To: Bank of America’s Board of Directors
Fr: Tom Brown
Re: Your gross negligence
What in the world can you people be thinking? Name me another CEO of a large financial institution who, after running his company into the ground as thoroughly as Ken Lewis has done at BofA (NYSE:BAC), still has a job.
Chuck Prince? Nope. Stan O’Neal? Nope. Yet the disaster Lewis has presided over has to be comparable to what went on at Citigroup (NYSE:C) and Merrill Lynch. Why, for long-term consistency of lame-brained, shareholder-unfriendly decision-making, Ken could be in a league by himself.
The only thing that might have prevented Lewis from wreaking the havoc that he has is you—and you blew it. You’ve proven—yet again—that you’re no friend to the shareholders you purportedly represent. Instead, you’ve let Lewis get away with the following:
He’s destroyed value via poorly-thought-out, overpriced acquisitions;
He’s made materially deceptive public disclosures;
He’s consistently generated poor financial performance;
He’s built a senior management team of yes-men and yes-women who don’t have the cojones to stand up to him, let alone run a public company on their own.
Each of you deserves your share of the blame. I am particularly disappointed, though, in the performance of one board member in particular: my old pal, Chad Gifford.
Chad has had a long and admirable career in the banking industry, and should have seen this train wreck coming a mile away. He was the president of Bank of Boston when it had major loan problems in the late 1980s. Back then, Chad rolled up his sleeves and did what needed to be done to deal with the bank’s problems. He became CEO after the board forced out his boss. He then led Bank of Boston through a remarkable recovery, merged the bank with Fleet, which was eventually bought by BofA.
Chad is the only member of the board with true, broad banking experience. He also has expertise in corporate governance. He has deep experience operating in a troubled banking environment, and should have stepped up and taken on a leadership role during the current crisis.
Chad, no one with your background can stand by and passively permit the chaos engulfing the bank to continue. It’s not too late! You found the wherewithal back in the 1990s to step up and save a bank. Do it again, now. I like BofA’s long-term competitive position, and believe that it has a chance to recover from its current problems. But if the board, led by Chad Gifford, doesn’t make some dramatic moves, and quickly, the company will never be in the same league as JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), or U.S. Bancorp (NYSE:USB)! Chad, for the second time in your life, rock the damn boat!
Value Destroying Acquisitions
Then there is BofA’s lead director, Temple Sloan, who came out with the following ridiculous statement after the BofA board meeting on Wednesday: “The Board today during their regular meeting expressed support for Ken Lewis and the management team, noting their experience in managing a challenging environment and in assimilating mergers.”
The man must be delusional. “Managing a challenging environment”? BofA just reported an 80% decline in its full year earnings, including a $3.5 billion operating loss in the fourth quarter. Its book value per share has dropped by 13% over the past 12 months. Much more managing-in-a-challenging-environment like this and Lewis and his crew won’t have a company left to manage.
As regards Lewis’s prowess in assimilating mergers, Sloan must be living on another planet. Where to begin? There’s Barnett Banks (destroyed), LaSalle Bank (decimated), US Trust (a disaster) and Merrill Lynch (which began to come unglued almost the moment the deal closed).
Sloan’s comment is a pathetic joke. Under Ken Lewis’s direction, BofA’s operating performance has been middling. (We’ll never know exactly how middling, of course, since the company keeps re-stating its results as it does one deal after another.) Nor, as noted, does Lewis have the distinguished record of deal integration that Sloan seems to think. And notice how Sloan didn’t mention anything about the financial benefits that deals provide shareholders because, as has been amply documented, they don’t provide any.
Deceptive Public Disclosures
Most objectionable of all, though, is what I believe to be the blatant lying that Lewis has resorted to as he’s sought to defend himself amidst the Merrill Lynch fiasco. It is simply not credible to believe, as Lewis alleges, that Merrill Lynch’s fourth quarter loss quintupled between December 6th and December 16th. When Lewis says otherwise, I can only think he's simply lying.
Then there is the matter of the early Merrill Lynch bonuses, which BofA would have us believe took Lewis completely by surprise. Here’s how BofA spokesman Scott Silvestri put the company’s spin on the topic:
“John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of the year-end compensation at Merrill Lynch. We had no legal right to challenge it.”
Technically, I’m sure that’s factually accurate. But it’s also misleading and beside the point. A reliable source tells me Lewis and his Sancho Panza, Steele Alphin, talked with John Thain in detail about the Merrill bonuses, including their amount and their timing. BofA’s board must know that, and ought to be appalled that the company is now making intentionally misleading statements on the topic.
Ken Lewis's Senior Management Team
Ken Lewis is not the first CEO in history to surround himself with others who won’t disagree with him. It’s the board’s responsibility to identify this problem, and correct it. But the board, to its discredit, has not.
In 2004, Ken Lewis fired some senior executives, then undertook a high-level management review aimed at identifying the company’s top management talent. When it was done, Lewis presented the board with a chart showing 85 executives who, my source tells me, Lewis said was his team to lead the company for the next decade and beyond. That was five years ago. Today, of those 85 executives, 65 are no longer at the company. What does this say about Ken Lewis’ ability to build, manage, and motivate a team?
Ken Lewis is a size-obsessed egomaniac. His strategy and execution has destroyed an incredible amount of shareholder value. As a result of Lewis’s leadership, BofA is one of only two banks (Citigroup is the other) that’s had to receive government assistance twice.
And still the board seems to be asleep. What is it going to take to wake it up? At the shareholders meeting in 2006, I went to Charlotte and took the microphone to ask Ken Lewis if he would resign if performance didn’t improve. It’s my plan to do that again this year; in addition, I’m going to ask that certain members of the board resign, as well. Enough is enough!