Struggling Bank of America shakes up exec ranks
Wednesday, September 7, 2011
NEW YORK (AP) — Embattled Bank of America Corp. shook up its management ranks on Tuesday, announcing that two key officers will leave and promoting two others to share the chief operating officer role.
It's the latest effort by Brian Moynihan, the bank's CEO since early 2010, to turn around a company that was once an industry stalwart but is still struggling under the weight of toxic mortgage loans. He took over the bank after predecessor Ken Lewis stepped down amid controversy over his purchase of Merrill Lynch.
Among the changes announced late Tuesday:
— Sallie Krawcheck, head of global wealth and investment management, is leaving. A Citigroup veteran, she was hired in late 2009 toward the end of Lewis' tenure.
— Joe Price, president of the consumer bank, will also leave. He was the chief financial officer under Lewis. Moynihan moved him to run the retail bank, Moynihan's old job, in 2010, and Moynihan at the time said the change represented his confidence in Price.
— David Darnell, a longtime Bank of America veteran who was elevated to the top ranks by Lewis, will become co-chief operating officer. He will share the newly created position with Tom Montag, who joined Bank of America when it bought his employer, Merrill Lynch, at the start of 2009.
Darnell, previously the president of commercial banking, will be responsible for the business units that serve individuals, including mortgages, wealth management and small business.
Montag, previously the president of global banking and markets, will be responsible for the business units that serve companies and institutional investors, including commercial banking, the trading businesses, and Bank of America Merrill Lynch Global Research.
— Barbara Desoer, who was tapped in 2008 to run the mortgage unit after Bank of America bought Countrywide, was demoted to report to Darnell instead of Moynihan. Earlier this year, Moynihan divided the mortgage unit and gave Desoer responsibility for the portion that is making new loans. Another executive, Ron Sturzenegger, is overseeing the winding down of toxic legacy loans, and he will report to Moynihan.
The changes, announced about two hours after the market closed Tuesday, mark one of Moynihan's most dramatic moves to reshape the bank. Analysts wondered how investors would react Wednesday — whether they'll view the shakeup as part of a reasoned turnaround plan or the result of a power struggle.
Analysts said it didn't appear that Krawcheck or Price were dismissed for performance. Krawcheck's division, which included private banking and the financial advisers who focused on serving wealthy individuals, increased net income by 54 percent in the second quarter, to $506 million.
The deposits division, which was under Price, saw its net income fall 36 percent in the second quarter, to $430 million. But credit and debit cards, which were also under his purview, more than doubled to $2 billion from $826 million.
Moynihan said in a statement that he wished Krawcheck and Price well, and he portrayed their departures as a means of removing a layer of management in order to cut costs. "De-layering and simplifying at the scale in which we operate requires difficult decisions," he said.
Moynihan also described the moves as a way to streamline the bank's operating units to serve its key customer groups: individuals, companies and institutional investors.
Banking consultant Bert Ely said he wondered if the changes were driven by Warren Buffett, who announced Aug. 25 that he would invest $5 billion in the bank.
Buffett also received options to buy Bank of America stock at $7.14 per share, options that are now under water. Bank of America's shares fell 3.6 percent to close Tuesday at $6.99. They rose 4 cents in after-hours trading after the management announcement was made.
"I cannot imagine that Buffett is in Omaha just sitting idly by," Ely said.
The reorganization is effective immediately, and Moynihan called the changes "a significant step in the continued transformation of our company," which has also included at least 6,000 job cuts announced this year out of a workforce of 288,000.
The management changes are part of a cost-cutting program called New BAC, which the bank implemented in the spring. The bank said Tuesday that more changes from New BAC will emerge, with the second phase beginning next month and running through March.
Though other banks have suffered in recent months, Bank of America has been especially vulnerable. Lewis' 2008 purchase of Countrywide Financial Corp., a mortgage lender known for exotic loans, made the bank a major player in the mortgage market but has also brought quarterly losses and regulatory probes.
After years of gobbling up other companies, Bank of America under Moynihan has been shrinking, laying off workers and selling units, including international credit card businesses and half of the company's stake in China Construction Bank. Moynihan has previously described his decisions as part of a multi-year transformation that might be painful in the short term but will ensure the bank's health in the long term.
Though Moynihan inherited many of his problems, he has also been criticized for a few stumbles, including underestimating how much the bank might have to pay for settlements related to mortgage-backed securities that later soured.