What a Difference a Week Makes : Weill’s Bid for B of A Now Taken Seriously
Sanford I. Weill’s $1-billion bid to become president of Bank of America, seen a week ago as presumptuous and faintly ludicrous, today is being taken seriously.
Although details of the plan remain sketchy and Weill has not publicly commented on it, anticipation and speculation are building in advance of the bank’s board of directors meetings Sunday and Monday, at which the Weill proposal will be discussed.
Shares of BankAmerica, the San Francisco bank’s parent firm, moved up sharply Thursday on extremely heavy volume. The bank’s common shares closed at $17.125, up $1.875, as 3.8 million shares changed hands, making it the second most active on the Big Board.
Bankers and industry analysts said B of A board members may be nearing a point where they believe a dramatic move is needed to shake the bank out of a four-year slump, leading to $337 million in losses last year. It is to some degree a measure of the bank’s perceived problems that so much attention has been focused on the still-vague Weill plan.
But observers differ sharply on whether Weill, the audacious former American Express president who has proved his prowess on Wall Street but has never run a bank, is a realistic choice to lead Bank of America.
“Sandy Weill is just what that organization needs,” one leading investment fund manager said. “He’s a winner.” He compared Bank of America now to Chrysler at the time of the federal bail-out and said: “He could engineer a bigger turnaround than (Lee A.) Iacocca.”
The opposite view was expressed by an executive of a major California bank: “The chances of Sandy Weill getting anywhere are pretty slim.” He said the obstacles that Weill would face from bank employees, lawmakers, regulators and other bankers would prove overwhelming.
And nearly everyone expressed doubt that the emotional, entrepreneurial, street-fighting Wall Street whiz could fit in at Bank of America, a paternalistic bureaucracy with 70,000 employees and a conservative board and shareholder body.
What is known so far is this: Weill approached Bank of America in January with an offer to raise about $1 billion in new capital in exchange for the chief executive’s job now held by Samuel H. Armacost.
The response by B of A management and board members was “Thank you, no. We don’t need any help,” according to a source close to the board. Weill was not heard from again for several weeks and bank officials sighed in relief.
But last week, in response to persistent Wall Street rumors and a one-day 10% run-up in B of A stock, the bank publicly acknowledged the Weill initiative. The news was met in the banking community with reactions ranging from skepticism to derision.
“It’s ridiculous, a play for publicity by a guy who needs a job,” a top New York investment banker said. “It’s a 22-cent offer,” he added, referring to the cost of the stamp on the letter Weill sent to B of A.
In part, the Weill proposal had little initial credibility because of similar stories that appeared last September after E. F. Hutton Group stock soared on rumors that Weill would lead a takeover of the securities firm.
Weill never confirmed the rumors and the story proved to be a 24-hour wonder: Nothing more was heard of it.
Then, earlier this week, two additional pieces of the Weill-Bank of America story emerged. First, Shearson Lehman Bros., the major brokerage firm that Weill built practically from scratch and sold to American Express in 1981, was reported to be willing to raise the $1 billion that Weill needed for the B of A capital infusion.
The brokerage has not commented on the story, but B of A did not deny it.
Then, on Tuesday, Armacost received a second communication from Weill by express mail. The bank confirmed the receipt of the package with a cryptic statement referring to “a second letter which for the first time states that Mr. Weill has a plan for the bank.” In the letter, Weill asked for a hearing before the board of directors, which has been granted.
Weill had the bank’s attention, and industry analysts began considering his initiative with new seriousness.
George Salem, a bank analyst with the Wall Street securities firm of Donaldson, Lufkin & Jenrette, was one of the early skeptics. His initial reaction was that the plan “wasn’t Weill, it was wild.”
But on Thursday, Salem received a telephone call from Jamie Dimon, a Weill aide, who “wanted to straighten me out.” Dimon proceeded to explain why Weill believed that B of A could be resuscitated by $1 billion in new capital.
“It would bolster the credit of the bank, enable it to do more lending, upgrade its letters of credit, and regulators and customers would look at it differently,” Salem said Dimon told him.
A second analyst, Don Crowley of Keefe, Bruyette & Woods, said a capital infusion would help the bank “get back to a normal growth curve.” He noted, however, that the bank had adequate standing in capital markets to raise its own equity without Weill’s help.
But Crowley said he was waiting eagerly to learn how the board would respond to the Weill plan and said he would not be surprised by a dramatic change in the bank’s management in the near future.
Weill has remained silent, refusing to return reporters’ phone calls. But it would be typical of him to go for a big play.
Shortly after he left American Express after losing a long power struggle, he was asked what he planned to do with his life and his estimated $40 million personal fortune. He indicated that he would stay in the financial services field and said, “Whatever I do next, I will want to be the top person in it.”