Ever since Bank of America (NYSE:BAC) announced a broad management shakeup last week, including CFO Bruce Thompson's departure, analysts and commentators have raised the idea that CEO Brian Moynihan's job may be vulnerable as well.
John Carney of The Wall Street Journal captured the quietly festering discontent by observing that Bank of America's shares have increased far less under Moynihan's watch than at the bank's principal competitors: Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), and JPMorgan Chase (NYSE:JPM).
Shares of the nation's second biggest bank by assets have returned 19% since Moynihan took control on the first day of 2010. Over the same span, shares of Wells Fargo have more than doubled, while JPMorgan Chase and Citigroup's are up by 83% and 74%, respectively.
The insinuation is that Moynihan has done a worse job running Bank of America than his counterparts have at their firms. Adding to this are concerns that the 55-year-old executive may be a one-trick pony, able to slash expenses but lacking the salesmanship needed to grow revenue.
To be sure, Moynihan is up against stiff competition. Jamie Dimon, the CEO of JPMorgan Chase, is arguably our generation's finest banker. He rose to prominence at the side of Sandy Weill, the scrappy financier behind the 1998 merger of Citicorp and Travelers Group that produced the first universal bank on American soil since the 1930s and, by doing so, broke down the wall between commercial and investment banks.
After Dimon was fired for in part refusing to promote Weill's daughter, he proceeded to turn around one of the nation's biggest regional banks, Bank One, before it merged with JPMorgan Chase in 2004. As the head of the latter since 2005, he not only steered it through the financial crisis by pre-emptively de-risking its balance sheet, he's also overseen JPMorgan's return to the apex of American finance after lagging Citicorp for the second half of the 20th century.
Wells Fargo's John Stumpf is accumulating an equally impressive portfolio of triumphs. Going into the crisis, Wells Fargo was a regional lender operating for all intents and purposes west of the Mississippi River. But its discipline to avoid the most lucrative but riskiest types of subprime mortgages during the housing bubble positioned it to feast on the market share of less prudent competitors after the bubble burst.
The California bank more than doubled in size with its 2008 acquisition of Wachovia, a larger rival that sold for an 80% discount to book value. Wells Fargo's branches now span the continent and it's amassed a commanding stake in what may be the world's greatest financial prize, the U.S. mortgage market. To top things off, it's one of the most efficient banks in the country. This frees it up to underprice competitors and sidestep the temptation to boost profitability through lower lending standards.
But using these accomplishments to directly gauge Moynihan's progress since 2010 is comparing apples to oranges. No other company in history has survived the legal barrage leveled against Bank of America over the past seven years. By the time I stopped tallying the bank's settlements and legal judgments in 2014, the figure had already come within striking distance of $100 billion. Some of that was in the form of non-monetary relief, but much of it wasn't. And either way, $100 billion is $100 billion.
That Bank of America has emerged from this onslaught under Moynihan's stewardship -- "achieving the impossible," according to long-time bank analyst Richard Bove of Rafferty Capital Markets -- is at least as remarkable as Dimon and Stumpf's performances during and after the crisis.
In the latest quarter, the $2.2 trillion bank earned 0.99% on its assets, just under the 1% threshold that has long been the province of well-heeled lenders. Its efficiency ratio of 62.5% is on the verge of dipping below the psychologically important 60% mark. And thanks to a recent ruling by New York's highest court, Bank of America was able to lop off $7.6 billion in outstanding legal claims, while simultaneously staunching the inflow of new ones.
With this in mind, the performance of Bank of America's shares since Moynihan took over is precisely what one would expect: dismal. Indeed, the bank's own history -- or, more precisely, that of legacy Bank of America, the California-based bank that merged with North Carolina's NationsBank in 1998 -- offers a case in point.
Following a decade of rapid growth in the 1970s, Bank of America's CEO Tom Clausen was recruited to head the World Bank. His successor Sam Armacost took control in 1981 only to discover that the prior decade's growth was powered by rapid inflation and generous loans to South American governments, many of which went on to default during Armacost's watch. But even though the new CEO was dealt an almost impossible hand, he spearheaded changes that ultimately allowed the bank to return to record profitability following three consecutive years of losses.
The problem for Armacost was that the board of directors lost patience before the fruits of his labors were realized. He was fired in 1986, a little over a year before his projections of record earnings came true. The move was premature to say the least. And most importantly, by reinstalling the same CEO who steered the bank into trouble in the first place -- namely Tom Clausen -- one could argue that it laid the groundwork for Bank of America's subsequent capitulation to NationsBank a decade later.
To this end, it's worth keeping in mind that Moynihan hails from one of Bank of America's best-managed legacy companies, FleetBoston Financial, which merged with the bank in 2003. He thus brings a level of institutional discipline that's long been absent at both legacy NationsBank, which focused almost exclusively on growth through acquisitions since the 1950s, and at legacy Bank of America, which has run into problems time and again over the years due to its equally obsessive focus on growth at seemingly any cost.
After nearly being fired by his predecessor Ken Lewis, the head of legacy NationsBank's "Charlotte mafia" at the time, he was instead selected by the board, which was then chaired by his former FleetBoston boss Charles Gifford, to replace Lewis at the helm. Since then, Moynihan has systematically filled the executive committee with colleagues from New England -- the so-called "Boston mafia."
One could argue that he's doing so to consolidate power. But I believe an equally reasonable explanation is that FleetBoston executives were inoculated with a more appropriately conservative approach to banking than were their colleagues in North Carolina and California. While the practice of taking deposits and making loans seems easy, it's in fact incredibly difficult to do well over long stretches of time. This is because it takes an unusual amount of discipline to temper short-term revenue growth with robust risk management. Moynihan may or may not be able to instill this discipline, but his FleetBoston roots probably give the bank its best shot.
In short, regardless of how you look at it -- as long as you're willing to see past the understandably dismal share price performance -- Moynihan seems like the right person in the right place at the right time to lead Bank of America forward.