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Bank of America: Brian Moynihan Does a 180º Turn from Ken Lewis

March 17, 2017

[Photo:  Bloomberg News]


Brian Moynihan became the CEO of Bank of America in 2010, succeeding Ken Lewis. Mr. Lewis single-handedly nearly destroyed the bank through some of the worst acquisitions in history. In 2008, after acquiring Countrywide Financial for $4 billion, Lewis engineered the takeover of Merrill Lynch for $50 billion. When the Merrill deal was consummated, FDIC Chair Sheila Bair stated that the acquisition was overpriced, as Merrill Lynch along with Countrywide Financial "were two of the sickest financial institutions in the country."


Those 2 transactions, alone, had a devastating effect on the bank for years to come. First, the price of BofA shares has yet to recover from the issuance of billions of shares needed to finance the acquisitions. Second, the acquired companies brought on tens of billions in litigation and regulatory sanctions arising from the sale of toxic mortgage-backed securities..


Having learned from the failings of his predecessor, Mr. Moynihan has been on a mission to reverse the bank’s obsession with growth at any cost. And, what are those lessons? According to the 2016 Annual Report of The Bank of America:


First, we must grow organically. Acquisitions are not part of our strategy so we don’t have to issue shares.


Second, our businesses generate more than sufficient capital to fund their growth. We have shed non-core businesses and we have everything we need to serve our clients, so we can focus on building stronger relationships with them and optimizing returns.


Third, we need to continue to reduce the number of shares outstanding. This is essential if we want our stock price to exceed the record highs we have achieved in our market capitalization and in our tangible book value per share. And, because our stock is trading at a price that is close to our book value, repurchasing shares now creates long-term value for remaining shareholders when we buy from the selling shareholders at this level.


Finally, by staying focused on these things, and executing our strategy of responsible growth, we can deliver the returns that you expect from us and continue to return excess capital to you through dividends and common stock repurchases.


Brian Moynihan further wants to ensure that Bank of America’s responsible growth is sustainable. That means the bank must adhere to rigorous standards of corporate governance, among other things.


And with that growth, Mr. Moynihan seeks to build up bank capital to the point where he can fulfill his plan of returning all earnings to investors in dividends or share buybacks. Those inspirations, alone, will help to keep the price of BAC shares at suppressed levels. However, if Mr. Moynihan is correct in his predictions, it all will happen without jeopardizing the bank’s growth objectives.