The battle for Ken Lewis's job begins
Ken Lewis, who will retire as CEO of Bank of America (BAC) at the end of the year, oversaw the creation of one of the country's biggest banks over the last eight years. In hindsight, it looks like Bank of America's corporate strategy is deeply flawed, and in order to make the bank viable again, a CEO will need to come in who can make big changes.
During his tenure, Lewis, whose legal problems are likely to continue, oversaw the continued construction of a bad idea, the financial services one-stop shop. This is a bad idea because people do not want to do all their financial services business with a single supplier. If consumers get into trouble, they don't want to give the bank so much control over their financial lives. And if the bank gets into trouble, consumers don't want to go down with the bank.
Lewis ran into another problem with the one-stop shop: he could not get the different parts of the bank to cooperate with each other to sell different products like loans, credit cards, and mortgages to individual customers.
With the failure of this so-called cross-selling strategy, Lewis resorted to growth by acquisition. In 2004, he overpaid for FleetBoston Financial, then in 2005 he acquired the country's largest credit card lender, MBNA Corp., and in 2008 he bought mortgage lender Countrywide Financial. Lewis also acquired U.S. Trust Co., an upscale bank, and LaSalle Bank in Chicago in 2007.
But his January 2009 deal to acquire Merrill Lynch for $29 a share proved to be too much -- particularly considering all the trouble it got Lewis from shareholders, Congress, the SEC, and a few state attorneys general. The biggest issue is that Lewis paid way too much for the deeply loss-ridden pile of mortgage-backed securities that was Merrill Lynch thanks to the work of its former CEO, Stan O'Neal.
So who should succeed Lewis? Internal candidates include the head of its retail bank, Brian Moynihan; Thomas Montag, a Merrill Lynch executive appointed to lead the combined investment bank; and Sallie L. Krawcheck, a former Citigroup (C) executive hired to lead the wealth management division.
Two external candidates come to mind. One possibility is Al de Molina, a former Bank of America CFO who now runs Ally Bank -- formerly GMAC Financial Services. Wall Street like him because he had financial skill and was open about Bank of America's financial prospects. While Molina has strong financial skills, I would like to see an executive with broader experience in strategy and organization.
My choice would be Larry Fish -- a less well-known executive who has a reputation as an independent thinker with broad bank management experience. Fish started off at Bank of Boston where he ran operations in Brazil and Japan, headed the Asia Pacific Region, ran Trust chairman of Rhode Island's Citizens Financial Group, a Royal Bank of Scotland (RBS) subsidiary.
I think Fish has the independence to rethink Bank of America's corporate strategy and cut it back to a profitable core. And I question whether any of the internal candidates can do what is needed.
Meanwhile, Lewis can enjoy his $50 million pension while he's hounded by Andrew Cuomo.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He owns Citi shares has no financial interest in the other securities mentioned.