Bank of America’s (NYSE:BAC) occasional analyst day—and you’ll forgive me if this analogy isn’t precisely correct—is the closest thing that Wall Street has to its own village in Brigadoon: every ten years or so the company appears in New York, from out of the mist, promises the same big changes it had promised ten years before, then disappears and goes back to its old hijinx. The shtick is always the same. Only the names and the faces change.
So I couldn’t help but snort to myself last Tuesday morning when I opened Brian Moynihan’s slide deck and, sure enough, saw that a key bullet point under the title “New Era for BAC” read “No acquisitions.” Just like last time! The “No” was even underlined, to show that Moynihan really means business. A second bullet point, in case you’re in the mood for another non-surprise, read “Franchise is complete and best in class.” Yes, of course it is. One almost can hear the Scottish milkmaids singing.
Welcome to make-believe world of Bank of America, where the era is always new, the franchise is always complete, and M&A is always a thing of the past.
It has been ever thus. Bank of America (then NationsBank) held its very first investor day back in 1990 as a sort of triumphant coming-out party for the bank Hugh McColl had built one overpriced deal at a time. But after management fumbled questions about the company’s real estate exposure, the day turned into a disaster. The stock got crushed. McColl very nearly fired his head of investor relations after the fiasco, and vowed to never hold another investor day—which he never did.
Fast forward to 2001. Now Ken Lewis is now running things. A new CEO! A new era! Let’s have an investor day! You know the rest. BofA even had another investor day in 2007, just before the roof caved in.
Anyway, Brian Moynihan is BofA’s CEO now, and it came as a surprise to absolutely no one that the company decided to mark the start this really, really new era by holding . . . an investor day. I like Brian Moynihan and wish him nothing but the best. Heaven knows he has a tough job ahead of him. But one would have to be catatonic to miss the fact that the new message coming out of BofA these days sounds an awful lot like the old message. Unfortunately, the results of that old message was the destruction of massive amounts of shareholder value. Let’s look, for instance, at Moynihan’s six key strategic points that buttress this “New Era at BAC”.
- “Franchise is complete and best-in-class.” Really. He said that. Can we go back to Hugh McColl’s last letter to shareholders, in 2000, for a minute?:
In short, we are building an organization that will provide greater value, convenience, capability and expertise to more customers and clients then any other company in the U.S. financial services industry. . . The major components necessary to turn this vision into reality are all in place. [Emph. added.]
Or CEO Ken Lewis’s letter, the following year:
I have said many times this year that the opportunity we have before us is the business opportunity of a lifetime to take an organization that possesses the right businesses, the right strategy and the right people and turn it into one of the greatest companies in the world.
I don’t need to remind you, surely, that whether the “major components” were in place at BofA the start of the decade or not, the company, run by Lewis and with the support of McColl and the board, went on to acquire Fleet, MBNA, Countrywide, and Merrill Lynch. They very nearly blew the place up in the process. So forgive me if I am skeptical when I see another BofA slide that announces, yet again, that “the franchise is complete!” Frankly, I would have preferred it if he’d announced plans to break the company up..
- “No acquisitions.” Hugh McColl never said this, but Ken Lewis made it a sort of mini-mantra in between deals. I do believe Moynihan won’t make any significant acquisitions over the next two years. But after that, I worry that he’ll have trouble resisting the institutional tug to do something. At BofA, that “something” means only one thing.
- “New management with a shared view of the future.” BofA always seems to have a new management team in place, doesn’t it? A “stable, high-quality management team all with a shared view of the future” may be a great goal, but it’s just the opposite of how this company has operated historically.
We’ve discussed his before. For now, take a look at who presented at this last investor day and also previous ones. Of the nine presenters this year, five have been in their roles for fewer than 18 months. Of the 16 senior managers that presented at the 2007 Investor day, eight are no longer with the company. And of the nine presenters from 2001, all are gone.
Hugh McColl and Ken Lewis made a specialty of running talented managers out of the bank before they became threats. The practice is now ingrained in BofA’s culture and is one of the company’s major deficiencies. To his credit, Moynihan sacked Steele Alphin, Ken Lewis’ CAO and Lord Executioner of strong managers. I hope Moynihan makes rebuilding management strength and stability a top priority over the next couple of years. But I also think he needs to recognize that he has the wrong people running retail banking and wealth management.
- “Driving a new core organic growth culture.” A BofA golden oldie! Here’s Ken Lewis in the 2000 annual report: "In 2000, we . . . continued our transformation from a company that grows by acquisition to a customer focused internal growth company."
Then in his 2004 letter, Lewis emphasized that “. . . we accelerated the execution of our organic growth strategy”.
Of course, the same year BofA was accelerating the execution of its growth strategy, it destroyed an enormous amount of value via its acquisition of FleetBoston. Then came MBNA, Countrywide, Merrill Lynch, among others. So, once again, forgive me if I am skeptical that, this time, BofA really does mean to grow organically. (Which, given its size, by the way, it cannot do in any meaningful way.)
- "Customer-in’ vs. ‘product-out’ model . . . and Global Competitor.” Moynihan emphasized the company is moving from the product-push strategy to a customer relationship strategy. This sounds great. It always does when BofA says it—which the company has been doing for the past 20 year sor so. Good luck, Brian!
When Ken Lewis first took over as CEO, he did improve the company’s profitability and avoided dilutive acquisitions. The stock performed well. I expect Brian Moynihan’s first three years will be similar. But the true test will come with what happens longer term, in 2013 and beyond. Bank of America’s history on this score does not provide an attractive guide.