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Bank of America: time for the mumbler to find his voice

Boss Brian Moynihan plans to cut bn in costs – but it may not be enough to solve Bank of America’s numerous problems

Behind his back, staff call Brian Moynihan the mumbler. It’s not a nickname one would associate with the boss of America’s biggest bank.

But then Bank of America doesn’t look like it will be the country’s biggest bank for long.

This year Moynihan has watched Bank of America’s share price collapse as investors have spurned his claims that the bank is stable, and have been unimpressed by his plans to turn the banking giant around. On Monday he took to the stage at the Hilton hotel in New York to once more try to sell investors on his plan for a leaner, fitter Bank of America. For a brief period it seemed to work.

In a highly anticipated presentation at the Barclays Capital Global Financial Services conference, Moynihan told investors he intends to cut bn in costs from the bank by 2013. The cuts come as analysts expect the bank to close hundreds of branches across the US and chop between 30,000 and 40,000 jobs from its 288,000 global headcount. Shares rose shortly after the speech, but lost the gain and more by the end of the day, as the stock markets were dragged down by Europe’s financial woes.

Moynihan is used to bad days on the markets. Bank of America’s shares have halved since the start of the year, as investors have worried that the cost of the bank’s mortgage problems will make it difficult to raise enough capital to meet new global requirements for finance firms that commence in 2013.

Moynihan has repeatedly said Bank of America will meet the requirements easily. No one seems to be listening, though.

The scale of Bank of America’s problems are huge. In 2008 Ken Lewis, Moynihan’s predecessor, bought Countrywide, then the largest seller of sub-prime home loans, for bn. The buy capped a giant spending spree that also added Wall Street’s Merrill Lynch to the bank’s portfolio.

The excesses of the housing boom were already taking their toll when Lewis made his move, but the full horror of the housing collapse was yet to come.

The Countrywide deal has been described as the worse deal in history. Bank of America lost .8bn in the last quarter alone, thanks in large part to the barrage of writs now aimed at Countrywide.

The bank has set aside another bn for future mortgage claims, but the continuing slide in its share price suggests many fear it will not be enough.

Even Warren Buffett doesn’t seem to be able to give the bank his blessing. Buffett’s Berkshire Hathaway put bn into Bank of America last month, a vote of confidence from the US’s most trusted investor.

But while Bank of America’s shares initially benefited from a Buffett bounce, they have lost it now. Some analysts are even annoyed that the sage of Omaha – as Buffett is known – got a bargain at the expense of other shareholders. Moynihan had to defend the purchase on Monday.

With the property market still wobbling on its foundations and global stock markets jittering, it looks unlikely that Bank of America will be dug out of its hole by an improving economy any time soon. Now some are wondering of a bigger solution is needed.

At the start of the new millennium few people would have bet that mortgages looked set to join tobacco and asbestos as products so toxic that only government intervention could halt the tide of litigation they are facing. But just such a radical solution may be needed to end Bank of America’s woes, and those of its peers still in the firing line.

Vincent Fiorillo, portfolio manager with DoubleLine Capital, said the best solution for the banking industry would be for the government to ringfence mortgage loan claims in the same way they addressed the mass of litigation over asbestos and tobacco. Trusts could be set up to address the claims of litigants, ending the never ending law suits against Bank of America and its rivals.

DoubleLine believes this is a systemic national problem that needs a national solution. “It would take a massive effort but at this point it’s the best option left to us,” he said.

It’s not fair to blame Moynihan, said Marty Mosby at Guggenheim Securities.

“He was dealt a very tough hard from the get-go,” Mosby said.

“I don’t care if you’re Albert Einstein: there’s no way you can run this business and deal with all the issues Bank of America has to face,” he says.

Moynihan has done a lot to steer the ship off the rocks, said Mosby.

He recently appointed two chief operating officers to run the bank’s
consumer and investment banking arms. With the day to day business off his hands all Moynihan can concentrate on dealing with the biggest mortgage mess in history.

“It’s a realistic – if monumental – job,” said Mosby.

Now all that remains to be seen is how much time the bank’s board and shareholders will give the mumbler to prove he can do the job. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds