Shareholders of Bank of America (BAC 0.67%) have the opportunity next Tuesday to weigh in on whether CEO Brian Moynihan can continue to serve as the chairman of its board as well. The bank is working to convince investors that its board should have the same flexibility in this regard as virtually every other major American corporation.
Moynihan made his case directly to analysts and investors at the Barclays Global Financial Services Conference in New York City on Wednesday. The 55-year-old executive covered a lot of ground in his presentation, but there are three things in particular that speak to his success since becoming CEO at the beginning of 2010.
The first is the progress that Bank of America has made to shore up its balance sheet. Its tangible common equity ratio increased by more than 50% over the period, going from 5% at the end of 2009 up to 7.6% today. To put that in concrete terms, Bank of America had $118.6 billion in tangible common equity at the end of 2009. By the end of the second quarter of this year, the figure had shot up to $157.2 billion.
Much of this is due to the fact that Bank of America has been stymied on three separate occasions in its efforts to return more capital to shareholders, with the Federal Reserve effectively denying its dividend and/or stock buyback plans in three out of the past five stress tests. At the same time, however, it's worth pointing out that the Charlotte, N.C.-based bank buttressed its capital base by $39 billion despite the roughly $100 billion in legal fees and settlements it has incurred in the eight years since the crisis.
Bank of America's Brian Moynihan.
The second point that speaks most convincingly to Moynihan's success concerns the bank's expense cuts. Bank of America's biggest operational problem following the crisis has been an egregiously bloated expense base. This isn't because the bank was inefficient prior to the crisis, but rather because the wave of mortgages that defaulted in its wake drove up the cost to service them. Bank of America went so far as to set up a separate division, Legacy Assets and Servicing (LAS), to deal with the problem.
The good news is that expenses in Bank of America's core operations, as well as in its LAS division, have declined dramatically. This is thanks in large part to the bank's Project New BAC initiative, which was designed to reduce core operating expenses by $8 billion a year. According to Bank of America's estimates, in fact, quarterly expenses are down by $4.4 billion since the second quarter of 2011. It's achieved this largely by closing more than 1,300 branches and reducing its employee count by 25%.
Finally, Bank of America's tangible book value per share has increased by 33% since Moynihan took over. At the beginning of 2010, each share of common stock translated into $11.31 worth of shareholders' equity, excluding goodwill and other intangible assets. That figure now is $15.02. The increase admittedly pales in comparison to competitors such as US Bancorp (see here) and Capital One Financial (and here), but no other financial institution suffered the unprecedented legal onslaught that Bank of America did over the same stretch. All things considered, in turn, Moynihan is right to cite this in support of his bid to remain both chairman and CEO.
