Jan 18 Bank of America Corp's Brian
Moynihan is known as a problem-fixer and cost-cutter and in his
three years as the bank's CEO, he has had that reputation tested
like never before.
Now, proof of his abilities is beginning to show. On
Thursday, the bank said its mortgage lending volume was growing
and expenses were falling in the unit that handles problem home
loans. Both are early signs that the second-largest U.S. bank is
finally moving past its disastrous 2008 purchase of subprime
lender Countrywide Financial.
But the bank's fourth-quarter results also underscored the
enormity of the obstacles that Moynihan still faces. Total
revenue dropped 25 percent on a further decline in consumer
banking and the impact of various charges. Even if the bank is
moving past its worst home loan troubles, it still needs to
figure out how to grow.
Boosting profit now is tricky for any bank CEO, because
lending margins are thin and regulations and capital rules are
squeezing income from many banking businesses.
Analysts, investors and some in the industry are beginning
to wonder if Moynihan is up to the task. Two banking executives
who have worked with Moynihan said he has little experience
growing revenues in the units he has fixed over the years.
"Is he the long-term, strategic guy? Probably not," said
Edward Jones analyst Shannon Stemm. "Relative to other banks, it
comes back to, 'What is the earnings potential of Bank of
America and where will that growth come from?'"
Moynihan is trying. On a conference call with analysts,
Moynihan and Chief Financial Officer Bruce Thompson laid out
some of their efforts to gain new business, including hiring
mortgage loan officers, small-business bankers and investment
advisers in branches. Total loans were up 2 percent from the
third quarter at $907.8 billion but down 2 percent from the 2011
Although revenue in the fourth quarter fell in consumer
banking from the same quarter a year earlier, it increased in
the global banking, markets and wealth management businesses. In
2011, Bank of America also launched a broad cost-cutting program
to eliminate $8 billion in annual expenses by mid-2015, and
expenses fell further in the latest quarter.
"We are going to continue to drive this strategy and drive
the earnings power of our company," Moynihan said in the
Moynihan still has time to prove he can boost revenue as
well fix problems. He is hardly experiencing a shareholder
revolt, and many investors support him. The bank's shares surged
109 percent in 2012, but are down 2.8 percent this year after a
more than 4 percent drop on Thursday.
One of the bank's largest individual shareholders, Charlotte
businessman C.D. Spangler Junior, said he has complete
confidence in Moynihan.
"He has challenging conditions in the economy, as well as
he's trying to correct some of these things he inherited,"
Spangler said. "So I think he's done a good job. I can't think
of anyone who could have done better."
A Bank of America executive who works with Moynihan said the
CEO has laid out a clear plan to reposition the company by
cleaning up the past, managing risk, cutting expenses and
"We've done all that, so there is every reason to believe we
will grow by being the best provider to our customers and
clients," the executive said.
While the bank made progress cleaning up its mortgage mess,
it still needs to finalize an $8.5 billion settlement with
private mortgage investors. It also faces litigation with
mortgage insurers and has been sued by the U.S. Justice
Department over loans it sold to Fannie Mae and Freddie Mac
. It has spent over $40 billion so far on legal
settlements and investor requests to buy back soured home loans.
In 2011, Bank of America set aside reserves for the
settlement with private investors, but analyst Mike Mayo of CLSA
pressed the bank Thursday during the analyst call on whether a
ruling in a separate mortgage case could upset the deal.
Moynihan said the bank was comfortable with its legal decisions,
and Thompson said the settlement could be wrapped up in the
second quarter or early in the third quarter.
The bank has also been speeding up the downsizing of its
mortgage servicing unit by selling the rights to handle loans to
other mortgage companies, including a recent deal to offload
servicing rights to Nationstar Mortgage Holdings and
Walter Investment Management Corp. The sales allow Bank
of America to lower expenses in the unit by more than $1 billion
by year-end, Thompson said.
The mortgage servicing unit's work force fell by 3,000, or 7
percent, from the third quarter, and the bank also shed 6,000,
or 35 percent, of its contractors.
Still, Bank of America also made more home loans in the
quarter, with mortgage volume rising 42 percent from a year
earlier as borrowers refinanced at low rates, seeking to
recapture some of the market share it lost when it stopped
buying loans from other banks in 2011.