If you read the press release issued by Bank of America (BAC -0.13%) to announce the departure of CFO Bruce Thompson, you'd be excused for concluding it was an amicable split.
In it, CEO Brian Moynihan praised Thompson for putting the company on a "strong, stable financial foundation, with record levels of capital and liquidity." Moynihan also intimated, in ambiguous language only a lawyer could appreciate, that the 50-year-old finance chief left on his own accord.
But is this true? Did Thompson choose to leave the $2.2 trillion bank simply to pursue opportunities elsewhere? Or is there more to this story than meets the eye?
While any conversation about the move is still speculative, it seems to me that there are three ways to explain the management shakeup -- and for the record, an entirely voluntary decision on Thompson's part didn't make the cut.
1. Stressed out by stress tests
The explanation that has gained the most traction since Bank of America announced the news Wednesday evening is that Moynihan and the board of directors were dismayed at the bank's struggles to pass the Federal Reserve's annual stress test.
The test, administered in two stages at the beginning of each year, serves dual purposes. The first is to ensure that banks have enough capital, as well as an adequate capital-planning process, to survive a severe economic downturn akin to the financial crisis of 2008-2009. The second and related purpose is to approve or deny banks' requests to return more capital to shareholders by way of dividends and/or share buybacks.
The vast majority of participating banks have sailed through these tests, but Bank of America is an exception. It has either failed or received only conditional approval in three out of the past five tests. In the latest round, its belated discovery of a $4 billion capital miscalculation led the Fed to demand that the bank resubmit updated capital plans by the end of September.
Because this fell under Thompson's purview, most analysts and commentators seem to think this explanation fits best.
2. Lagging revenue growth
An equally reasonable interpretation of Thompson's departure is that it stemmed from Bank of America's struggles to increase revenue.
Since the financial crisis, the bank has focused almost manically on reducing expenses. Its Project New BAC cut operating costs by $8 billion a year. Its onerous legal troubles seem finally to be in the rearview mirror. And its division tasked with disposing of toxic and noncore assets dating back to before the crisis is down to the equivalent of 12,600 employees from a peak of 41,800 three years ago.
But the success that Bank of America has had on the expense front hasn't been replicated on the top line. Quarterly revenue has fallen on a year-over-year basis at the bank in five out of the past six quarters. On an annual basis, the North Carolina-based bank's top line is down by 30% since 2009.
"There must have been some kind of strain between Brian and Bruce for him to step down at age 50," Charles Peabody, an analyst at Portales Partners, told Bloomberg News. "You've had five years of declining revenues, and Brian is undoubtedly feeling the heat to grow this thing."
3. Moynihan is consolidating power and eliminating rivals
Last but not least, it's nice to think that the executives at our nation's biggest and most prestigious financial institutions are above ego-driven consolidations of power in the corporate suite, but history proves that this isn't the case.
No company offers a better example of this than Citigroup.
After Citibank merged with Travelers in 1998 to create the first truly universal bank on American soil since the Great Depression, CEO Sandy Weill proceeded to remove all viable successors that threatened his reign.
That included John Reed, the urbane chairman and CEO of Citibank going into the merger, who was forced out 18 months later. It also included Weill's closest associate, Jamie Dimon, who was cast aside after refusing to promote Weill's daughter to head one of the bank's operating units. This paved the way for Charles Prince to assume the helm at Citigroup, while Dimon was hired to breathe new life into Chicago-based Bank One before its merger with JPMorgan Chase.
It was perhaps the greatest mistake of Citigroup's roughly 203-year history. While Prince was telling analysts that "as long as the music is playing, you've got to get up and dance," Dimon was methodically trimming JPMorgan's exposure to derivatives backed by subprime mortgages.
It's too early to say if Brian Moynihan is following a similar script at Bank of America -- and, for the record, he doesn't strike me as the type who would -- but there are nevertheless two points that bolster this belief.
The first is that Thompson was thought to have been a potential successor to Moynihan, who, at age 55, is five years older than the outgoing finance chief. Moynihan had previously sidelined his one-time heir apparent, former co-COO David Darnell, by demoting him to vice chairman last August. The leading candidates that remain for the top position at the bank are either Moynihan's age or older, as is the case with the consensus front runner, COO Thomas Montag.
"It's not a very deep bench of people younger than him," Peabody told Bloomberg News in the same interview cited above. "Montag is older than him, [vice chairman Terry] Laughlin is older than him, and [newly appointed CFO Paul] Donofrio is his age."
The second reason is that Moynihan seems to be replacing executives who trace their lineage back to NationsBank, the successor in the 1998 megamerger that created the Bank of America we know today, with executives who served with Moynihan at FleetBoston Financial, which merged with B of A five years later.
As I discussed at length here, in addition to sidelining Darnell last year, Moynihan simultaneously added two new members to the executive committee in 2014: Dean Athanasia, president of preferred and small business banking, and Thong Nguyen, head of retail banking operations. Both worked with Moynihan at FleetBoston.
And now, two more of Moynihan's former colleagues from Boston have been given enhanced titles. According to yesterday's announcement, Terry Laughlin was promoted to head Bank of America's asset and wealth management franchises. And Anne Finucane, who will continue as the company's global chief strategy and marketing officer, was appointed vice chairman.
All told, five out of the 13 members of Bank of America's executive management team now stem from its Boston contingent. This has led at least one prominent industry analyst to speculate that Bank of America might even consider relocating its corporate headquarters from Charlotte, North Carolina to New England.
At the end of the day, of course, most of these reasons underlying Thompson's pending departure remain rote speculation. That being said, because the orderly succession of a company's leaders is a critical component of any business that hopes to sustain high levels of profitability over multiple generations of leaders, this is something that Bank of America's shareholders should keep an eye on.
