Bank of America Chairman and CEO Ken Lewis, under pressure from investors for a declining stock price and his troubled Merrill Lynch acquisition, emerged from a closely watched board meeting Wednesday with both of his titles and the support of his fellow directors.
“The board … during the regular meeting expressed support for Ken Lewis and the management team, noting their expertise in managing through challenging environments and in assimilating mergers,” lead director Temple Sloan Jr. said in a statement issued through a bank spokesman.
Some analysts had suspected Lewis' job could be on the line during the meeting or that he could be stripped of his chairmanship. In his post since 2001, he has faced recent criticism for the bank's first quarterly loss in 17 years, the high-profile ouster of former Merrill Lynch CEO John Thain and the bank's need for an additional dose of government assistance.
The terse affirmation of support is likely to leave shareholders wondering what kind of pushback Lewis received from a board with which he has close ties, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. The statement also didn't provide further explanation of why the bank didn't publicly detail mounting losses at Merrill Lynch until Jan. 16, nearly a month after it began seeking extra help from the government.
“The fact they didn't (provide more disclosure) is concerning considering the controversy around the management team,” said Elson, who is also a Bank of America shareholder.
The bank's shares rose 13 percent to $7.39 on a strong day for financial stocks, but the stock is still down nearly 80 percent since the Merrill deal was announced. Wednesday's statement of support is unlikely to quell shareholder ire, which has already sparked several class-action lawsuits.
Jerry E. Finger, who sold a Houston-based bank to Bank of America predecessor NationsBank in 1996, said he would push for the separation of the CEO and chairman post at this spring's annual meeting. He is among the shareholders filing suit against the bank.
“The board and the chief executive and the top management are responsible to their clients, to their employees and certainly and most importantly to their shareholders,” said Finger, of Houston, who owns about 1.5 million Bank of America shares through an investment vehicle and family holdings. “I do not think they have fulfilled that responsibility.”
Lewis' ability to hold onto power is a testament to the tenacity of an executive with a reputation for ousting – or “shooting” in bank lingo – executives below him for perceived mistakes, former executives said. After the corporate and investment bank began reporting losses in late 2007, Lewis replaced the head of the unit, Gene Taylor, who joined then-North Carolina National Bank in 1969 along with Lewis and was thought to be one of his best friends.
The board's inaction also could be a sign that the directors do not have a viable successor lined up, the executives said.
Lewis, 61, faces a number of challenges going forward. Morale is dismal within the bank as it cuts up to 35,000 jobs in the Merrill merger and slashes bonuses for many employees. The Financial Times, citing unnamed executives, reported Wednesday that the bank will defer year-end bonuses paid to employees in its capital markets and investment banking units.
Employees that were to receive bonuses of more than $50,000 will not get a year-end bonus for 2008. Instead, they will get the deferred payments in three installments in 2010, 2011 and 2012, according to the report.
Bank spokesman Scott Silvestri said the bank traditionally doesn't comment on compensation plans, especially before sharing details with employees.
Any bonus deferrals for Bank of America employees would be in contrast to those at Merrill, where CEO Thain speeded up bonuses before Bank of America bought Merrill on Jan. 1. Since the deal was announced, Bank of America employees have complained that Merrill employees are getting better positions and absorbing fewer layoffs.
On Tuesday, New York Attorney General Andrew Cuomo said he had issued subpoenas seeking testimony from Thain and Bank of America Chief Administrative Officer Steele Alphin in his investigation of those Merrill bonuses. Thain has defended the payouts, saying they were done in concert with Bank of America officials. Bank of America has said Thain and Merrill's compensation committee made the decision to pay the bonuses and that the bank had “no legal right” to challenge it.
Cuomo has also subpoenaed Andrea Smith, a Bank of America executive involved in the Merrill transition, and the probe could expand into what the bank knew about Merrill's $15 billion-plus in fourth-quarter losses before the merger was completed, The Wall Street Journal reported Wednesday.
The Cuomo probe could add to scrutiny of Lewis because Alphin, a more than 30-year veteran of the bank, is one of his closest friends and plays a key role in personnel and compensation issues within the bank. Alphin, 57, is a Virginia native and UNC Chapel Hill graduate who oversees human resources, marketing and philanthropic giving. “If you see Lewis out having a beer, Steele is always with him,” said one former executive. Those familiar with the bank's past mergers said it's unlikely Merrill would pay out large bonuses without the bank's knowledge.
Thain will receive no severance upon his departure, the bank said Wednesday, although his resignation could mean the immediate vesting of $3.2 million in stock-based awards he holds, according to a filing in November. The value of the shares has declined significantly since then.