BofA’s fallen star resigns
Kenneth D. Lewis, who became a focus of public and political outrage while presiding over Bank of America Corp.’s stunning fall from grace in the financial crisis, is stepping down as chief executive at the end of the year.
Lewis, who had helped build the company into the nation’s largest bank, faced widening criticism in particular for the company’s acquisition of faltering giant Wall Street brokerage Merrill Lynch & Co.
He joins a line of once widely admired CEOs who quit or lost their jobs in the wake of huge losses stemming from the mortgage meltdown, including the heads of Citigroup, Bear Stearns, Lehman Bros., Merrill Lynch itself and Countrywide Financial, which Bank of America also acquired in a fire-sale deal that garnered harsh criticism.
Lewis, CEO since 2001, will vacate that post and step down from the company’s board Dec. 31, Bank of America said Wednesday. No successor was named.
Merrill Lynch’s losses snowballed after the deal was announced last fall, prompting the federal government to increase its bailout investment in Bank of America to $45 billion, money the company has yet to repay. The deal also triggered a host of legal and political headaches that still dog BofA.
Lewis’ planned departure comes after shareholders stripped him of his chairman title in April as various government entities were investigating the Merrill takeover and as criticism of Lewis in Congress was reaching a crescendo.
“He’s become too much of a liability for the company and the stock, given all the anger that’s built up against him,” said Richard Bove, a banking analyst at Rochdale Securities. “Bank of America is losing a brilliant leader.”
Lewis, 62, defended the Merrill deal in a note to employees posted on Bank of America’s website late Wednesday.
“Some will suggest that I am leaving under pressure or because of questions regarding the Merrill deal,” Lewis wrote. “I will simply say that this was my decision, and mine alone.”
The Securities and Exchange Commission has sued Bank of America, alleging that it misled shareholders into believing that Merrill would not pay year-end bonuses after huge losses had pushed the brokerage to the brink of collapse. In fact, the SEC alleged, BofA already approved as much as $5.8 billion in payments and Merrill eventually doled out $3.6 billion.
The company reached a $33-million settlement with the SEC but a federal judge took the rare step of rejecting the agreement, saying in part that if the allegations were true, the penalty should be greater. The case is scheduled for trial in February.
New York Atty. Gen. Andrew Cuomo also is investigating whether Bank of America hid from shareholders the magnitude of Merrill’s losses before they voted to approve the deal last year. His office said its probe would continue.
BofA’s stock price, which neared $55 in late 2006, slumped to $3.14 in March as the stock market hit bottom. The stock has since recovered to $16.92 as the recession has shown signs of easing.
The Merrill deal and last year’s purchase of mortgage giant Countrywide were initially heralded as savvy moves, and many analysts predicted that Bank of America would emerge as not only a survivor of the financial crisis but also a beneficiary of the travails of its rivals.
But growing loan losses brought on by the battered housing market and stricken economy played havoc with the company’s once-solid earnings and balance sheet.
In his note to employees, Lewis warned that repercussions of the recession and overly risky lending would persist.
“A near double-digit unemployment rate is bad medicine for a bank that serves consumers, and I am disappointed in how we managed credit risk,” he wrote. “The next two quarters will be difficult.”
When BofA agreed early last year to buy Calabasas-based Countrywide, which appeared to be on the brink of failure, Lewis was regarded as a savior not only of the mortgage lender but also, in some sense, of the financial system.
Merrill too appeared headed for collapse when Lewis stepped in to buy the Wall Street firm the same weekend that Lehman Bros. was imploding, triggering last fall’s financial chaos. Lewis said he believed that acquiring Merrill was in the country’s best interest as well as BofA’s.
Soon after signing the Merrill deal, Lewis was pressured by then-Treasury Secretary Henry M. Paulson -- as were the leaders of the country’s other largest banks -- to accept infusions from the $700-billion financial system bailout fund. Paulson’s goal was to bolster the banking system without singling out any institution as needing funds. BofA’s initial infusion was $25 billion.
But Lewis’ request for an additional $20 billion in December as a condition of completing the Merrill takeover transformed BofA in many minds from a savior into an undeserving beneficiary.
Lewis testified in April that Paulson and Federal Reserve Chairman Ben S. Bernanke threatened to oust him if the bank called off the Merrill deal.
Paulson and Bernanke, Lewis said, directed him not to disclose Merrill’s mounting losses until after the takeover closed in January. Bernanke denied that he told Lewis what to disclose. A spokeswoman for Paulson said the Treasury chief delivered a message from the Fed that the accord to buy Merrill was unbreakable, warning that to do so “would show a lack of judgment.”
That episode marked one of a number of apparent rifts between the bank and the government that once regarded it as an ally, including remarks by Federal Deposit Insurance Corp. chief Sheila C. Bair that some big bank leaders might need to be replaced. The remarks were widely seen as aimed at Lewis, among others.
As Lewis returned from a recent summer vacation, he realized that the widespread criticism of him “had just worn him down,” said one person familiar with Lewis’ feelings, speaking on condition of anonymity. “I think he was tired of the mounds of mud that had been heaped on him.”
Bank of America spokesman Robert Stickler denied that pressure from the government or from the company’s board played a role in Lewis’ departure.
Lewis will receive a multimillion-dollar retirement package based on his 40 years at the bank, many of them at a top executive’s salary. But there will be no special “golden parachute,” Stickler said, because Lewis had, at his own request, worked without a contract since 2003.
Stock options awarded to Lewis that haven’t expired can’t currently be cashed in at a profit because the company’s stock price is so low.
Bank of America historically was California’s biggest bank, a descendant of the Bank of Italy, founded to serve immigrants in San Francisco in 1904.
In 1998, when fast-growing NationsBank bought BofA’s parent firm, BankAmerica Corp., the new parent company remained based in Charlotte, N.C., as NationsBank was, but took the name Bank of America.
BofA and Wells Fargo & Co. of San Francisco are running neck and neck to be the No. 1 bank in California based on the number of branches in the state last week, with 1,027 for Wells and 1,016 for BofA, according to the FDIC.
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