Monday, August 15, 2011

Bank of American Head Brian Moynihan Turns to Comedy

It’s a Pretty Good Act, (It is an Act, Right)

Bank of America, the Charlotte, N.C. based huge financial institution has not had a good couple of years.  Their purchase of Merrill Lynch has gone well, but there was real disaster was the acquisition  of Countrywide Mortgage Company.  This acquisition will end up costing BofA tens of billions of dollars in losses and settlements for fraudulent lending practices.

Home of the Carolina Panters
At 1-15 Last Year They Still Had a Better Season
Than Bank of America

The common stock of BofA was driven down far more than the market as a whole in the recent selloff after the S&P ratings downgrade.  The Bank is also considered undercapitalized, and the extent of its future losses from the mortgage business are unknown, even by the Bank

So it was interesting to learn that Brian Moynihan, CEO had these things to say as reported by the Financial Times

Asked why executives had not been buying more stock in BofA, he said they would be doing so when permitted and after the recent period of “volatility

Mr. Moynihan did not say who was not permitting him to buy, but it is strongly suspected to be his wife, children and all other actual and potential heirs.

“My performance with the management team ... has been strong,” he told investors on a conference call on Wednesday, even as he acknowledged that the group’s share performance had “not been strong”.

The CEO has decided not to participate in the Era of Personal Responsibility.  He did not explain how his “strong” performance led to a large decline in the stock price.

The bank has one of the weakest capital levels among the biggest US banks but Mr Moynihan said: “We simply could not continue on a course of diluting our shareholders to raise capital.”

Translation:  Selling more shares to shore up our capital base would reduce the price of the stock.  We can reduce the price of the stock even more by just continuing what we are doing now.

Soon to be Hosting the Comedy Stylings
of BofA Management?

The bank was humiliated this year when a promise to investors to increase their returns was vetoed by the Federal Reserve. “We will ask for a dividend when we’re darn well sure that we’ll get approval and not a minute before,”

Apparently Mr. Moynihan did not attend Finance 101 class the day they taught that paying a dividend decreased capital, and was probably not the thing to do when you needed to increase capital.  It’s okay though, it was an excused absence.

This week, AIG, the insurer, sued the bank for more than $10.5bn, alleging wrongdoing in the underwriting and packaging of mortgage loans.

Another example of “strong” managerial performance by the senior management team.

And finally, this closing thought from the man in charge.

The Worse Acquisition, Maybe, Ever

Mr Moynihan did not rule out the idea of putting Countrywide, the mortgage unit acquired during the crisis, into bankruptcy to bury its bad loans. “Obviously, there aren’t many days when I get up and think positively about the Countrywide transaction of 2008,” he said.

Well let’s see, BofA makes an acquisition that ultimately will cost the Bank an amount north of $30 billion, yep, hard to think positively on that one.

Here a positive thought for Mr. Moynihan.  If the Board of Directors decides they can no longer afford your “strong” managerial performance you have a future in comedy.  Most of what you said in this article made a lot of people laugh out loud.

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