Embattled Ken Lewis to retire as Bank of America's CEO
As pressure mounts over Merrill acquisition, he surprises supporters and critics by stepping aside.
10/01/2009 12:00 AM
02/03/2015 11:39 AM
Embattled Bank of America chief executive Ken Lewis will leave the Charlotte bank he helped build at the end of this year, stepping aside as he faces mounting pressure from regulators, lawmakers and lawyers probing his Merrill Lynch acquisition.
Although he had been a target of critics for months, the timing of the decision came as a surprise. Lewis, 62, had clung to the job he has held since 2001, insisting he wanted to stay on until the bank shed its troubles. But on Wednesday, he told the board he was ready to move on.
The decision means the end of Lewis' four-decade career and raises questions about whether the company can continue its tradition of hiring its leader from within. The move also spurs concerns about whether the bank will maintain its Charlotte headquarters, which has become more entrenched under Lewis.
Bank of America said the board will continue "ongoing planning" to ensure a successor is picked by year's end. In August, Lewis shuffled his management team, creating a competition among a handful of executives to succeed him. Directors could also consider outside candidates, analysts said.
A little more than a year ago, Lewis was hailed as the savior of Wall Street when he swooped in to buy Merrill Lynch on the brink of collapse during a frenzied weekend amid the financial crisis. At the time he called it a career-capping "deal of a lifetime," but by December he was trying to abandon the purchase as Merrill's losses ballooned. After regulators pressed him to proceed, the bank accepted more government aid and became a symbol for the nation's bailed-out banks.
In a statement, Lewis said the decision was his own. A person who has talked to him recently said he had become fatigued by the "mud being thrown on him day by day." Regulatory sources said the bank had not been pressured by the government to make the change.
Lewis will retire as CEO and as a director, the bank said.
"Bank of America is well positioned to meet the continuing challenges of the economy and markets," Lewis said in a statement. "I am particularly heartened by the results that are emerging from the decisions and initiatives of the difficult past year-and-a-half."
In his departure, Lewis is eligible to take with him a pension worth $53.3 million, deferred compensation of $10.6 million and restricted stock worth $8 million, according to the bank's latest proxy filing. That money was accrued during his career. He worked without a contract, so he receives no additional severance.
Bank spokesman Bob Stickler said that Lewis decided on his own "that this was the time." For the past week, he had been talking to chairman Walter Massey about leaving, he said.
Massey had assured him that the bank's board - overhauled in recent months under government direction - remained behind him, Stickler said. The decision was not made as the result of any conversations with law enforcement authorities, regulators or the board, he added.
Massey called for a 5 p.m. board meeting, held by phone, and Lewis delivered the news. Lewis had been in New York for a market visit and made the call from the bank's One Bryant Park tower in Midtown, a project he trumpeted only days after the Sept. 11 attacks. He told his direct reports of the decision just before the directors' meeting.
Looking back, Stickler said people who know Lewis suspect he's been pondering the move since a vacation at his Colorado vacation home this summer. He returned with a beard, which surprised people who knew him.
"It was very much unlike Ken," he said. "In hindsight, it was a sign of what he was thinking."
Stickler said headquarters decisions would be up to the CEO and board, but he said he has not heard "any discussions whatsoever" regarding moving the headquarters. Massey plans to set up a nominating committee to help select the CEO. It would be up to the board as to whether it searches outside the company, Stickler said.
In 1969, Lewis joined a small Southern bank then known as NCNB, which was already driven to outgrow its N.C. rivals. In the 1980s and 1990s, he became a key lieutenant to predecessor Hugh McColl Jr. as the bank expanded beyond the state with landmark deals in Florida, Texas and California. After big acquisitions, he parachuted into cities around the country, where he cut costs and melded operations.
In 2001, he succeeded McColl, making him fourth in a line of key CEOs dating to the 1950s. In his office on the 58th floor of the Bank of America Corporate Center, Lewis has a photo of himself with McColl and Tom Storrs in front of a picture of Addison Reese, now deceased.
Initially known for his focus on operations, the Mississippi native and Georgia State graduate eventually became a dealmaker in his own right. From 2004 to 2007, he stitched together more than $100 billion in acquisitions that expanded the bank in the Northeast and Chicago as well as in credit cards. Then, as the financial crisis flared in 2008, he landed troubled mortgage lender Countrywide Financial and then Merrill.
