Brian Moynihan is known inside Bank of America Corp (BAC.N) as a problem-fixer and a cost-cutter, and in his three years as the bank's chief executive, 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 executives who have worked with Moynihan said he has little experience growing revenues in the units he has fixed over the years. They did not want to be named because they were not authorized to speak on the record.
"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 fourth quarter.
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 conference call.
Moynihan still has time to prove he can boost revenue as well as 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 more than 4 percent this year after initial gains were more than reversed by a 4.2 percent drop on Thursday and another 1.7 percent decline in Friday trading.
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 rebuilding capital.
"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. He did not want to be named because he was not authorized to speak publicly.
Moynihan's challenges come as some other banks are beating earnings expectations by wide margins and forecasting future growth. "After a year of significant challenges, Morgan Stanley has reached a pivot point," Morgan Stanley (MS.N) CEO James Gorman said in a statement Friday after his firm reported a big jump in trading revenue.
While Bank of America 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 FNMA.OB and Freddie Mac FMCC.OB. 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 (NSM.N) and Walter Investment Management Corp (WAC.A). 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 workforce 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.
(Reporting by Rick Rothacker in Charlotte, North Carolina and Dan Wilchins in New York; Editing by Paritosh Bansal, Edwina Gibbs and Phil Berlowitz)