Deja Hugh
Bank of America’s occasional analyst day-and you’ll forgive me if this analogy isn’t precisely correct-is the closest thing that Wall Street has to its own village in Brigadoon: every ten years or so the company appears in New York from out of the mist, promises the same big changes it had promised ten years before, then disappears and goes back to its old hijinx. The shtick is always the same. Only the names and the faces change.
So I couldn’t help but snort to myself last Tuesday morning when I opened Brian Moynihan’s slide deck and, sure enough, saw that a key bullet point under the title “New Era for BAC” read “No acquisitions.” Just like last time! The “No” was even underlined, to show that Moynihan really means business. A second bullet point, in case you’re in the mood for another non-surprise, read “Franchise is complete and best in class.” Yes, of course it is. One almost can hear the Scottish milkmaids singing.
Welcome to make-believe world of Bank of America, where the era is always new, the franchise is always complete, and M&A is always a thing of the past.
It has been ever thus. Bank of America (then NationsBank) held its very first investor day back in 1990 as a sort of triumphant coming-out party for the bank Hugh McColl had built one overpriced deal at a time. But after management fumbled questions about the company’s real estate exposure, the day turned into a disaster. The stock got crushed. McColl very nearly fired his head of investor relations after the fiasco, and vowed to never hold another investor day-which he never did.
Fast forward to 2001. Now Ken Lewis is now running things. A new CEO! A new era! Let’s have an investor day! You know the rest. BofA even had another investor day in 2007, just before the roof caved in.
Anyway, Brian Moynihan is BofA’s CEO now, and it came as a surprise to absolutely no one that the company decided to mark the start this really, really new era by holding . . . an investor day. I like Brian Moynihan and wish him nothing but the best. Heaven knows he has a tough job ahead of him. But one would have to be catatonic to miss the fact that the new message coming out of BofA these days sounds an awful lot like the old message. Unfortunately, the results of that old message was the destruction of massive amounts of shareholder value. Let’s look, for instance, at Moynihan’s six key strategic points that buttress this “New Era at BAC”.
1. “Franchise is complete and best-in-class.” Really. He said that. Can we go back to Hugh McColl’s last letter to shareholders, in 2000, for a minute?:
In short, we are building an organization that will provide greater value, convenience, capability and expertise to more customers and clients then any other company in the U.S. financial services industry. . . The major components necessary to turn this vision into reality are all in place. [Emph. added.]
Or CEO Ken Lewis’s letter, the following year:
I have said many times this year that the opportunity we have before us is the business opportunity of a lifetime to take an organization that possesses the right businesses, the right strategy and the right people and turn it into one of the greatest companies in the world.
I don’t need to remind you, surely, that whether the “major components” were in place at BofA the start of the decade or not, the company, run by Lewis and with the support of McColl and the board, went on to acquire Fleet, MBNA, Countrywide, and Merrill Lynch. They very nearly blew the place up in the process. So forgive me if I am skeptical when I see another BofA slide that announces, yet again, that “the franchise is complete!” Frankly, I would have preferred it if he’d announced plans to break the company up.
2. “No acquisitions.” Hugh McColl never said this, but Ken Lewis made it a sort of mini-mantra in between deals. I do believe Moynihan won’t make any significant acquisitions over the next two years. But after that, I worry that he’ll have trouble resisting the institutional tug to do something. At BofA, that “something” means only one thing.
3. “New management with a shared view of the future.” BofA always seems to have a new management team in place, doesn’t it? A “stable, high-quality management team all with a shared view of the future” may be a great goal, but it’s just the opposite of how this company has operated historically.
We’ve discussed his before. For now, take a look at who presented at this last investor day and also previous ones. Of the nine presenters this year, five have been in their roles for fewer than 18 months. Of the 16 senior managers that presented at the 2007 Investor day, eight are no longer with the company. And of the nine presenters from 2001, all are gone.
Hugh McColl and Ken Lewis made a specialty of running talented managers out of the bank before they became threats. The practice is now ingrained in BofA’s culture and is one of the company’s major deficiencies. To his credit, Moynihan sacked Steele Alphin, Ken Lewis’ CAO and Lord Executioner of strong managers. I hope Moynihan makes rebuilding management strength and stability a top priority over the next couple of years. But I also think he needs to recognize that he has the wrong people running retail banking and wealth management.
4. “Driving a new core organic growth culture.” A BofA golden oldie! Here’s Ken Lewis in the 2000 annual report: “In 2000, we . . . continued our transformation from a company that grows by acquisition to a customer focused internal growth company.”
Then in his 2004 letter, Lewis emphasized that “. . . we accelerated the execution of our organic growth strategy”.
Of course, the same year BofA was accelerating the execution of its growth strategy, it destroyed an enormous amount of value via its acquisition of FleetBoston. Then came MBNA, Countrywide, Merrill Lynch, among others. So, once again, forgive me if I am skeptical that, this time, BofA really does mean to grow organically. (Which, given its size, by the way, it cannot do in any meaningful way.)
5. “’Customer-in’ vs. ‘product-out’ model . . . and 6. Global Competitor.” Moynihan emphasized the company is moving from the product-push strategy to a customer relationship strategy. This sounds great. It always does when BofA says it-which the company has been doing for the past 20 year sor so. Good luck, Brian!
