08/10/11 - 06:30 AM EDT
Bank of America might have to soon dump one of its most lucrative investment, because it doesn't have enough capital to stay in the game.
LinkedIn's bankers did try create a feeding frenzy yesterday over shares. Mission accomplished.
Read the full post here at Forbes.
By Eric Jackson
RealMoney Contributor
5/27/2010 5:00 PM EDT
Click here for more stories by Eric Jackson
Just an idea for the event organizers: There's such interest in the ideas from the event that they should consider live streaming the event on the Web. They could charge for it and likely still get a large audience that would further support their worthy cause.
Yesterday's roster of speakers was stellar as usual, including Ackman of Pershing Square, Einhorn from Greenlight, Sam Zell, David Tepper of Appaloosa and Seth Klarman of Baupost.
Many speakers, including Einhorn and Ackman, reiterated arguments they've made publicly, for example shorting the ratings agencies likeMoody's (MCO - commentary - Trade Now) andMcGraw-Hill (MHP - commentary - Trade Now) and going long General Growth. Other speakers, such as Niall Ferguson of Harvard and former auto-czar Steve Rattner, chose to stick to macroeconomic predictions.
David Tepper, who was bullish in 2008 and lost money, then stayed bullish in 2009 and made $4 billion, was still bullish yesterday. He pointed to the bleachers, a la Babe Ruth, and said that Bank of America (BAC -commentary - Trade Now) is going to $27. Tepper also likes AIG (AIG - commentary - Trade Now) and the beaten-down Spanish bank Banco Santander (STD - commentary - Trade Now).
....
By Eric Jackson
By Eric Jackson, Senior Contributor
Stock quotes in this article: BAC
NEW YORK (TheStreet) --
Reports are out today that several of the candidates under consideration for the top job at Bank of America(BAC Quote) have called on the board to consider breaking up the bank. They are having none of it. As a result, the CEO search for Ken Lewis' replacement continues.
All in all, you would have to give the board of Bank of America an "F" for how they've monitored management and succession planning since a firestorm enveloped the company last Fall.
Primarily blame for the lack of preparedness the board has shown to having a successor for Ken Lewis waiting in the wings lies at the feet of Hugh McColl, Lewis' predecessor. McColl has really shaped what Bank of America has grown into. It won't change until his ghost leaves the board by having directors he appointed step down.
On a "Frontline" episode from last year describing the financial meltdown, McColl, who is still the bank's chairman, recounted how he'd masterminded turning the small NCNB National Bank of North Carolina into the Bank of America juggernaut. He said that, as a company, "you're either growing or you're dying."
He took that advice to heart and did a series of acquisitions of companies to create a national titan in banking. And that's why it's unlikely this bank will break itself up now or while McColl is still around. It's just not in their corporate DNA.
Bank of America is the house the Hugh built. He hand-picked his board to be his lapdogs. He hand-picked his successor, Lewis, to carry on exactly in the fashion he had led the bank.
Lewis didn't miss a beat. In fact, he took it up a notch, making increasingly bigger acquisitions. Lewis' tenure as CEO will be defined by his acquisitions of MBNA, Fleet Bank, Countrywide, and Merrill Lynch. The bank is now enormous.Succession planning is only something a company is judged on when they do it badly. The fact that Bank of America is now having such a hard time filling the top spot signals how poorly equipped this board was to do scenario planning.
It's a pretty basic question that every board must always think about: what would we do tomorrow if the CEO got hit by a bus? Most of the time, there are two to three internal candidates' names which easily come to mind. Nine times out of 10, a board would rather select an internal candidate for the knowledge of the company, industry, customers, and employees who will be able to take the company forward.
All of the largest banks in America appear to have done a poor job of internal talent development, but Bank of America is by far the worst. Why?
At the end of the day, the bank's directors were charter members of the "Friends of Hugh" club. Their primary job as a director was to rubber-stamp whatever Hugh wanted to do. If Hugh didn't bring up the issue of succession planning, it didn't need to be considered.
