B of A Fights Effort to Strip Moynihan; Bank Stocks Tank

Wall Street Journal

Bank of America is fighting back against the effort to strip CEO Brian Moynihan of his chairman title. The struggle between Moynihan and shareholder groups to keep the two roles separate isn't new; JPMorgan Chase's Jamie Dimon mounted a successful defense in 2013.

What makes Moynihan's situation different is how B of A handled it. Activist investors, proxy advisory firms and institutional investors like the California Public Employees' Retirement System want to yank the chairman title away from Moynihan, because they say B of A's board overstepped its authority and has lost shareholders' trust.

The board gave Moynihan the chairmanship by reversing a corporate bylaw that shareholders had approved in 2009. The bylaw had been passed by shareholders in a binding vote and it was unusual that B of A would reverse the measure.

"Shareholders made a big step and then unilaterally the board changed their mind and eliminated the shareholder rights," said Fredric Russell, a money manager in Tulsa, Okla., who recently sold his entire stake in B of A.

B of A argues Moynihan was given the chairman's title as a way to signal the bank had recovered from the financial crisis. B of A also wants the same authority as any other company, to be able to decide whether to have the dual role.

B of A has also directed three executives and officers to meet directly with shareholders to make their case: head of strategy and marketing Anne Finucane; General Counsel Gary Lynch and Jack Bovender, the board's lead independent director.

Shareholder groups' counterargue B of A has far from recovered; its share price trails peers by a significant amount and it has stubbed its toe more than once on the Fed's stress tests.

If you don't think bankers want higher interest rates, take a look at bank stock prices. Since the market tumult began, banking industry stocks have tanked amid high trading volume. A reversal from when banking had been one of the best-performing sectors of the market.

The KBW Nasdaq Bank Index, which tracks large banks, has fallen 11% in the past month, a steeper decline than the 8.5% drop in the S&P 500. "There's no question that interest rates are one variable that matter to most financial companies," Seth Masters at Bernstein Private Wealth Management, told the paper.

The entire stock market depends on bank stocks to rebound, some analysts and traders have said. Until there are signs banks are prospering as a result of healthy loan demand, the concern will remain that the economy is still weak and other sectors will continue to struggle.

Federal regulators want to know why a New York hedge fund has been buying tens of billions of dollars of Treasuries at recent auctions. Element Capital Management, run by Jeffrey Talpins, has been using borrowed money to "exploit small inefficiencies," a tactic that's generating profit for his firm. Talpins' purchases far exceed its $6 billion assets under management.

Element is apparently engaging in what's called bond-auction strategies, a trading maneuver that has largely fallen out of favor. The trades try to take advantage of the volatility of supply and demand.

Talpins is said to have once irritated former Fed Chairman Ben Bernanke at a private meeting with investors. Talpins interrogated Bernanke with repeated questions during the meeting, some of which others in the room deemed irrelevant. Bernanke appeared weary under the barrage of questioning from Talpins.

New York Times

Barclays sold a loan portfolio, including a secured-lending business, to an investor group led by Goldman Sachs. The sale comes as Barclays slashes the size of its investment bank and sheds other noncore businesses as part of a wider restructuring effort.

Elsewhere ...

Charlotte Observer: Wells Fargo is testing the use of smartphones as a way to speed up the time consumers spend at ATMs. The "pre-staging" technology on smartphones is designed to let a consumer plan out a transaction before reaching the ATM. The tactic is also being developed as a potential way to reduce fraud, as it doesn't require a user to swipe a plastic card at an ATM. Bank of America declined to confirm or deny if it's also testing "pre-staging" technology.

Crain's Cleveland Business: KeyBank wants to become a national leader in the financing of affordable housing. Key already has a $2 billion portfolio of affordable-housing loans and it's one of the largest servicers of such loans. But Key wants to double the size of its affordable-housing business, both in production and revenue, within three years. One reason for Key's projection of growth is the national shortage of affordable housing, which will help spur demand.

Bloomberg: Branches remain king among bank consumers in Japan. Mobile banking has yet to catch on in Japan, as branches remain the place where Japanese consumers prefer to conduct their business. At branches, there is plenty of marble and ushers roam the floors to help customers. Management in Japan is also less committed to mobile banking.