Professor Page West Comments on Bank of America in Bloomberg Businessweek Report

B of A’s Moynihan Puts Ex-Colleagues in Strategic Posts
Published Sept. 21| By David Mildenberg
Reposted from Bloomberg Businessweek

Bank of America Corp. Chief Executive Officer Brian Moynihan, who has promised to change the lender’s culture while retaining most of its senior leadership, has installed three former colleagues at FleetBoston Financial Inc. at influential posts.

Moynihan hired former Fleet strategy head Terry Laughlin as a senior executive at the loss-plagued Countrywide unit. He recruited hedge-fund manager Mike Lyons as a strategy and planning executive to help shrink the bank’s $2.2 trillion balance sheet. Moynihan also promoted Lauren Mogensen to deputy general counsel and corporate secretary, where she intersects with Moynihan and the bank’s board.

Each of the three, none of whom report directly to Moynihan, have a longer history of working with him than with their supervisors. They were part of the team that helped then- Fleet CEO Terry Murray expand into the seventh-largest U.S. lender before Bank of America bought it for $48 billion in 2004.

“Those people are there to tell Brian what is going on and to make sure he doesn’t get stabbed in the back,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “Having your loyalists installed at the key businesses is part of the culture of banks.”

Shareholder Returns

Moynihan, 50, is emphasizing execution instead of expansion at the Charlotte-based bank, and promised to focus on shareholder returns instead of gross earnings after his predecessor, Kenneth D. Lewis, bought the largest U.S. credit- card, mortgage and securities brokerage firms between 2006 and 2009.

Bank of America faces “one of the biggest challenges any merger or acquisition team has had to deal with,” said Page West, a professor of strategy and entrepreneurship at Wake Forest University Schools of Business. “Moynihan needs to have confidence in the people doing the work.”

The bank is firing as many as 400 employees in its global banking and markets division after a management review, a person briefed on the matter said yesterday.

“We’ve been changing the culture in our business,” Moynihan said at a Sept. 14 investor conference. “The franchise build is over for Bank of America. Now it’s just time to operate.”

Cost-Cutting

The bank is pruning costs more aggressively than publicly disclosed, Betsy Graseck, an analyst at Morgan Stanley who rates the stock “overweight,” said in a Bloomberg TV interview on Sept. 17. “There’s a distinct strategy within each of the organizations within Bank of America to be improving on the expense ratio,” she said.

Almost all the senior executives from credit-card issuer MBNA Corp. and home-lender Countrywide quit or were replaced by veteran Bank of America managers before Moynihan became CEO. Credit cards and home loan businesses contributed more than $20 billion of losses since 2008 at Bank of America as U.S. housing prices plummeted and the U.S. jobless rate rose as high as 10.1 percent.

Of the 11 executives who report directly to Moynihan, just three — Thomas Montag, Sallie Krawcheck and Charles Noski — have been at the bank less than five years. Montag, who spent more than two decades at Goldman Sachs Group Inc., joined Merrill Lynch & Co. under former colleague John Thain before Bank of America bought the securities firm last year. Krawcheck joined the Merrill unit from Citigroup Inc. Noski, the bank’s chief financial officer, is a former CFO at Northrop Grumman Corp.

Maverick Capital

The group of 11 includes just one person who worked with Moynihan at Fleet, Chief Strategy Officer Anne Finucane. Her job is helping set the bank’s direction and shape its image with consumers, regulators and politicians.

Mogensen joined FleetBoston in 2001 from Edwards Angell Palmer & Dodge, the Boston law firm where Moynihan worked before he came to Fleet in 1993. She worked in compliance, consumer and wealth management posts before joining the general counsel’s office.

Lyons worked under Moynihan at Fleet for two years in the 1990s before moving to Morgan Stanley. In 1995, he joined Maverick Capital, a New York hedge fund that has averaged a 14 percent annual return since its inception that year. He’s advising what assets and businesses to sell as part of Moynihan’s pledge to build a less complex company with a “fortress balance sheet.”

‘Eye for Talent’

Before joining Bank of America in August, Laughlin, 55, was CEO of OneWest Bank, the successor to IndyMac Bancorp., which was seized by the Federal Deposit Insurance Corp. in 2008. His job includes monitoring relations with mortgage investors who are demanding that Bank of America repurchase billions of dollars of soured mortgages.

Laughlin gave up his CEO post because he was intrigued by the challenge at Bank of America and wanted to work with Moynihan again, said William Mutterperl, an attorney at Reed Smith LLC in New York who was Fleet’s general counsel from 1985 to 2001.

Lyons and Laughlin “are very strong on the strategic planning side,” Mutterperl said. “Brian has an excellent eye for talent and he’s surrounding himself with some of the best people from the old Fleet.”