That's why, starting after the spring shareholders' meeting (at which there were several directors who received large numbers of "against" votes) the Federal Reserve has started reassembling the board of directors. That's something we first started mentioning here over the summer.
This revamped board was still not able to get an effective succession process in place to prepare for Lewis' surprise departure. They should entertain all kinds of scenarios such as breaking up the bank. In my view, it epitomizes a "too-big-to-fail" financial institution and hasn't demonstrated that it can manage the disparity and scope of so many businesses.
If the Fed really wants to see the company change though, it should remove all directors who have ties to Hugh McColl. Once that happens, this board will start to rethink how this bank should be run from a truly fresh perspective. And they’ll probably conclude it does need to be broken up.
At the time of publication, Jackson did not have any position in the stock mentioned.Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.
Sphere: Related Content07/01/09 - 09:25 AM EDT
BAC , C , GMGMQ
Eric Jackson
Last April, all eyes were on the Bank of America (BAC Quote) shareholders meeting.
Many expected CEO Ken Lewis to lose the title of chairman -- which he did. But others, including me, expected that such a result might be a precursor to Lewis losing his job entirely and to other changes to the board.
So far, Lewis still has his job, but in a very non-public way the government appears to be engineering a number of steps to change how the country's largest bank is governed. In my view, Lewis will exit the bank sometime between September and February.
At the April shareholders meeting, anger directed toward BofA's board poured out of the audience, even in hometown Charlotte, N.C. When the results of the voting were announced, shareholders approved splitting the chair and CEO roles and almost (by less than half a percentage point) approved the right for shareholders to call special meetings to replace board members. Had broker non-votes been thrown out (as they will be next year), instead of counted as a vote for management, it's likely that Ken Lewis and Temple Sloan would not have been re-elected to the board.
BofA responded to the voting by announcing that Dr. Walter Massey, president emeritus at Morehouse College, would assume the role as independent chairman. The board also threw its support behind Ken Lewis continuing as CEO, trying to quash suspicions that he would exit the company entirely.
Several observers, however, immediately questioned the "independence" of this new chairman. For one thing, Massey is 71 and the board has a mandatory retirement age of 72. Will he really take a long-term view to ensure the board operates in a fully independent way from management, as the role implies, or will he be more of a stopgap -- until the board and/or government figure out how this bank is going to be governed moving forward? Also, how "independent" can Massey be when he's served on BofA's board (and its predecessor BankAmerica Corp.) since 1993?
Massey served under Hugh McColl and his hand-picked successor, Ken Lewis, for over a decade. It's hard for anyone to make the mental switch from being a good foot soldier director to suddenly questioning past decisions. In short, how can Massey be part of turning the page, when he was complicit in all the past decisions which brought the bank to its current weakened position?
After witnessing how swiftly and aggressively the government stepped in to take control of General Motors(GMGMQ Quote), including insisting that Rick Wagoner be replaced, you would have expected similar draconian action for the biggest bank in the industry that arguably has been the most responsible for the current economic mess -- BofA, or as 60 Minutes referred to it last September in a glowing piece, the "King of Wall Street." Based on the reports of how Lewis and BofA were viewed by top officials at Treasury and the Federal Reserve, frustration among the government appeared to be fever high.
Yet, Lewis is still in charge at Bank of America (as is Vikram Pandit at Citigroup(C Quote)). Why? I think it's because the Obama administration decided that Wall Street's and Main Street's interests were aligned in seeing a higher stock market and the realization that their anti-Wall Street rhetoric in the first two months of this year had upset the market.
I think they also watched the ripples that followed the removal of Wagoner and worried that another high-profile ouster would send the message that they were being too authoritarian.
Instead, I believe the government has shifted to backroom diplomacy at a slow and deliberate pace.
Another wrinkle that has affected the dynamics of changing the governance of BofA is that the Securities and Exchange Commission is currently seeking comments on new rules that would affect proxy access for next year's batch of shareholder meetings. The agency is seeking to allow shareholders individually or in concert who have held at least 1% of a large-cap stock like BofA for at least a year the rights to nominate candidates for election to the board.
