Can Bank of America’s CEO salvage the company?

Marketplace Staff Sep 13, 2011

Can Bank of America’s CEO salvage the company?

Marketplace Staff Sep 13, 2011

Jeremy Hobson: The big European banks are losing stock value again this morning as the sovereign debt crisis continues to take a toll. And in response to this drop in confidence, the banks there will be cutting costs and laying off workers. If that sounds familiar, it’s because it’s happening right here in the U.S. as well. Yesterday, Bank of America confirmed that it will cut 30,000 jobs in an effort to shore up its finances.

For more on BofA’s troubles, let’s bring in Paul Barrett who interviewed the company’s CEO for this week’s cover story in Bloomberg Businessweek magazine. Paul Barrett, good morning.

Paul Barrett: Good morning.

Hobson: Are these problems that we’re seeing at Bank of America right now similar to the kinds of problems that led to the big banking crisis a few years ago?

Barrett: Well, they’re related to it in that Bank of America became a behemoth that was just too big to manage efficiently. It is not similar to the institutions like Lehman or Bear in that it is not on the verge of failing. It has plenty of capital, it has liquidity.

Hobson: Why is it so much worse, though, right now at Bank of America than at the other big banks in the country — like JP Morgan Chase or Morgan Stanley?

Barrett: Bank of America has two distinctive problems. One is Countrywide Financial, the sub-prime mortgage factory that it bought in 2008. There’s tremendous legal uncertainty surrounding the many, many lawsuits that have been filed against Countrywide and against Bank of America, and the market simply doesn’t understand what the potential liability is. Uncertainty is something the market hates. The second thing is, Bank of America is bigger and more intertwined with the American economy than any of its rivals. So it is basically a mirror of the American economy, and as long as unemployment is stuck above 9 percent and the housing market is depressed, Bank of America will struggle.

Hobson: Well you spoke with the CEO, Brian Moynihan. What is he feeling about all of this?

Barrett: Well, Moynihan believes he came in with a clear plan to take the bank that he inherited and shrink it down — make it much more focused on its consumers, on companies, and on institutional investors, so he expresses a lot of confidence. The problem is that he’s untested as a CEO, he was kind of a battlefield promotion in crisis in late 2009. And Wall Street has expressed, in the way that it does, uncertainty about whether he has the talent to lead the bank out of trouble.

Hobson: Well do you think, after having met with him, that he’s got what it takes to get this bank back on its footing?

Barrett: Moynihan is probably underestimated in terms of his skill and understanding. I think he’s a very solid operations person. The reason he may be underestimated is, he’s simply not that good at communicating. He has a distinct lack of public charisma. And while people tend to discount that kind of thing, in his case it actually has been very important. He has been unable to persuade Wall Street that the bank is on the right track. So it’s a situation where leadership and style actually are playing an important role.

Hobson: That’s Paul Barrett, who interviewed Brian Moynihan, and he’s got the cover story in this week’s Bloomberg Businessweek. Thanks so much for joining us.

Barrett: You bet — thanks for having me.

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