(Bloomberg) — When he turned 65, Bank of America Corp.’s Brian Moynihan entered the business. on stage during a town hall meeting, sending a shock through the crowd. He said he still wants to be CEO if the stock price rises above $100.
The comment, delivered with a wry smile, attracted attention not only because the stock price is currently $45. It underlines how long the man on his way to becoming the industry’s foremost statesman plans to enjoy his status.
Of the four giants of American commercial and consumer banking, Bank of America stands out – as the status quo. It is the only one not undergoing a major overhaul or publicly moving towards a change at the top. Moynihan, who confounded critics by turning around the lender after the 2008 financial crisis, is about to celebrate his 15th year as CEO and is digging in – with no known heir and no signs are that he is deviating from his no-nonsense ‘responsible growth’ strategy.
For shareholders, it’s an approach that has helped Bank of America rank 11th among the 24 major U.S. lenders in the KBW Bank Index over the past five years. Analysts expect the stock to potentially peak at $49 this time next year.
The company has avoided regulatory flare-ups that have left industry peers like Wells Fargo & Co. and Citigroup Inc. had to concentrate on costly revisions. But the company has also fallen behind its only larger rival, JPMorgan Chase & Co., on a number of fronts, including Wall Street market share and stock prices. Warren Buffett, Bank of America’s largest shareholder, cut his stake without comment this year, sparking a debate about its prospects.
“’Responsible Growth’ Will Be the Key Strategy for Bank of America – Why Change?” said Morgan Stanley analyst Betsy Graseck. “It’s more of the same, but it works.”
The next question is whether the incoming administration of newly-elected President Donald Trump can shake up the financial landscape in Bank of America’s favor. In an interview with Bloomberg Television on Tuesday, Moynihan predicted an “economic atmosphere of deregulation” that could benefit the industry. This could, for example, mean that capital rules are tempered to stimulate lending.
But for Bank of America, the coming years could also include other U.S. policy moves that could unbalance more risk-sensitive competitors.
“The mantra of ‘responsible growth’ is making a difference,” says Wells Fargo analyst Mike Mayo. “Every bank is one day, one mistake away from ruining their record. Sometimes slow and steady wins the day.”
While at Brown University, Moynihan got a summer job at a utility company, replacing poor water pipes in his home state of Ohio.
It’s a story he tells sparingly to his closest confidantes, explaining how he arrived at his management philosophy. Success, he says, is often a matter of creating a system and making it run smoothly.
When Moynihan took over Bank of America, he inherited such a mess that few in the industry gave him much of a chance at success.
His predecessor, Kenneth Lewis, made two infamous deals as the financial crisis spread: He bought the subprime mortgage machine Countrywide Financial and agreed to pay about $50 billion for Merrill Lynch, which was on the brink of collapse. Buffett was angry when he told a government committee that if Lewis had waited just one more day, he could have gotten it for nothing. (The acquisition closed for $18.5 billion.)
At the end of 2009, the Bank of America board was intensively looking for a new CEO. Someone was needed to guide the company through a tidal wave of government investigations and legal claims. By Wall Street standards, the pay would be meager, given that the bank was backed by taxpayers.
With external candidates objecting, the board turned to Moynihan – a lawyer by training who had just progressed through a series of senior positions at the company in the chaos of the financial crisis and had little time to make his mark.
‘Many hits’
During his first two years in charge, stock prices fell, falling below $5 as shareholders worried about whether anyone could meet the enormous obligations.
Moynihan made it happen. He made a $5 billion deal with Buffett to get fresh capital and the investor’s full support. The CEO paced the legal and regulatory settlements, giving the bank time to dig its way out of the hole. He also reduced costs and workforce, restoring profitability.
The naysayers never convinced him, says Gary Lynch, the bank’s former general counsel.
“Brian was a rugby player,” Lynch said. “He took a lot of hits, which would have knocked out a lot of people. But he continued.”
Buffett’s stake in the bank grew to more than 13% this year.
Moderate risks
Many of Bank of America’s Wall Street employees wrongly assumed that once the bank got back on its feet, risk-taking would resume.
Not so.