The candidates would sit alongside management's own roster of candidates on the company's own proxy sent out to all shareholders. The directors with the most number of votes for the open seats at the board table would be elected. The change, which CEOs oppose, would make it much easier to replace directors that a majority of shareholders believed were not representing their interests.
Given what's gone on over the last 18 months though, it seems likely that proxy access will pass and come into effect for next year. Given that, and the large number of BofA's shareholders who registered their displeasure in this year's vote, it seems likely that at least one shareholder will put up some alternate candidates for next year's slate of directors, and they'll stand a good chance of winning.
If you were an old BofA director, and you thought your chances of getting booted out next year were high, why would you stick around and go through that public humiliation. Better to leave now on your own terms.
And that's just what's happened. Whether being quietly influenced by the government or choosing to leave now on their own accord, seven of the bank's 18 directors who were re-elected in April have decided to leave.
They include retired Adm. Joseph Prueher, retired Gen. Tommy Franks, Jackie Ward, Patricia Mitchell, former lead director Temple Sloan, retired Lowe's CEO Robert Tillman, and Meredith Spangler. New directors appointed to the board include ex-Fed board governor Susan Bies, ex-FDIC Chairman Donald Powell, Paul Jones and William Boardman. Note the decidedly government bent to these new board members.
When will Lewis leave? We know both the board and he have said it will be in the next three years, but I believe it will be no sooner than September, when there will likely be more evidence that the economy is starting to turn the corner, and no later than next February, when the company would start to prepare its proxy materials for next April's shareholder meeting. Lewis wants to be able to claim his vision of a large BofA including Countrywide and Merrill Lynch is paying off. He wants to see more evidence of a housing recovery and earnings firepower from Merrill to do that. The government, to this point, is being respectful.
I'm sure both BofA's board and the government would like to show shareholders by then that the bank had turned the corner and will be a cornerstone of the U.S. financial system moving forward with strong leadership and governance.
But make no mistake: The clock is ticking down on Ken Lewis' time in the corner office. I think a change at the top by the end of this year is the most likely outcome -- with a successor named at the same time as Lewis announces his departure on his own terms.
At the time of publication, Jackson did not hold any positions in the companies mentioned in the story.
Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.
Reading about how Bank of America's (BAC) directors have expressed full confidence in Ken Lewis staying on as CEO and how they didn't discuss any other director taking over as Chair than Walter Massey.
Massey has been on the board (and its predecessor board) for over 15 years, so he knows BAC. However, he has no banking experience in his own career background. Also puzzling, he's approaching BAC's mandatory retirement age.
Some critics have said this is an 18 member board that was hand-picked by Lewis and is showing favoritism to him instead of doing what's right for shareholders. I agree.
What these directors don't realize is that, with SEC rule changes coming next year including tossing out broker votes, it will be highly likely (unless BAC pulls off a Hail Mary type of stock performance between now and then) that Lewis (and probably several other directors) will be fired directly by shareholders at the ballot box.
It's another example of why this board is out of touch and needs fresh eyes on it -- including in the CEO spot.
Position: None.
Originally published in RealMoney.com on 5/2/2009 8:35 AM EDT
To get Eric Jackson's real-time updates, subscribe to RealMoney.com
Bank of America (BAC) piled too much on its plate in terms of acquisitions -- especially the most recent ones that are so much larger than the little retail branch acquisitions that have been their bread-and-butter through their history.
However, there's a simple answer to their CEO question: he should leave. Imperial CEOs and their lackeys like to create this myth at times of stress and pressure that they are "indispensible men." Some shareholder during yesterday's BAC annual meeting even got up and asked the audience of shareholders: "If not Ken, who's going to lead us?" [To which he got a hearty applause]
I think there's an abundance of managerial talent available -- outside the bank if not inside the bank. The best thing for BAC shareholders (and for the ones of another embattled bank, Citigroup (C)) would be for a change at the top. Maybe they're good guys who are a victim of circumstance, but you would have to acknowledge that Ken Lewis and Vikram Pandit have failed their test of leadership in the last 18 months. It's time to turn the page and move on.
