There are two things you need to know about Bank of America (NYSE:BAC) Chief Executive Brian Moynihan:
• He was a speed-demon runner in high school — and a guy whose tireless work ethic and competitive fire drove him to outperform more gifted natural athletes.
• He’s a fourth-generation Irish American whose ancestors came to the U.S. from Ireland in the 1850s.
Since Moynihan took the helm of the country’s second-largest bank 27 months ago, Bank of America shares are down 34%; over that same time frame, the Dow rose 26%. But Bank of America stock has soared lately, rising 22% during the week leading up to St. Patrick’s Day.
Moynihan knows there’s much more than the luck of the Irish at work in BAC’s recent rise. Last week’s gains were triggered when the bank passed the Federal Reserve’s stress test, which showed improvements in BofA’s capital ratios. But the stock has been on a tear for the past three months, with share prices rising 97% above their 52-week low of $4.92 in December.
Those eye-popping numbers belie the fierce headwinds Bank of America faces as it muddles through lackluster earnings and tries to raise itself from the muck of toxic mortgages and foreclosures. The U.S. real estate market is still soft, the eurozone crisis has been a further drain and a low-interest-rate environment makes it tougher to make money.
That’s why Moynihan must start every day running to stay ahead and work nearly beyond the bounds of endurance to bring his bank back from the brink.
His work ethic clearly has played a big part in Moynihan’s rise at Bank of America. For starters, he was trained as a lawyer, not a banker — he received his law degree from Notre Dame in 1984. But he learned to appreciate the banking industry when he left Boston’s powerhouse litigation firm Edwards Angell in 1993 to become deputy general counsel for FleetBoston Financial. By 2000, Moynihan had left the law behind to head FleetBoston’s brokerage and wealth-management operations.
After BofA acquired FleetBoston in 2004, Moynihan rose rapidly through the ranks, holding positions as diverse as general counsel, president of global corporate and investment banking, and head of the mammoth consumer-banking unit.
Moynihan has had success nearly everywhere he’s gone, but you need to be lucky as well as good. After BofA acquired Merrill Lynch in 2008, the culture shock between Moynihan and Merrill CEO John Thain and his management team soon became untenable. BofA CEO Ken Lewis, who wanted to keep Thain and his team, thought he solved the conflict by firing general counsel Tim Mayopoulos and replacing him with Moynihan.
Within weeks, Thain resigned from Merrill, and Moynihan took his job. A few months later, Moynihan was running BofA’s retail-banking division. As always, he worked brutally long hours to master the myriad tasks at hand.
When ill winds emanating from BofA’s acquisition of Merrill Lynch prompted Lewis to resign as CEO at the end of 2009, the board tried to lure heavyweights such as Laurence Fink, CEO of investment powerhouse BlackRock (NYSE:BLK); William Demchack, PNC Financial’s (NYSE:PNC) senior vice chairman; as well as Robert Kelly, who was then Bank of New York Mellon‘s (NYSE:BK) chairman and CEO.
Unwilling to undergo the intense public scrutiny of a bank under the federal government’s microscope, they all passed on the job. In the end, industry observers said Moynihan got the most prestigious job that nobody wanted — a job he wanted enough to publicly ask for it.
In January 2010, Moynihan stepped into the role with everything to prove and very little time to get results. And that’s where his proud Irish heritage comes in. “No matter how many generations removed, there’s a little bit of a chip on the shoulder,” he said in a 2009 interview. “There’s no sense of entitlement, no sense of placement. It’s all a sense of you’ve got to go out and work hard to get there…. That’s deeply embedded in the culture of the Irish.”
Moynihan is working hard to prove his worth to shareholders. He has embarked on a massive cost-cutting crusade, selling off some $33 billion in assets and slashing 30,000 jobs last year alone. Last month, BofA was one of five banks to agree to a $25 billion settlement with the Justice Department and 49 state attorneys general last month over foreclosure abuses. Bank of America alone will pay some 40% of that total.
Challenges remain for Moynihan and BofA. There’s some question as to the extent of BAC’s liability exposure, particularly the private-label lawsuits stemming from its 2008 acquisition of Countrywide Financial and Countrywide’s extensive subprime-loan portfolio. While BofA repaid the $45 billion it accepted from the federal government’s TARP program in 2009, critics howl in protest that it was done with low-interest Federal Reserve loans.
An equally challenging issue: Bank of America’s brand has been battered. Moynihan’s many fumbles haven’t helped, such as invoking the ire of consumers by proposing a $5 a month debit-card fee that the bank was pressured to scrap a few weeks later.
So it’s a good thing Moynihan boasts of his Irish sense of humor and “the ability to be serious without taking yourself too seriously.” That was tested at a charitable event in New York recently when Blackstone founder Steve Schwarzman told a joke at Moynihan’s expense.
“As many of you know, Brian’s brother Patrick runs a Catholic boarding school in Haiti,” Schwarzman said. “Their parents must be so proud to see two of their boys running an underfunded, nonprofit organization.”
Moynihan laughed that night. But he commonly bristles at criticism of his bank. At a town hall meeting with employees last year, Moynihan drew more fire from critics when he said he was “incensed” that all the good things the bank does — such as volunteer work or charitable giving — go unnoticed. He sent this message to critics: “You might want to think about that before you start yelling at us.”
The bottom line: Moynihan is committed to work until he drops to right the foundering BofA ship. The cost and job cuts are delivering value, and the bank likely will try to find new ways to squeeze more profit out of retail banking accounts without triggering howls of protest from consumers.
This is a tough time to make money in the banking industry. Interest rates are low, Europe still threatens and the housing market remains soft. Plus, it’s probably too soon to know the extent of BACs private-label liability.
Despite the stock’s impressive recent performance, EPS is one penny, and total debt is $682.4 billion, versus $599.6 billion in cash. I don’t think BAC can hold its current altitude in the $10 range, so I would prefer to wait on initiating a long position until it settles back into the $7-$8 range.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.