and previous B of A CEO Ken Lewis, who thought it would be a good idea to buy Countrywide's massive mortgage operations as the bottom was falling out of the mortgage world. But some think a bolder, more big-picture leader than the task-oriented Moynihan will be necessary.
"The Jamie Dimons and the Kovaceviches and the Stumpfs of the world, there's very few of them," says Smith, referring to the CEO of JPMorgan Chase (JPM) and the past and current CEOs of Wells Fargo (WFC). "You want to go into battle with [them]. … You're not going to go into battle with Vikram Pandit, and I don't think you're going to go into battle with a Brian Moynihan."
The situational comparisons with recently ousted Citigroup (NYSE: C) leader Pandit are inevitable. Like Pandit, Moynihan became CEO after his bank's fortunes had already faltered, and inherited the task of cleaning up his predecessors' mistakes. Like Pandit, Moynihan has slowly and deliberately whittled down the bank's still-sprawling operations, selling off more than $60 billion in assets over the past three years. (Pandit got rid of some $500 billion in assets before the Citigroup board apparently decided that he wasn't doing enough.) And like Pandit, Moynihan is not a flashy, charismatic CEO.
Some investors have long said that the bank's pieces are worth more than the sum of its parts and advocate for more breakups and spinoffs of businesses like Bank of America's massive credit card operations or its crisis-era Merrill Lynch purchase. Other investors and analysts are cooler to that idea, but warn that Moynihan still faces a wealth of problems to resolve, including $25.5 billion in outstanding mortgage putback claims and unceasing legal battles.
Bank of America paid $2.4 billion to settle one investor lawsuit this fall, eating up its third-quarter profits. Moynihan acknowledged in December that he must address that "recurring earnings question" by cleaning up more of the bank's mortgage problems.
"We had what looked like a pretty solid quarter, but at the end of the day, we didn't make any money because we took care of a piece of litigation," he told investors during a Goldman Sachs (GS) financial services conference in December. "We need to make sure that we have the recurring earnings stream at the same time."
Most of the investors who are celebrating Bank of America's share price this year also make clear that their continued support for Moynihan hinges on the promise of getting a payback soon. In 2011, the Federal Reserve ignited two years of doubts about Bank of America's future when it rejected its petition to return capital to shareholders. The Fed decision pulled the rug out from under Moynihan, who had already told investors to expect a "modestly increased" dividend that year.
"He's done a fine enough job lately to warrant another term. He's obviously dealing with a lot of complicated issues, and I don't think a change in leadership would be good right now," says Alan Villalon of Nuveen Asset Management, which owns Bank of America shares. He, like Smith, was pleased with the trajectory of those holdings this year — the bank's shares are the best performing stock on the Dow Jones Industrial Average for 2012, more than doubling since the beginning of 2012 and closing at $11.61 on Monday.
But Villalon warned that Moynihan's time may run out quickly if the Fed blocks another dividend or buyback request this year.
"With some of the promises he made in the first investor day … people were expecting capital giveback sooner. There were some missteps there," Villalon says. "I hope we're not in that situation" again.