I would argue that Lewis has no credibility now after yesterday's vote to stay on as CEO. People need to realize that most of the BAC shares held by brokers were automatically counted towards his re-election yesterday and for him to keep the Chair and CEO titles. Had those votes not counted either way -- as will be the case thanks to the SEC starting in 2010 -- the votes against him (and the other directors) would have likely been 15 - 20% higher than the numbers reports.
This means a real majority of shareholders voted down the re-election of several BAC directors yesterday and almost three-quarters opposed Lewis keeping the Chair title.
That's not a mandate to continue leading. It's time for Lewis and Pandit to go.
Position: None.
Originally published in RealMoney.com on 4/30/2009 7:57 AM EDT
To get Eric Jackson's real-time updates, subscribe to RealMoney.com
There's something highly annoying about watching the blame game playing out over the last week, first with Ken Lewis blaming Hank Paulson and Ben Bernanke and, this morning, with John Thain getting in some licks against the guy who saved his firm from a Lehman-like outcome.
The press and shareholders often complain about the size of executive compensation (as well they should), but the truth is that execs and most notably CEOs (not unlike politicians) are driven by a more powerful motivation (especially towards the end of their careers): preservation and enhancement of their reputation and legacy.
What prompted Ken Lewis last week to point the finger at the US government for Bank of America's (BAC) troubles is the fact that he'll be facing the music this week at his shareholders' meeting. There will be a large number of highly respected shareholders voting against him and he might well follow Terry Semel's lead and resign a few days afterwards, if the votes against are large enough.
In Lewis' mind, his life's work (building up BAC into the world's largest financial supermarket -- no longer a positive -- buying FleetBoston, MBNA, Countrywide, and Merrill) is about to go by the boards with a negative vote. That would be even more devastating to him than losing his job or a paycheck.
Lewis is putting up his last defense in striking out at Paulson and Bernanke. Nothing personal guys, business is business.
For Thain, the situation is different. This is a guy that should have another good 15 years in front of him as a major financial services CEO. Now, that's in question since he decided to move up the Merrill bonuses last year and the whole office deco-gate.
In my view, neither man is coming off well with their latest accusations and both will have to spend more time in the penalty box. For Lewis, that might include a large mark is his career accomplishments after this week's vote.
Position: None.
Originally published in RealMoney on 4/27/2009 7:39 AM EDT.
For real-time updates, subscribe to RealMoney.com
Ken Lewis has been removed as Chairman of Bank of America (BAC), as we predicted earlier. Massey has been named Chair. It might signal Lewis' leaving the CEO role soon.
Results of the vote are here.
Shareholders almost approved a proposal giving them the right to hold special stockholder meetings (to oust directors during the year) -- missing the votes needed by 0.5%. They were also 9% away from approving the say-on-pay proposal.
What's scariest for any inept CEO or director about these results is that they included "broker votes" going in BAC's favor. That is, all the shares held by brokers who are never instructed by the underlying shareholder how to vote those shares usually throw them behind the current management and board. Next year, in 2010, that changes and those votes won't be counted. It's likely in most corporate elections, pro-shareholder votes on director re-elections and shareholder proposals will increase by 15 - 20%.
We might start to see some real changes in our boardrooms across America.
Position: None.
Some great news today that the SEC is planning to end the current broker vote rules. This is a "win" for any shareholder who is tired of seeing over-paid and under-performing directors re-elected by seemingly vast majorities of shareholders at their annual meeting.
Take the Citigroup (C) meeting earlier this week. Several in the media pointed out that, despite the large number of angry shareholders voicing their displeasure at the meeting, Citi's board (including Vikram Pandit) was "comfortably" re-elected with about 70% of the vote. Turns out this is really an inflated number.
As the Wall Street Journal reported today, these vote numbers are skewed because the large number of brokers, who hold shares in companies and never hear from the underlying shareholders as to how they want those votes cast, end up throwing them behind management.
