Bank of America Corp. has a ready-made escape plan in case the board decides to discard Kenneth D. Lewis sooner rather than later.
Walter Massey, who became B of A's chairman after April's annual meeting, has been busy reconstituting the company's board, announcing six departures since the meeting and adding four experienced directors. Along the way, he has managed to recruit several directors who are capable of being the interim CEO in a pinch, observers said.
"Bank of America for the first time in years has a viable plan B," said D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte. "If they need to jettison Ken due to the political fallout, there is now a new course of action they could take."
That could put more pressure on Lewis, who has said publicly that he would like to remain CEO until either the financial crisis subsides or Bank of America integrates its purchases of Merrill Lynch & Co. Inc. and Countrywide Financial Corp. Many believe this time frame would put off his expected retirement until 2011.
Some observers have wondered what the company would do if Lewis left before then, either on his own or at the behest of institutional investors or regulators. Succession has been a concern at the company for years but may be less worrisome with the additions of D. Paul Jones Jr., William Boardman and Donald Powell to the board.
Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said the new directors "are all proven executives who could very well step in" on an interim basis. "There wouldn't be any permanency, but it gives them a decent fallback … so [that] Bank of America could further groom a permanent successor."
A spokesman for the $2.3 trillion-asset Charlotte company said he would not comment, and efforts to reach Massey were unsuccessful.
Succession speculation in recent years at Bank of America has involved a handful of Lewis lieutenants who have been placed in key managerial roles. Brian Moynihan has oversight of global corporate and investment banking, thus taking an integral role in the integration of Merrill. Barbara Desoer, who oversees insurance and mortgages, is doing the same with Countrywide.
Liam McGee, who has oversight of consumer and small-business banking, and chief financial officer Joe Price have also been mentioned as possible CEO candidates. Most believe that Lewis has been hesitant to make his intentions known until these candidates become more seasoned or one accomplishes something to stand out from the pack.
Jones, Boardman and Powell all offer an option should the board not want to wait for the internal candidates to be fully prepared, some observers said. Each has experience in running a financial company, though none has run a bank of B of A's size or complexity. Observers said the directors may make up for that with close ties to institutional investors, years of managerial experience and the luxury of having executives within B of A who can manage business lines for a short period.
Jones was the chairman and CEO of Compass Bancshares Inc. for 17 years before selling the Birmingham, Ala., company to Banco Bilbao Vizcaya Argentaria SA and retiring in 2007. Powell, a former chairman of the Federal Deposit Insurance Corp., also was president and CEO of First National Bank of Amarillo, Texas. Boardman retired as a vice chairman at the former Bank One Corp. in 2001 and stepped in as interim CEO at Visa International in 2004.
Control over the decision could be slipping away from Lewis with every major change in the board, notably shareholders' decision in April to strip him of the chairmanship. At that time the board "unanimously expressed its support" for Lewis' leadership, though observers said this may be less certain given the wave of director resignations that included last week's departures of retired General Tommy Franks and retired Admiral Joseph Prueher.
Paul Miller Jr., an analyst at Friedman, Billings, Ramsey & Co. Inc., said boards "are very unpredictable and the more new people that come on means less control for the CEO."
Though reluctant to forecast an imminent departure for Lewis, Miller said, "it should be difficult for him to stay around for three more years like he has wanted to. Everything has to work now, and he can't produce another hiccup" like the fourth quarter's large loss.
Observers also said they would pay rapt attention to Federal Reserve Board Chairman Ben Bernanke's testimony on Capitol Hill this week for any hints on where regulators stand on Lewis. The executive's relationship with regulators has been turned inside out by testimony he gave to New York Attorney General Anthony Cuomo, asserting that federal officials had threatened to remove him if he walked away from the Merrill acquisition. A House panel heard Lewis' version of the story last week and is scheduled to quiz Bernanke on Thursday.
"It seems to me that there are people in Washington that are still after Ken's head," said Gary Townsend, the CEO of Hill-Townsend Capital LLC. "That doesn't seem to change. He needs the support of his board, but the new members will need to get to know him first and hold off immediate judgment."
Not everyone is sold on the idea of pulling an interim successor from the board, noting that a director would have to willingly accept such a daunting role.
Betsy Graseck, an analyst at Morgan Stanley, said she doubts any of the new directors are eager to occupy the corporate suite. "They have people coming in with a rich amount of experience in banking and financial markets, but I don't think a managerial role is what they are signing up for by agreeing to join the board."
Townsend agreed that persuading Powell, Jones or Boardman to become CEO, even for a short term, could be a hard sell for Massey and the board. "The additions do create new options," but "is that what they really want to do?"
