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BofA's TARP plan makes CEO search easier

NEW YORK (Reuters) - Bank of America Corp's BAC.N planned repayment of $45 billion in U.S. bailout funds opens a cornucopia of potential CEO candidates, as the company looks to emerge from nearly a year of intensive government oversight.

A Bank of America branch is pictured in New York May 7, 2009. REUTERS/Shannon Stapleton

The repayment plan, which the largest U.S. retail bank announced on Wednesday, follows a period in which the bank’s outgoing CEO Ken Lewis has been the subject of an on-going investigation by the New York State attorney general and a Securities and Exchange Commission probe.

The specter of government oversight has played a large role in the ongoing CEO search, with possible candidates wary of the role the government would play in everything from operations to executive pay.

Federal regulators in a memorandum of understanding told the bank its management had to change and 10 of the bank’s board members resigned in the last year. Shareholders stripped Lewis of his chairmanship at the annual meeting in April.

Lewis announced his resignation in September effective at the end of this month without a clear successor in place.

The repayment is seen as a break for the CEO search known so far for those that have turned the job down or squashed rumors they may be interested, like Bank of New York Mellon Corp's BK.N CEO Bob Kelly, and BlackRock Corp BLK.N CEO Laurence Fink.

“This opens up all kinds of options for the external candidates they can find and recruit,” said Joel Koblentz, senior partner at The Koblentz Group, an Atlanta-based executive search firm. “It puts them in a position to attract talent now with compensation.”

The repayment of TARP funds “is a boost,” said Nancy Bush, a banking analyst with NAB Research LLC. “It does give them additional flexibility on the compensation side ... but my understanding is that the battle still rages on about internal versus external and this doesn’t resolve that.”

INTERNAL CANDIDATES

Those inside candidates tipped to be in the lead for the job include Bank of America’s Chief Risk Officer Greg Curl, who brokered the repayment plan and One early winner in the search process appeared to be Chief Risk Officer Greg Curl, who brokered the repayment plan with the U.S. government and Brian Moynihan, head of the bank’s retail unit.

Bank of America refused to make either man available for this article.

The bank will raise $18.8 billion in capital through a securities offering as early as Thursday night, then pay the remainder of the $45 billion in U.S. aid with a $26.2 billion cash payment.

Curl’s negotiation to repay the money also removed a key roadblock to recruiting outsiders, potentially ratcheting up competition for the job.

“I wouldn’t be shocked if we see a decision in the next couple of weeks,” said Paul Miller, a banking analyst with FBR Capital Markets, who said he believes the board will ultimately select an internal candidate. Miller upgraded the bank to a “buy’ rating after the TARP repayment announcement.

“Now you can sit there as the board and not be pressured one way or the other,” Miller said.

GOING EXTERNAL

Bank observers said that while outside candidates for Lewis’ job now may find the position more attractive, the looming TARP repayment also gives the board additional flexibility.

The company, they said, is no longer constrained with finding a candidate skilled in navigating the halls of power in Washington.

“When they had the TARP funds they really had to get someone who was very politically savvy, who knew how to deal with the government and would help try to negotiate what was a very sensitive topic: Repaying TARP funds,” said Morningstar analyst Jaime Peters. “That’s going to ease off.”

Reporting by Joe Rauch and Elinor Comlay, editing by Leslie Gevirtz

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