The article discusses the upcoming Bank of America (BAC) meeting next week where Ken Lewis will face a lot of heat. Because Ken Lewis will have 1.22 billion broker votes in the bag from the start, he only will need to capture about one-third of the votes from real voting shareholders to "win" a majority of support.
The SEC, under Mary Schapiro, is saying that this free ride is over starting in 2010. These broker votes will no longer count towards the encumbents' stash. All CEOs and directors will truly have to receive a majority vote. That's good for everyone -- including, ultimately, the directors. We'll have much more vigilant boards and better capital markets.
If Ken Lewis survives the vote next week, he likely won't in 2010 under these new rules, which is why my bet is that he announces his departure sometime this summer (after declaring that BAC is stonger than ever and poised to reap the benefits of his Merrill and Countrywide deals).
Position: None.
Originally published in RealMoney.com on 4/24/2009 2:48 PM EDT
Next week, on April 29th, Bank of America (BAC) will hold its annual meeting. An issue which will come to a head there in a shareholder vote is whether Ken Lewis should retain the two roles of Chair and CEO.
Longtime BAC shareholder Jerry Finger (who sold his bank to NationsBanK in 1996) put the issue on the proxy and is right to call for change, given the bank's disastrous performance in the last 12 months.
Late last week, we learned the 3 largest and most influential proxy advisory firms (RiskMetrics, Glass Lewis and ProxyGovernance) all threw their support behind the splitting of these roles. This means it's virtually assured that the split will happen, given how closely large institutions and pension funds follow these suggestions from the advisory firms.
In my view, this stripping of Lewis' Chair role makes it more likely that Lewis will also step down as the bank's CEO in the next year. He's already dropped hints that he is open to doing so "when the crisis passes" -- that's CEO-speak for "Ok, I'm getting tired of the abuse I'm taking."
If BAC really wants to show shareholders (including the government) that it's turning the page, a change at the top is probably best for everyone.
Originally published in RealMoney.com on 4/20/2009 9:01 AM EDT
By Eric Jackson
From TheStreet.com
01/23/09 - 09:08 AM EST
MER , BAC , C , GS (Cramer's Pick) , NYX , TYC , AAPL , JPM , GE
The stunning announcement of John Thain's departure from Bank of America (BAC Quote - Cramer on BAC - Stock Picks) yesterday, less than a month after merging Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) into the bank would have been unthinkable a few weeks ago.
After announcing the shotgun marriage of Merrill Lynch with Bank of America in September, hours after Lehman Brothers collapsed, the sterling reputation of John Thain was cemented: This was a CEO who could do no wrong.
Revelations leaking out of Bank of America in the last few days, and Thain's departure today, alter his image -- perhaps irreparably. Observers now wonder how this quiet, smart overachiever could have shown such poor judgment. After all, this is a man who rose through the ranks at Goldman Sachs(GS Quote - Cramer on GS - Stock Picks), turned around the New York Stock Exchange(NYX Quote - Cramer on NYX - Stock Picks) and merged it with Euronext and then had headhunters and corporate boards falling over themselves offering him numerous CEO spots.
There are 5 puzzling decisions Thain has made in recent weeks that ended up being his undoing:
1. He decided to move up Merrill's bonuses which are typically paid in January to December, prior to the closing of the merger with BofA. The payouts amounted to $15 billion, only a 6% drop from last year. Bank of America sought an additional $20 billion from the Treasury days later (this after requesting a $10 million bonus for himself for 2008, which was rejected by his board).
2. He did not come to BofA CEO Ken Lewis immediately to disclose Merrill's fourth-quarter loss after a sharp erosion of Merrill's book of business.
3. He left New York to go on a family ski vacation in Vail at the time news broke about the Merrill bonuses.
4. He planned to attend the upcoming Davos meeting, even though the financial industry is once again under extreme strain and BofA has advised against it.
5. He reportedly ordered an expensive redecoration of the Merrill corporate offices using his personal decorator in early 2008 at the same time he was preaching cost cuts to his new employees. (Among the expenses reported: $87,000 for an area rug, $11,000 for a "Roman shade" and $243,000 in salary and bonuses for Thain's driver last year.)