As markets crashed in 2007, Lewis famously commented that he had had all the fun he could stand in investment banking, but he still coveted Merrill's fabled "Thundering Herd" of stockbrokers who peddled stocks, bonds and mutual funds to investors nationwide. With little more than a day to review Merrill's books, he agreed to pay $50 billion for the faltering franchise.
"I don't know if I'll ever get to do another acquisition during my career," Lewis said at a triumphant Sept. 15 news conference. "This is too important not to get right."
Investors were later incensed that the bank didn't disclose Merrill's rising losses or the bank's need for extra government aid. Some were also angry that the bank didn't wait a day, scoop up Merrill at a fraction of the price and capitalize on the type of fire-sale deal that helped turn NCNB into Bank of America.
As details emerged in January about Merrill's fourth-quarter losses and billions hustled out in bonuses, Lewis became a target for investors and regulators. In April, shareholders voted to strip him of his chairmanship. The government also pushed the bank to revamp its board, dislodging former allies, and improve its risk management.
Tom Hazen, a UNC Chapel Hill professor who teaches securities law, said it was unusual that Lewis had survived this long. "Ordinarily, it's the CEO who's gonna walk the plank in a case like this," Hazen said.
Michael Farr, president of the Farr, Miller & Washington investment firm in Washington, D.C., said he thinks Lewis proved he needed to go in December, when he considered backing out of the Merrill deal but reneged after regulators threatened to fire him, according to Lewis' testimony to the New York Attorney General's office.
"That's unacceptable for any CEO of any public company," Farr said. "That's when you stand up to regulators and say, 'Sorry, my first obligation is to shareholders' and you don't go through with a deal that you know will hurt them."
But longtime bank analyst Dick Bove said earlier this week that he hoped Lewis would keep his job, since he's "absolutely the best guy" to run the bank: "This guy is not the sweetheart of Sigma Chi. He's a tough, hard, driven individual, and that's why his bank is No. 1 in the country."
In the end, the government that nudged Lewis to close the deal became his biggest enemy, as lawmakers and regulators gunned for him and the bank in depositions, congressional hearings and court filings. In recent weeks, New York Attorney General Andrew Cuomo has reportedly been considering charges against individual executives, ratcheting up the attention on Lewis.
Stickler, the bank spokesman, reiterated the bank's position that neither the bank nor its executives should face charges and that the bank is willing to litigate its case in court. In addition to the lawyers representing the bank, Lewis hired in February Charlotte lawyer James Wyatt.
The House oversight committee had been expected to call Lewis to testify again. A committee spokeswoman said Wednesday night that lawmakers haven't determined if that will still happen. A spokesman for Darrell Issa, the committee's ranking Republican member, said the bank had assured him that Lewis' departure would not affect the bank's "current obligations" to the committee.
In Charlotte, stacked with bank employees, retirees and investors, Lewis' departure was embraced by some who said he had become a distraction for the bank. They noted declining morale after the bank cut thousands of jobs in the Merrill deal. They also criticized Lewis' failure to line up a successor.
Others said the bank was losing an important figure.
"Ken is a great leader," former Bank of America chief financial officer Marc Oken said. "He has accomplished a lot over time as CEO. I have nothing but admiration for what he has done for the company."
Lewis' successor will face major tasks. The bank needs to pay back $45 billion in government loans and recover from rising loan losses as government scrutiny of the banking industry threatens to curtail the fees and interest rates the bank can charge.
Bank of America became the country's largest bank in the past year, and remained relatively strong even when its peers stumbled. It lost money in the fourth quarter of last year but returned to profitability this year, helped by a wave of mortgage refinancings and strong investment banking activity.
Bank of America has slashed its dividend and its shares are down significantly from when the Merrill deal was announced in September, but they're up in 2009 after falling to the $3 range in March. In after-hours trading Wednesday, the shares climbed about 1 percent to $17.11.
Ken Thomas, a Miami-based banking consultant, said it was difficult to determine how the bank might change without knowing who the new CEO will be.
"If it's an insider, we'll see an institution run pretty much the way Lewis ran it," Thomas said. "But if they bring in someone from the outside, that could really change things around."
The bank could become more service-focused and more conservative, though those changes aren't entirely due to Lewis' departure, said Motley Fool analyst James Early.
"The era of Ken Lewis-style management is arguably over anyhow, and I don't mean that as a putdown to him," Early said. "He was a dealmaker who grew Bank of America into a behemoth. Now, there aren't many deals to do anyway."
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