CHARLOTTE, N.C. (AP) - Ken Lewis has lost his role as Bank of
America's chairman, and now he'll have to prove to shareholders
that he should keep his post as the troubled bank's CEO.
After months of rancor following Bank of America Corp.'s
acquisition of troubled investment bank Merrill Lynch & Co.,
shareholders voted at the company's annual meeting to separate the
jobs of chairman and CEO. Lewis will remain the CEO of the bank,
while board member Walter E. Massey, president emeritus of
Morehouse College in Atlanta, will become Bank of America chairman.
Some analysts believe Lewis might eventually be forced out
Gary Townsend, chief executive officer of Hill-Townsend Capital
LLC, noted that Wachovia Corp.'s chairman and CEO roles were split
last year after shareholders were upset about the performance of
that bank, which has since been sold to Wells Fargo & Co.
Then, just weeks after Wachovia CEO Ken Thompson lost his title
as chairman, he was ousted as chief executive as well. Stripping
Lewis of his role as chairman "can result in significant, rapid
changes, depending on what happens the rest of the year," Townsend
Jason O'Donnell, a bank analyst with Boenning & Scattergood
Inc., noting that Wachovia had an ill-fated purchase - mortgage
lender Golden West Financial Corp. - also likened Thompson's
situation to Lewis'.
"I think the Golden West debacle is one that's a pretty good
analogy for this scenario," O'Donnell said. "Clearly, Thompson
was put under a lot of pressure to step down as a result of that
acquisition and pretty much that is what we are seeing here with
Lewis and his Merrill Lynch deal."
The rebuke from the company's shareholders was a stunning turn
of events for Lewis, who a year ago was at the top of the banking
industry. His star began to fall soon after the deal to buy Merrill
Lynch was completed Jan. 1, as Merrill reported $15 billion in
fourth-quarter losses and it was learned that Bank of America had
approved the early payout of billions of dollars in bonuses to
Lewis, 62, who served as chairman and CEO since 2001, has spent
much of this year defending his actions - and did so again during
the angry four-hour shareholders' meeting.
Results of the voting were delayed for several hours, and Bank
of America Wednesday evening issued a statement that the board of
directors had met, elected Massey as chairman and unanimously voted
to keep Lewis as CEO.
Big investors including California's employee pension fund had
called for shareholders to oust Lewis and his fellow directors at
the meeting, which was attended by more than 2,000 people. But
shareholders did vote to retain the entire board.
One of the angry investors, Michael Garland, director of Value
Strategies for CtW Investment Group, praised the ouster of Lewis as
chairman. Garland's group handles 33 million BofA shares and works
with union-affiliated pension funds.
"It's huge," he said. "It's an enormous victory for
"We'll have an independent board chairman, and now the CEO will
be accountable to a board chaired by an independent director. It's
a critical, critical first step," Garland said.
At the meeting, Garland openly criticized Lewis, saying bad
managment decisions led to a dramatic drop in Bank of America
O'Donnell, the bank analyst, said the vote outcome was not
"It's been building up for a while," he said. "There's been a
lot of investor discontent regarding his decision, particularly, to
buy Merrill Lynch."
Shareholders lined up early in the gathering to speak, with many
hurling criticism at Lewis and the Bank of America board for the
government-brokered purchase of Merrill Lynch.
"I find it incredible you didn't have the guts to stand up to
the U.S. government," said Judith Koenick of Chevy Chase, Md., who
said she lost thousands of dollars when BofA shares plunged after
the Merrill Lynch purchase.
The government pressured Bank of America into buying Merrill
Lynch during the same weekend in September that another investment
bank, Lehman Brothers Holdings Inc., collapsed, setting off one of
the most intense periods of the financial crisis.
In his remarks to shareholders, Lewis defended the acquisitions
of Merrill Lynch and another troubled company, mortgage lender
Countrywide Financial Corp.
"Countrywide and Merrill Lynch are two of the most important
reasons Bank of America is the most profitable financial services
company in the United States so far this year," Lewis said.
"Today, I can state without reservation that these acquisitions
are not mistakes to be regretted. Both are looking more and more
like successes to be celebrated."
The bank and Lewis have been under intense scrutiny because Bank
of America is one of the biggest recipients of government bailout
money and because the losses at Merrill Lynch turned out to be much
higher than expected.
Shareholders who have called for Lewis to resign or be dismissed
as chairman and CEO are also irate over the precipitous drop in the
company's stock price. Bank of America has fallen 42 percent since
the beginning of the year, closing at $8.68, up 53 cents, before
the shareholder vote was announced.
Lewis said, "I know the Merrill deal has played a role in the
decline of our stock price. But I do not believe it is solely
responsible for its decline." He said every major commercial bank
in the country is under pressure.
On Tuesday, the California Public Employees' Retirement System
said it would vote against re-electing the board, including Lewis.
CalPERS, the largest U.S. public pension fund, holds about
one-third of 1 percent the bank's outstanding shares.
Massey has been on the Bank of America board since 1998. He
served as president of Morehouse from 1995 to 2007 and has also
served on boards of big corporations including McDonald's Corp. and
Delta Air Lines Inc.
The bank posted a $2.39 billion loss for the three months ended
in December, but earned $2.56 billion after preferred dividends for
all of 2008, down from $14.80 billion in fiscal 2007.
Bank of America has received $45 billion in government aid as
part of the Troubled Asset Relief Program, and additional
guarantees backing hundreds of billions more in risky investments
after it took over Merrill Lynch in January.