The last detail prompted short-seller Doug Kass to draw comparisons with now-imprisoned former CEO of Tyco(TYC Quote - Cramer on TYC - Stock Picks), Dennis Kozlowski, who famously approved a $6,000 shower curtain for the corporate apartment he stayed at in New York. (Kozlowski actually looks frugal compared to Thain.)
What's interesting about to the comparison between Thain and Kozlowski is that both were highly regarded prior to these scandals. At the time of his hiring, new Merrill CFO Nelson Chai complemented Thain's intelligence: "When you're the smartest guy in the room, which he typically is, you come at things from a different altitude."
How could someone so smart, make these poor decisions? And if it can happen to Thain, who will be the next golden CEO to drop? How can you spot the next smart executive to fail?
Sydney Finkelstein, a Professor of Management at Dartmouth's Tuck School of Business with whom I've worked on consulting projects, published a 2004 business best-seller called "Why Smart Executives Fail" that looked at 60 successful CEOs who later failed, including Kozlowski, Enron's Ken Lay and Jeff Skilling and George Shaheen of dot-bomb Webvan. The book is a great read -- and very current, given what we're living through.
Finkelstein summarizes what he calls the "Seven Habits of Spectacularly Unsuccessful Executives." One of those habits seems very relevant to John Thain: "They identify so completely with the company that there is no clear boundary between their personal interests and their corporation's interests." This was the habit that derailed Kozlowski, in Finkelstein's opinion. Here's a brief except from the book on this trait:
"We want business leaders to be completely committed to their companies, with their interests tightly aligned with those of the company. But digging deeper, you find that failed executives weren't identifying too little with the company, but rather too much. Instead of treating companies as enterprises that they needed to nurture, failed leaders treated them as extensions of themselves. And with that, a 'private empire' mentality took hold.
"CEOs who possess this outlook often use their companies to carry out personal ambitions. The most slippery slope of all for these executives is their tendency to use corporate funds for personal reasons. CEOs who have a long or impressive track record may come to feel that they've made so much money for the company that the expenditures they make on themselves, even if extravagant, are trivial by comparison. This twisted logic seems to have been one of the factors that shaped the behavior of Dennis Kozlowski of Tyco. His pride in his company and his pride in his own extravagance seem to have reinforced each other."
In the case of Thain, he signed off on these expensive corporate renovations after Merrill "won" the battle to get him as CEO (remember Citigroup (C Quote - Cramer on C - Stock Picks) wanted him too). At the time he took over the company a year ago, he was one of the kings of Corporate America. He might well have felt justified in green-lighting these expenses and using his own decorator.
It's also interesting to note that, in all the criticism of how Ken Lewis of BofA failed to do sufficient due diligence on Merrill prior to announcing the deal, no one has criticized John Thain for insufficient due diligence on Merrill prior to taking the top job. At the time of his hiring, he assured the press that he'd been given complete access to Merrill's books. Apparently he did a poor review. When Merrill's fortunes started to go south, no one went back to ask Thain about this oversight.
What this sorry episode teaches all analysts, media, and investors is that we need to appreciate success and achievement but always remain skeptical. We shouldn't be afraid to ask tough questions even about "untouchable" CEOs like Apple's(AAPL Quote - Cramer on AAPL - Stock Picks) Steve Jobs, JPMorgan Chase's (JPM Quote - Cramer on JPM - Stock Picks)Jamie Dimon, or General Electric's(GE Quote - Cramer on GE - Stock Picks) Jack Welch. Past success no longer guarantees future success in today's world.
Unfortunately for BofA shareholders, no one had warning signs about Thain until the last 72 hours. (And let's not forget that, if you're a Merrill shareholder, you are overjoyed that Thain sold this company at such a premium and kept the fourth-quarter loss under wraps until the deal went through.)
One thing's for sure: If you're a company insider and you hear about a big corporate office renovation, starting looking for work and start selling your insider stock right away.
Neither Eric Jackson nor his fund owns stock in Merrill or BofA.