When Ken Lewis first took over as CEO, he did improve the company’s profitability and avoided dilutive acquisitions. The stock performed well. I expect Brian Moynihan’s first three years will be similar. But the true test will come with what happens longer term, in 2013 and beyond. Bank of America’s history on this score does not provide an attractive guide.
What do you think? Let me know!
22 Responses to “Deja Hugh”
These people should run a pig farm not a bank.
The only reasons they’re not going to do an acquisition are 1) they can’t buy more deposits domestically due to legal restrictions and 2) their stock price is so putrid that the only thing they can afford to buy is a troubled European bank and they’ve got enough trouble on their hands already. In any event, they claim that such an acquisition is “not interesting”. Well, it would be – just not in a good way.
What a refreshing thought – putting the customer first! What took them so long to come around to this idea?
As a long ago former senior exec at an acquired Bank you have no idea how “spot on” you are. In my case, I particularly liked his future mega earnings call. There must be something in the air in Charlotte.
Best regards!
Banks are dinosaurs who have no recourse but to acquire or be acquired. Once there was a gas station on every corner, now there are a banks. They’re in supermarkets, why not McDonald’s? Brian???
Tom, I agree completely that B of A has always been a badly run franchise. There is a possiblity it has gotten to the size that in addition to being too big to fail it may be too big to manage. It does treat its customers badly but so does Wells Fargo and few people catch on to that. It is in the long run foolish to sell people “stuff” they do not need. I was a bank president for years in the DC area and sold to BB&T which has a few problems but they never have forgotten that clients are what makes a bank and the best managers you have are the ones you grow yourself.
I usually agree with you and you’ve called BofA perfectly. But here, I think (hope) you’re being too negative. If this guy executes like he says, the stock is back to $50 in five years. Sooner if housing recovers. My problem with your “analysis” is it assumes that Brian Moynihan learned nothing from BofA’s near-death experience. I’m just not going to lump him in the McColl-Lewis category. Let him do something to earn our distrust first. He’s a Fleet Boston guy, not BofA so give him a chance. And say what you want about death bed conversions, they’re still conversions.
Tom — I never thought of you as a fan of Golden Era musicals! And Brigadoon, no less! One learns something new everyday… “There, but for you, go I . . . ‘
Hugh McDouche…pretty much sums up his tenure as a bank CEO. I have this idea about Hugh and Sandy Weill arguing in Hell about which was the greedier, more contemptuous SOB commercial banker of his era.
Pretty much a tie for me.
Dear Mr. Brown,
They are operatng at the 10% funds cap for a US institution – That might leave Europe, but with their economy it seems doubtful.
Agree with this analysis completely. I will give Moynihan a little credit for at least acknowledging they had failed to integrate systems at all. They could cut costs and improve service if they would just do the basics instead of more moronic aquisitions.
It’s a good thing you “like Brian Moynihan”. Lord knows what you would have to say about him and BAC if you didn’t “like” him. Methinks he has the toughest banking job in America, and with admirers like you he certainly has his hands full given what the “non-admirers” will throw at him.
As Teddy Roosevelt said:
“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”
Critics don’t count. Doers of deeds count.
It’s a good thing you “like Brian Moynihan”. Lord knows what you would have to say about him and BAC if you didn’t “like” him. Methinks he has the toughest banking job in America, and with admirers like you he certainly has his hands full given what the “non-admirers” will throw at him.
As Teddy Roosevelt said:
“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”
Critics don’t count. Doers of deeds count.
Tom, bulls eye! Plus you didn’t even get to the 800 pound gorilla in the room; the 10.11 BILLION common shares out standing. Even assuming Moynihan & Co. manage the company as well Dimon and his team at JPM, ( a really big assumption), at the end of the day Moynihan has to payout to almost three times as many shares as Dimon. And no one is projecting that BofA will out earn JPM by a factor of two or three.
The only thing BAC common shareholders can look forward to over the next five years are massive share buy backs with whatever excess earnings they produce over and above street projections and/or a premium price for the Merrill Lynch business. For BAC’s common shareholders Ken Lewis and McColl have really left them the gift that keeps on giving.
Tom, I appreciate the effort to prove that whatever words come out of a CEO’s mouth at an investor presentation are to be taken with a barrel full of salt, but it’s really unnecessary. The CEO’s job is head cheerleader; and really that’s about it. Anyone who relies on anything a CEO says as factual, and makes investment decisions based on it, deserves what’s coming to them.
The CEO answers to the shareholders. What’s he going to do? Come out and say “we have problems, don’t buy our stock right now!”. These presentations are worthless hype shows; nothing more.
“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”
I don’t agree with your ” the sins of the father are the sins of the son”.
Tom, agree on most points. Brian seems to be less of a control freak than Ken, and looks like he is confident enough to allow people to do their jobs without fear of getting fired. Hopefully he and Montag can attract some talent and let them do their job. The company has been drained of their best people for a long period of time, so it will take time to rebuild. I agree that they have the wrong people running retail banking. Also, they need to prove / demonstrate that they can grow organically. Too big to manage? Maybe.
Great commetary, no visionaries left at BOA, they got rid of all their smart guys, including Thain. This place has run out of road. Only cost cutting lawyers left.
Brutal but fair commentary.
If only the stock would perform well. Agree that Bank of America has a history of trashing talent. Sad…
How about a bit of hard time for Ken Lewis–but only about 10 years or so.
I’m still waiting for your thoughts in 2011 on your favorite of the past–First Marblehead.
Excellent.
Typo in item #3.
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