The Best Job No One Wants
The board of directors of Bank of America is trying to pick a successor to Ken Lewis, and it really, really wants to finish the job on Sunday night, a senior BofA official tells me. The board is trying to get the job done, this official also tells me, because it’s sick of all the controversy surrounding the selection. Members have been divided over the internal candidates. Others are angered that no one on the outside wants the job of running a bank that is being investigated by the New York attorney general, among others, partially owned by the federal government and thus open to harassment by Rep. Ed Towns, Rep. Barney Frank, various bureaucrats at the Fed, and the giant SEIU, which wants to organize tellers and has a direct line into the Obama White House. They’re also kind of annoyed at the press, me in particular, for calling the selection process—one that has lasted weeks longer than it should have and featured a prominent board member going on vacation—dysfunctional.
Even so, the board is still divided over internal candidates and hasn’t settled on someone from the outside to take the job.
• Charlie Gasparino: Wall Street’s Grinch Speaks So they want to move and move fast, at least as fast is defined down there in Charlotte, the headquarters city where these decisions get made. Even so, this executive reminds me that the board is still divided over internal candidates and hasn’t settled on someone from the outside to take the job. He also reminds me that the selection process is still beset by rivalries among various board members and pressure from the feds to find someone with better qualifications than senior executives already at the firm. In other words, he concedes, the process is pretty dysfunctional, so it might take a week or, as far he knows, longer than that to announce the new CEO.
Now you know why no one wants this job.
And it’s a shame, because Bank of America is more important than the joke it has become after Lewis purchased Merrill Lynch at the height of the financial crisis for $50 billion, only to later find $15 billion in losses on Merrill’s balance sheet, forcing him to seek a federal bailout to keep the big bank afloat. It’s one of those “systemically important” places that regulators like to say are way too big to just implode and go away, because if it does, billions of customers’ deposits must be covered by FDIC insurance, not to mention all the trading and brokerage accounts at Merrill Lynch that must be unwound, patched up, and placed in safer hands, if there are any left.
Back in the 1950s, there was a saying, “as GM goes, so goes the nation.” General Motors, thankfully, doesn’t carry as much economic weight these days—it was bailed out by the government along with the banks, and look at the trouble we’re in—but Bank of America does, which is why finding someone to run the place is so important.
And that person will have not just to integrate the troubled Merrill Lynch acquisition, he also might have to guide the bank through another banking crisis. Analysts I speak to aren’t all that placated that the banks are healing even as the economy starts to produce growth. The economic growth we have is still being accompanied by rising unemployment, now at 10.2 percent but edging close to 10.5 percent.
What does that mean for Bank of America? Consider the following: The financial firms may have written down much of the residential mortgage debt—the collateralized bond obligations and mortgage-backed securities—that were at the heart of the financial crisis last year.
But consumer-related loans—credit-card receivables, car loans, etc.—are just starting to default, and commercial real estate isn’t doing so hot, either.
So far those defaults haven’t overwhelmed the money BofA has made by borrowing at low rates (the Fed has taken its base rate down close to zero), buying bonds, and carrying those bonds on its books at a higher interest rate. That might change, analysts tell me, if unemployment rises to around 11 percent. That’s when the profitable bond trades are overwhelmed by the consumer debt losses. BofA’s modest profits could well disappear, forcing the bank to raise more capital and who knows what else.
So here’s to hoping this weekend or next weekend or whenever it sees fit, the BofA board finds the right person for the job. Some analysts I know aren’t so optimistic. When banking analyst Mike Mayo heard that the board might be forced to turn to an inexperienced internal candidate because smart people like Larry Fink of BlackRock and Bob Diamond of Barclays Capital didn’t want the job, Mayo had a solution:
Chuck Prince, the former CEO of Citigroup, the other big bank in worse shape than BofA.
The reason: At least he has experience running a failing bank.
Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His book about the financial crisis, The Sellout, was recently published by HarperBusiness.