When you look at what Brian Moynihan inherits with his role as CEO of Bank of America (NYSE:BAC) today, you do wonder whether the recent joke made by outgoing CEO Kenneth Lewis to employees about Moynihan, saying, “another unique characteristic about him is he wanted the job,” was in fact really a joke.
All the outsiders asked to lead the banking giant knew better than to accept the CEO position, which for them would probably be a no-win situation.
For Moynihan, he probably represents a neutral situation, as he no doubt is considered a sacrifice lamb as far as the board of directors go, because the short-term expectations of Wall Street and shareholders demand immediate results; something Moynihan or anyone else in his position wouldn’t be able to deliver.
There will be the usual short grace period given to Moynihan, but it won’t be long before the vultures start circling and pressure put on Moynihan to deliver results which aren’t realistic expectations, but will be demanded anyway.
What Moynihan faces is huge loan losses in 2010, which will come from their disastrous credit card portfolio, mortgages, and many other niches they serve.
All of this stems from the overly aggressive growth strategy, which included both high internal and external risks, which obviously the company wasn’t able to handle. Especially harmful was the acquisition of lenders who gambled big and lost in one of the worst credit bubbles in American history. Countrywide Financial Corp. was the most troubling of those for Bank of America because of their size and exposure in the mortgage market.
The bank at one time was even offering lines of credit to start-up businesses for up to $100,000.
Bank of America’s credit card business will also be a major challenge in 2010, as major problems which plagued the company in 2009 will continue on into the new year.
Much of this will come from the consequence of acquiring the huge credit-card company MBNA in 2006, which at the time was considered a great move, but has proved to be anything but that.
What was thought of as great risk management at that time, was in fact, just MBNA allowing their customers to be given large credit lines simply because the money was easy to get hold of. This eventually worsened when bank tellers at Bank of America were given the tools used by MBNA to sell pre-approved credit cards to a majority of their customers entering any branch of the bank, making the situation even worse.
Of the major banks in America, Bank of America has recorded the highest rate of credit card defaults, and that should continue into 2010, although Moynihan claims things have been stabilizing some since August. Still, he has stated in the past that it will take a “substantial number of quarters until we see charge-off rates return to levels which we are more comfortable with.” Moynihan also said the credit card business will never be as profitable as in the past for the company.
While the larger banks won’t be hit as hard as community banks for commercial loans, it will still be a big factor in 2010, where defaults are expected to peak sometime in the latter half of the year.
So that’s what Brian Moynihan is stepping into. It’s one of those situations where he will try to survive long enough to turn things around enough to give him some room to work with.
They will need a huge year on the investment banking side to give him the needed slack, and will all these negative factors weighing in, it’s hard to see how that could come about, but you never know.
The final factor as far as it relates to Moynihan as it relates to him personally, is he will get a better professional reception if he fails than someone coming in from the outside of the business who would be considered more of a rescuer. Moynihan won’t have that burden in the way an outsider would, so may be in a win/win situation going forward.
And if he’s lucky enough to extend things out long enough for Bank of America to eventually thrive, he’ll be able to name his job and price anywhere in the industry, and outside of it as well.
For Bank of America the future is cloudy and hazy, and it could be some time before any type of sustainable growth and profits are part of its experience going forward. Anything more than that will be a feather in Moynihan’s cap and a big boost for the bank.
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