March 28, 2024

Bank Chief Has Big Job to Reassure Investors

In just the last few weeks, the company has announced a management shake-up, a $5 billion investment by Warren E. Buffett, and the sale of more than $15 billion in assets. None of those major news events have propped up the bank’s battered stock, which finished last week at just less than $7 a share — down nearly 30 percent since the beginning of August.

On Monday, Brian T. Moynihan, the bank’s chief executive, is scheduled to deliver a much-anticipated address to investors at a conference hosted by Barclays in New York, but anything less than a bold new blueprint is likely to leave already frustrated investors grumbling.

“He’s got to say something new, otherwise it’ll be a real dud,” said Chris Kotowski, an analyst with Oppenheimer. “There’s a lot of cynicism. People are going to be skeptical of any numbers they put out.”

Mr. Moynihan will unveil the initial results of the bank’s Project New BAC restructuring initiative, named after its stock ticker symbol. That plan will increase targets for quarterly cost savings to well above the $1 billion to $1.5 billion goal he laid out last month.

Mr. Moynihan is also expected to note that the streamlining, which could cost 30,000 to 40,000 jobs in the next three years, would affect the executive suite, too. Last week, the company said the reshuffling did not leave room for the positions held by two well-known top executives, Sallie Krawcheck and Joe Price.

Bank of America officials declined to comment on the contents of the speech on Monday. Two other top executives who are at the heart of Mr. Moynihan’s team, Bruce R. Thompson, the chief financial officer, and Mike Lyons, head of corporate strategy and planning, played critical roles in putting together the presentation.

Mr. Moynihan is likely to emphasize that Bank of America is sticking with the diet he imposed on it after taking over in late 2010, while cleaning up after the acquisition binge begun by his predecessor as chief executive, Kenneth D. Lewis. Mr. Moynihan is expected to detail the bank’s current capital structure, reiterating his desire to strengthen the company’s balance sheet further without having to resort to selling more stock, a major worry among Bank of America shareholders.

He is also likely to emphasize that the asset sales in the third quarter have replenished capital that was consumed by the cost of settling mortgage-related litigation in the second quarter.

An Aug. 10 conference call with Mr. Moynihan and investors, hosted by a Florida hedge fund manager, Bruce Berkowitz, drew a collective thumbs-down from Wall Street. Analysts say that Mr. Moynihan needs to deliver something stronger and more detailed this time to halt the slide in Bank of America’s stock price.

“I’m still scratching my head over that conference call with investors in August that didn’t add a lot of value,” said Michael Mayo, an analyst with Crédit Agricole. “The C.E.O. has his back up against the wall more than it’s been in the past. Investors do want something radical to confront many radical circumstances.”

Mr. Mayo says the challenge for Mr. Moynihan is that more radical solutions that might lift the stock in the short-term could prove risky in terms of the future of the company and its long-term performance. For example, spinning off its highly profitable Merrill Lynch unit might give the stock a short-term bounce but deprive the bank, the country’s largest, of a major source of profits even as margins in more traditional areas of banking like commercial lending are squeezed.

And when it comes to the biggest problem facing the bank, how much it will cost to atone for the excesses associated with the housing bubble, the options are even less appetizing.

Angry investors are trying to force Bank of America, and other large banks, to buy back billions of dollars worth of mortgages that have defaulted, arguing that the home loans did not conform to the original underwriting standards or were originated with little evidence of adequate assets on the part of borrowers.

In other cases, investors including the federal government and the insurance giant A.I.G. want to recover tens of billions of dollars from the big banks for losses on securities they assembled from now-troubled subprime mortgages.

For Bank of America, the bulk of those losses stem from the 2008 acquisition of Countrywide Financial, the subprime giant. While Mr. Moynihan has not ruled out putting the Countrywide unit into bankruptcy, such a step would make it harder for healthy divisions of the company to borrow, Mr. Kotowski of Oppenheimer warned.

To make matters worse, Mr. Kotowski said, the cost of the mortgage mess has mushroomed, undermining confidence more broadly in how the bank has handled the issue.

At an investor conference last November, Mr. Moynihan vowed “hand-to-hand combat” to fight these claims, but the settlements by Bank of America in January and June were a shift away from that strategy in an effort to put the litigation behind the company and resolve the resulting uncertainty.

The legal onslaught has only intensified, however, with more lawsuits filed on Sept. 2 by the federal agency that oversees mortgage giants Fannie Mae and Freddie Mac, and the fears about how much the mortgage implosion will eventually cost Bank of America loom as large as ever.

“The mortgage risk is everything for Bank of America,” said Glenn Schorr, an analyst with Nomura. “They can take several billion dollars out in costs, but if they lose the big numbers people are talking about in terms of mortgages, the cost cuts won’t make enough of an impact.”

But Mr. Schorr said that cost cuts also signal that Bank of America could address what is within its reach to influence. “They can’t control Europe imploding or this enormous mortgage risk,” he said. “But they can try to control their operating performance.”

Article source: http://feeds.nytimes.com/click.phdo?i=91dac4af1e6d0f9ad8d0caa6ec68103a