How Safe Is Ken Lewis?

Oh, the fickle Wall Street Journal. It was so kind last month, when the American Banker named Bank of America's (BAC) Ken Lewis Banker of the Year for the second time in six years:

If anyone deserved the award, it is Mr. Lewis. Bank of America, of Charlotte, N.C., is one of the year's survivors, and Mr. Lewis rescued two big firms -- California mortgage lender Countrywide Financial Corp. and New York securities firm Merrill Lynch & Co. -- from collapse.

Now, however:

An informal survey of management consultants, recruiters, investors and governance specialists pointed to several other CEOs whose jobs may be vulnerable: Rick Wagoner of General Motors Corp.; Vikram Pandit of Citigroup Inc.; Jonathan Schwartz of Sun Microsystems Inc.; Steve Odland of Office Depot Inc.; and Kenneth Lewis of Bank of America Corp.

It's true that boards don't care about awards, they care about share price. And Bank of America, at $10 a share and trading on a price-to-book ratio of just 0.38, is shaky indeed. But Lewis isn't just CEO, he's also the chairman of the board, which makes his ouster that much harder. And it's very hard to see how anybody else would be able to take over and do an obviously better job of running a bank which of necessity will be structured for the foreseeable future very much according to Lewis's vision.

Still, anybody who fancies the idea of running a too-big-to-fail bank now has two possible job openings to fantasize about. Not that either of them looks particularly attractive.

Comments

[prudentinve...:]

It's surprising that boards have not replaced the top management of each and every bank that suffered large losses. This culture of not only accepting, but also rewarding failue, is an innovation we can do without.

Jan 13 12:14 PM

[liongterm i...:]

Lewis may have saved CountryWide and Merrill Lynch, but he did so at the expense of his shareholders. I cannot understand why he chose to make moves that would consume hard to come by capital. Surely he had to recognize that credit card and commercial real estate debt defaults were to follow shortly after the mortgage mess. IMO, if the dividend goes, then so does Lewis.

Jan 13 12:45 PM

[Emerald:]

Ken Lewis has made a fundamental error. He assumed he was buying a mortgage (Countrywide) and retail brokerage platform (Merrill Lynch) at a discount. He also assumed he could weather the short term losses with government help and come out the other side with a stronger and more diversified business model. Right out of the textbook. The error was more strategic in that he can't easily do this in a deflationary environment that could last five years. The consumer is tapped out, afraid for his or her job and trying to save what little they can to replenish devastated 401k's. Ken may be able to hang on, but profits will be elusive as consumer debt destruction picks up steam in 2009.

The Merrill guys will jump to the "new" Morgan Stanley once their stay put bonus restrictions expire. Citi has finally acknowledged the financial supermarket model doesn't work. Ken made a strategic error in not seeing the forest and only looking for broken trees. The dividend will not survive increasing losses. Ken may survive, but confidence in the stock will keep it depressed.


On Jan 13 12:45 PM liongterm investor wrote:

> Lewis may have saved CountryWide and Merrill Lynch, but he did so
> at the expense of his shareholders. I cannot understand why he chose
> to make moves that would consume hard to come by capital. Surely
> he had to recognize that credit card and commercial real estate debt
> defaults were to follow shortly after the mortgage mess. IMO, if
> the dividend goes, then so does Lewis.

Jan 13 01:52 PM

[moneyflow:]

Letting BOA buy or take over any company is foolish. It seems the powers that be do not have a clue as to reality. Customer dissatisfaction with BOA is rampant. It is hard to find anyone who is a customer who actually likes the bank and the way it does business. The solution to the credit crises is not letting nameless bohemiths like BOA take over the credit markets. It is not to tighten credit and increase qualification. The exact opposite is true. Only by allowing marginal credit borrowers to continue to have access to funds that you reverse the problem. Everybody in the US didn't decide to turn over their keys one day. It is a cumulation of not being able to refinance the over priced bad loans they wre given by greedy banks. BOA, who is widely know to not lend to anyone consumer wise, will not help the situation. Replacing Countrywide and its "loosened" standards with a company like BOA will only make things worse. Watch and see. The answer is to keep banks out of business they do not belong in. Now they have all the bailout money but will continue to sit on it until forced by the government to use it for something besides increasing their own wealth. And then what they will do will be lip service, not an actual effort to help the taxpayer.

Jan 14 11:23 AM