If experience plays a role in a bank executive's performance, then Bank of America's (NYSE:BAC) CEO Brian Moynihan seems uniquely positioned to deliver the once-ailing lender to the promised land of higher profits and greater shareholder returns.
I'm referring specifically to Moynihan's time at FleetBoston Financial, where he worked for a decade before the New England-based bank merged with Bank of America in 2003.
Like other banks around the turn of the century, FleetBoston found itself in trouble:
- It wrote off more than $1 billion in losses on loans to Argentina, which defaulted on its debts in 2001.
- The U.S. economy was reeling from the bursting of the dot-com bubble and the attacks on Sept. 11, 2001.
- Multiple corporate clients of FleetBoston went bankrupt -- namely, Enron, United Airlines, and TXU, an energy services company.
- And the bank's reputation among consumers was the second worst in the industry, according to Consumer Reports.
As a result, FleetBoston's return on average assets, one of the most important profitability ratios in the industry, dropped from 1.66% in 2000 all the way down to 0.48% the following year. That meant it was earning roughly half as much as a bank its size would under normal circumstances.
FleetBoston's CEO, Charles Gifford, responded by emphasizing consumer banking, a "bright spot" for the industry at the time. It added tellers, remodeled branches, wooed a top consumer strategist from Wells Fargo, and unveiled a $70 million advertising campaign to revitalize its image.
But even though this strategy improved profits over the following two years, FleetBoston nonetheless succumbed to the temptation to merge with the bigger and stronger Bank of America, which had been created only five years earlier through the combination of North Carolina's NationsBank and California's Bank of America.
Gifford became the chairman of the board while Bank of America's Ken Lewis retained his position as CEO. Moynihan, meanwhile, began cycling through executive positions in the combined bank's principal business units.
By serving as Mr. Fix It, Moynihan did for his boss what Lewis had done for his predecessor, Hugh McColl, the longtime NationsBank CEO who spearheaded the bank consolidation wave of the 1990s. It was this experience, as well as legacy FleetBoston's plurality of votes on Bank of America's board, that catapulted Moynihan into the corner office of the nation's second biggest bank by assets.
Bank of America's current turnaround is thus far from Moynihan's first rodeo. Whether he can do for the $2.2 trillion bank today what he helped accomplish at FleetBoston over a decade ago remains to be see, but shareholders can take comfort in the fact that he's been here before.