BofA's Lewis faces big challenges: This month, the Charlotte bank's CEO will grapple with earnings report, disgruntled stockholders, worried workers.

Apr 01, 2009 (The Charlotte Observer - McClatchy-Tribune Information Services via COMTEX) -- MER | Quote | Chart | News | PowerRating -- April is shaping up as a pivotal month for Bank of America Corp. chairman and chief executive Ken Lewis.

In the month that marks Lewis' eighth year as CEO, the Charlotte bank is scheduled to disclose first-quarter earnings on April 20, and analysts and investors are waiting to see if he can start delivering on his predictions of a profitable 2009 and a successful merger with Merrill Lynch & Co.

A little more than a week later, Lewis faces what surely will be the most heated shareholder meeting of his tenure. Already, a coalition of unions is calling for his CEO job. And a Houston investment firm is leading a campaign urging shareholders to strip him of his chairman's post.

With shareholders already steamed over dividend cuts, a dismal stock price and fallout from the Merrill acquisition, a poor first-quarter performance would raise ire against Lewis to a new level, experts said. The bank's shares are down 79 percent since the Merrill deal was announced in mid-September. They climbed 13 percent on Tuesday to close at $6.82.

"Another expectation dashed and I think you'll have an open shareholder revolt," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware and a Bank of America shareholder.

A positive quarter would help buoy a workforce that has seen its morale battered by ongoing job cuts, diminished bonuses and the general pall over the financial services industry. It also could aid Lewis' pledge to quickly pay back $45billion in government capital as the public becomes increasingly disenchanted with taxpayer-funded bailouts.

The ouster this week of General Motors Corp. chief executive Rick Wagoner has raised questions about whether financial industry CEOs deserve the same treatment.

Bank of America and rival Citigroup Inc. have both received "more money than GM will ever get," said Sydney Finkelstein, a management professor at Dartmouth's Tuck School of Business.

"This action may put Ken Lewis under even more pressure," said Finkelstein, the author of a book on leadership called "Think Again," who has been critical of Lewis.

A Bank of America spokesman said the company "does not see the parallel with the U.S. auto industry," noting the bank made $4 billion in net income last year, has had only one quarterly loss since 1991 and has expanded market share in multiple products.

Lewis in January received a public statement of support from the bank's lead director, Temple Sloan. And in recent weeks, Lewis has been predicting the company will be profitable in 2009, absent another financial meltdown. He expects the bank to pass a government-administered stress test that is set to wrap up this month.

Lewis has said he's not consumed by his job status and hasn't discussed it with the board. He turns 62 in April but hasn't announced any succession plans. In an interview with the Observer last month, he said his focus was on paying back the government aid and attaining record profits once again.

"I have been at this company almost 40 years, and it has been my life for two-thirds of my existence, and what I want to do is see us get through this, and then start to realize our full potential ... " Lewis said.

'Morale ... is pretty bad'

Lewis, elevated to CEO at the April 2001 annual meeting, had been seen as one of the banking industry's stars until loan losses surged in the recession and problems flared with the Merrill purchase.

On Jan. 16, Bank of America announced a fourth-quarter loss of $2.6 billion -- the bank's first quarterly red ink in 17 years. It also disclosed the need for $20 billion in additional capital to help stabilize Merrill, which lost more than $15 billion in the fourth quarter. The fact that bank officials and the board knew of rising Merrill losses in December and didn't disclose the news until a month later has led to nearly two dozen shareholder lawsuits.

Lewis has touted the bank's performance in January and February, but last week said trading results in March had fallen off. Analysts polled by Thomson Financial are projecting the bank to break even in the first quarter amid worries about the economy and Merrill's troubled assets. Moody's Investors Service last week downgraded Bank of America's debt on concerns it may need more government aid.

Freidman Billings Ramsey analyst Paul Miller on Tuesday raised his estimate for first-quarter operating earnings to 10 cents per share from a loss of 50 cents per share. For the year, he halved his estimated loss to 20 cents per share from 40 cents per share. Miller said he expects higher revenue from mortgage banking and Merrill Lynch trading operations in the first quarter, but he predicts loan losses will rise in 2009 and 2010.

Besides assuaging investors, an improved first-quarter performance could boost spirits among a workforce that is undergoing 42,500 job cuts attributed to the Merrill purchase, last year's Countrywide Financial Corp. acquisition and the weak economy. "The morale situation is pretty bad," said one former executive. "Everybody around the company seems to be walking on eggshells."

Some employees are leaving on their own. In the past two years, at least eight executives, including the company's 35-year-old treasurer, have departed for GMAC Financial Services, the auto lender led by former Bank of America chief financial officer Al de Molina. Bank of America has also lost a stream of former Merrill executives and bankers to competitors.

"We're seeing a slow exodus of senior people from Merrill," said analyst Nancy Bush of NAB Research in New Jersey. "At what point does it mean lost revenue?"

Bush said she would like to see lead director Sloan address the Merrill acquisition and CEO succession at the annual meeting, which she expects to be "tumultuous."

Investors seek big changes

At the gathering, shareholders will get a chance to take a non-binding vote on whether they approve 2008 executive compensation and on a proposal to split the chief executive and chairman posts. Also, the CtW Investment Group, which represents a coalition of unions, and investment firm Finger Interests Number One Ltd. are urging investors to vote against re-electing Lewis and four other board members.

"We are seeking to change the culture of corporate governance at the company, so that the board of directors oversees management more firmly and fulfills its duty to shareholders," Finger Interests said in a presentation filed last week with the Securities and Exchange Commission. The firm's managing partner, Jerry Finger, sold a Houston-based bank to a Bank of America predecessor in 1996. The firm owns more than 1 million of the bank's shares.

Bank of America shareholders would need a majority of votes to force the board to remove a director, said Elson, the corporate governance professor. Garnering such a vote "used to be really hard, but it's not as tough as it used to be," he said.

In its proxy filing, the bank urges shareholders to approve the bank's executive compensation, to vote for the entire slate of directors and to reject the splitting of the CEO and chairman titles.

Finkelstein, the Dartmouth professor, said he suspects Lewis is vulnerable because the Merrill purchase is a "self-inflicted wound." "I would be surprised if we were talking a year from now and he's still CEO," he said.

Others, however, have said Bank of America is fortunate to have Lewis at the helm. Analyst Dick Bove has called Lewis the "best operating manager of any bank in the United States." UNC Charlotte professor Tony Plath said Lewis is a tough leader who is likely to hold onto his job, even if that's partly because of a dearth of candidates to run a financial giant such as Bank of America.

"What the hell do you do if you kick out Ken?" Plath said. "Who's better to do this job than Ken Lewis?"

To see more of The Charlotte Observer, or to subscribe to the newspaper, go to
http://www.charlotteobserver.com. Copyright (c) 2009, The Charlotte Observer,
N.C. Distributed by McClatchy-Tribune Information Services. For reprints, email
tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index