The responsible growth mantra that Moynihan began using in virtually every public appearance around 2015 turned out to be serious. When the company and its peers lost hundreds of millions of dollars on loans backed by shares of a troubled South African furniture retailer in 2018, Moynihan’s team reined in that industry. A number of ambitious managers left.
Over the past decade, Bank of America’s Wall Street operations have continued to lag behind JPMorgan.
Non-interest income – an amalgam of income from transaction settlements, business acquisitions, client assets and other items – was about the same as JPMorgan’s a decade ago. But that revenue stream has since declined at Bank of America, while rising 54% at its rival.
Last year, JPMorgan’s Jamie Dimon expanded his firm’s asset management business by buying First Republic, which targets technology entrepreneurs. He also convinced shareholders to back a big bet on new technology, looking to gain an edge over competitors who can’t match the spending. That includes a series of platform acquisitions a few years ago and a growing technology budget expected to reach $17 billion.
Dimon, 68, has indicated he is slowly approaching the end of his tenure as CEO – a position that has made him an industry statesman. In January, he shuffled a small group of senior executives considered his top successors to give them more experience.
Bank of America’s succession picture is bleaker.
In Moynihan’s early years as CEO, his most obvious replacement was Tom Montag, the former Goldman Sachs executive who later headed Bank of America’s investment bank and eventually became the company’s chief operating officer. But when Montag and Anne Finucane, the bank’s vice chairman and eldest woman, left in 2021, a cascade of openings emerged.
The company has yet to say which of its emerging executives are CEO material.
In an emergency, the most likely replacement would be 58-year-old Dean Athanasia, who oversees half of the company’s eight major segments, including retail, small business and commercial banking. He and Moynihan use Boston as their headquarters, traveling from the posh town of Wellesley.
Prospective candidates include Jim DeMare, who leads the company’s Wall Street sales and trading efforts, and Chief Financial Officer Alastair Borthwick. Both are in their mid-fifties.
DeMare convinced the bank to entrust his unit with more capital and invest in its systems. Last year, his agency generated 37% more revenue than before he took over during the pandemic. Moynihan has touted its market share growth and this month expanded DeMare’s role to include research activities.
Borthwick repositioned the company’s balance sheet, which contained too many low-yielding assets as rates rose in 2022. Now known in the markets as the numbers guy on conference calls, he previously ran the commercial banking business.
Other long-term candidates include Holly O’Neill, head of retail banking, and Wendy Stewart, head of commercial banking, reporting to Athanasia.
O’Neill oversees customer service for the lender’s 35 million retail banking customers. The company’s checking account count has increased for 23 consecutive quarters.
Stewart made his mark during the turmoil at regional banks last year, when customers rushed to the safety of larger banks. Her unit, which serves one in five U.S. companies generating $50 million to $2 billion in revenue, increased its customer base by 55% amid the chaos.
Buffett’s sale
After years of publicly praising Moynihan’s leadership, Buffett began reducing his stake without comment in mid-July. For months, records showed he was selling almost daily until his holdings fell below 10% in October, freeing him from the obligation to quickly disclose transactions. Markets may not know whether its surge continues until a regulatory filing is made early next year.
On stage at a town hall in October, Moynihan suggested some attendees were irritated by the topic of Buffett’s sales. It is possible that the financier only wanted to secure profits or acted from a vision of the sector. Regulators discourage large bank shareholders from consulting with management and influencing strategy.
“It wouldn’t be right to talk to him about stock ownership when he owns a large part of the company,” Moynihan said in a TV interview that month. ‘He doesn’t talk about it, we wouldn’t talk about it. But he has been a great supporter of our company, and we have benefited from it.”
A month later, after Trump’s election victory, Mayo met Moynihan at an evening event and was struck: “I have never seen Brian Moynihan as committed and optimistic as he was at that dinner.”
But the Wells Fargo analyst doesn’t expect the CEO’s style to change.
Moynihan “gets where he wants to go, one step at a time,” Mayo said. ‘He doesn’t make big jumps, no big gestures, no jumps over gaps. He will get there, to his destination, and do it without breaking a leg.”
–With help from Hannah Levitt and Max Abelson.
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