Banking

BofA chooses veteran executive to improve capital planning

Bank of America became the latest big U.S. bank this week to release first-quarter earnings figures.
Bank of America became the latest big U.S. bank this week to release first-quarter earnings figures. BLOOMBERG

Bank of America CEO Brian Moynihan said Wednesday the Charlotte bank is working to revamp capital-planning processes facing scrutiny from the Federal Reserve, tapping a veteran executive to lead the effort.

It’s a key task for Moynihan after the Fed in March said the bank needed to address “deficiencies” and “weaknesses” in the bank’s internal controls and how it estimates losses. The No. 2 U.S. bank has until Sept. 30 to turn in a new capital plan.

“I can assure you that our board and management are extremely focused on our re-submission and our core process improvement,” Moynihan said in a conference call with analysts after the bank reported first-quarter earnings that missed Wall Street estimates.

Bank of America said Wednesday it made a profit of $3.4 billion in the first three months of this year, a reversal from a $276 million loss a year ago when it posted much higher legal costs.

But the bank said total revenue fell about 6 percent to $21.4 billion. That contrasted with the revenue increases reported Tuesday by rivals Wells Fargo and JPMorgan Chase.

Bank of America’s shares on Wednesday fell about 1 percent to $15.64. After rising nearly 15 percent last year, the shares are down more than 12 percent this year, making the stock the worst performer in the 24-member KBW Bank Index.

“I think investors are a little bit disappointed that the revenue had to be carried by investment banking,” which is a volatile business, said Erik Oja, an analyst with S&P Capital IQ. “Revenues were a little bit lower than the consensus expectation.”

Bank of America had some positives in the quarter, such as strong trading and mortgage revenue, he said. But large banks continue to face challenges boosting revenues at a time when interest rates remain low, limiting what they can make on loans, he said.

Since the financial crisis, Bank of America has had to focus heavily on resolving legal and regulatory issues, making it tough to concentrate on boosting revenues, said Marty Mosby, an analyst with Vining Sparks.

“Building business and expanding products has to become a top priority again,” he said.

Laughlin guiding capital plan

During the conference call with analysts, Moynihan said Terry Laughlin, currently president of strategic initiatives, will lead the resubmission of the bank’s capital plan as well as overall improvements to the process.

In March, as part of annual stress tests for big banks, the Fed approved Bank of America’s request to repurchase $4 billion in common stock, but said it could block the buybacks if the bank does not satisfactorily address the deficiencies identified by the Fed.

The annual stress tests are designed to make sure big banks have enough capital on hand to weather a severe economic downturn. Banks must meet minimum capital requirements and show that they have sufficient planning processes.

The resubmission is particularly critical because Bank of America has stumbled in three of its past five exams. Last year, the bank received Fed approval to raise its quarterly dividend to 5 cents per share, only to disclose later that it had miscalculated its capital ratios. The bank had to delay the dividend increase until the Fed approved a resubmitted capital plan.

Laughlin, who divides his time between the bank’s offices in Charlotte and New York, has already hired outside experts and beefed up internal staffing, Moynihan said. The bank has also had “in-depth discussions” with regulators about the issues it must fix, he said. The bank said it expects to spend $100 million on the effort this year.

Moynihan brought Laughlin, a former FleetBoston Financial colleague, to Bank of America in 2011 to help clean up mortgage-related problems inherited from the bank’s Countrywide Financial acquisition. Laughlin also shepherded Bank of America’s resubmitted capital plan last year.

The annual stress tests have become a key benchmark for bank CEOs. Analysts suggested Citigroup chief Michael Corbat might lose his job if the bank failed a second straight exam this spring. The New York bank passed and Corbat kept his post.

Employee count at 2008 levels

Bank of America’s results were helped by lower litigation costs, which fell to $370 million from $6 billion a year ago when a mortgage-related settlement marred results.

Chief Financial Officer Bruce Thompson told reporters on a conference call Wednesday that “expense management remains a key focus across the company.”

With about 220,000 total workers, Moynihan said the bank is close to its 2008 employment levels, before its purchases of Merrill Lynch in 2009 and Countrywide Financial in 2008. Bank of America had nearly 285,000 employees after the Merrill deal closed.

Bank of America spokeswoman Nicole Nastacie said the bank’s Charlotte-area employment remains at about 15,000.

San Francisco-based Wells Fargo on Tuesday said its first-quarter profits fell 2 percent from a year ago to $5.8 billion, while New York-based JPMorgan said net income rose 12 percent to $5.9 billion. Staff Writer Rick Rothacker contributed.

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