Bank of America's board of directors chose consumer banking chief Brian Moynihan to replace Ken Lewis as CEO of the largest U.S. bank on Jan. 1.
Their pick of an internal candidate on Wednesday followed a months-long search and unsuccessful attempts to hire a star industry executive for the top job. The negotiations were complicated by pay restrictions imposed by government pay czar Kenneth Feinberg before the bank repaid $45 billion of federal bailout loans needed to prevent its failure over the past year.
The move "draws to a close what is probably the executive search from hell," said Tony Plath, a finance professor at the University of North Carolina at Charlotte. "They needed to find someone to end the drama so that the bank can get back to regular business, but at the same time I am surprised by their choice. You do have a young and untested CEO running a major commercial bank in the U.S."
Moynihan, 50, joined the Charlotte, North Carolina-based bank as part of its 2004 purchase of FleetBoston Financial Corp. Over the past year he has served as BofA general counsel, head of global wealth management and consumer bank chief. He will now join the bank's board of directors.
"I am honored to have the opportunity to lead this important company," Moynihan said in a statement. "We have everything we need at Bank of America to be the best financial services company in the world. What we need to do now is very simple. We need to execute."
As the new CEO, Moynihan faces many daunting tasks. He must juggle regulatory investigations into the bank's 2008 acquisition of Merrill Lynch while trying to repair relationship with regulators and members of Congress who sharply criticized Lewis after the bank required billions in aid. Some of those lawmakers, including Democrat Rep. Elijah Cummings, had also questioned Moynihan's leadership skills during a hearing on the Merrill takeover.
"Brian's wide range of experience, his relationships inside and outside of the company, and his demonstrated ability to understand business dynamics and effect constructive change made him the best person for the position," said Dr. Walter E. Massey, chairman of Bank of America, who led the CEO search.
Bank of America told the Treasury Department of its decision before making the announcement, and Treasury raised no objections, according to industry officials familiar with the matter. They spoke on condition of anonymity because the bank's discussions were private.
Lewis, 62, announced his departure in September in a move that surprised Bank of America's board and left it scrambling for a replacement with no clear succession plan in place. Before then, Lewis had promised he would remain as CEO until the bank cleared up its financial problems. But the heavy regulatory scrutiny and shareholder fury that accompanied the Merrill deal drove Lewis to decide to step down early.
Lewis said Wednesday he believes Moynihan "is the right person to lead our company forward."
Moynihan takes over at time when the bank faces continued loan losses in the billions of dollars. It lost more than $2.2 billion in the third quarter as bad debt kept rising as consumers still struggled to pay their bills. Bank of America, which has about 53 million consumer and small business customers, is considered particularly vulnerable to unemployment, which remains at double-digit levels.
Edolphus Towns, Democratic chairman of the House of Representatives Committee on Oversight and Government Reform, said he hopes Moynihan "appreciates the debt Bank of America owes to U.S. taxpayers, and is prepared to increase lending to consumers and small businesses in order to create jobs and grow the economy."
One thing Moynihan doesn't have to worry about is repaying the government loans. The bank received $25 billion from the government's Troubled Asset Relief Program, or TARP, as part of the initial round of investments into hundreds of financial institutions when the credit crisis peaked last fall. It then received an additional $20 billion shortly after it acquired Merrill Lynch in what was a heavily scrutinized deal.
Bank of America repaid the money it received from TARP on Dec. 8. That freed the bank from the government restrictions that had hampered its search for a new CEO, including executive pay limitations. However, its negotiations with outside candidates continued to falter.
Bank of New York Mellon Corp.'s CEO Robert Kelly told employees Monday that he wasn't going anywhere, leaving BofA with one less candidate for its top job. Media reports had listed Kelly among the top choices to lead the bank.
Other candidates reportedly had included: Bob Diamond, president of British bank Barclays PLC; Larry Fink, CEO of asset manager BlackRock Inc.; and New Jersey Gov. Jon Corzine, a former Goldman Sachs chairman and CEO. BofA's chief risk officer, Gregory Curl, was also a top internal candidate for Lewis' job. It wasn't clear Wednesday night if Curl, 61, would remain at the bank.
Massey said Wednesday that while the bank did consider external candidates, the board decided that Moynihan's experience was as good or better, "and he offered the advantage of a smooth transition."
By picking someone from within, "you express an ability to create a culture that can produce leaders and that's very important," said Keith Springer, president of Sacramento, Calif.-based Capital Financial Advisory Services, which owns financial stocks.
"It's important for these companies to show they have longevity," he said. "And if you can't breed leaders, then you can't survive."
Bank of America didn't immediately return messages left seeking comment. But Moynihan told The Wall Street Journal Wednesday night that he doesn't plan to exit any current businesses, nor does he foresee making any major changes to the bank's strategy.
"Clearly, customers and clients have benefited from the franchise Ken Lewis, Hugh McColl and others have built over the decades. Our business model has also worked for shareholders," he said in a statement. "But as the world has changed, we must continue to be flexible and build on our strong tradition, and change to meet our customers' needs. We think of this not as changing the business model, but changing the way we do business."