After the fall

Some might consider that an odd choice: a Bostonian who doesn’t live in North Carolina or take an active role in state or local affairs. Moynihan typically works four to seven days a month in Charlotte, according to sources inside and outside the bank. “His real office is in a Gulfstream [jet],” a former executive says. But as chairman and CEO, he holds singular power to reshape the international image of the Queen City should he decide to designate New York as the new headquarters, a move one analyst says “is inevitable” within five years. Fifteen thousand employees work in Charlotte, but few top executives spend much time on Tryon Street. Despite its name, Bank of America’s focus is on the world. That’s where the most potential growth is — in international capital markets rather than domestic banking, according to Dick Bove of Garden City, N.Y.-based Rafferty Capital Markets LLC, the analyst who predicts the impending departure. Some might argue that calling Charlotte the bank’s headquarters is, even now, a stretch, especially after David Darnell, a native and bank lifer who was its co-chief operating officer, moved to Florida in a lesser role. Only one BofA director lives in North Carolina. In 2009, while courting then-Bank of New York Mellon Corp. CEO Robert Kelly, the board offered to move to Gotham. Disputes over pay scuttled negotiations, and Moynihan got the job.

“I’ve known Brian for more than 20 years, and I always thought of him as a consigliere, a strategic, backroom guy.”

Though he did not deign to move his family to Charlotte, Moynihan has never so much as hinted publicly that he wants to move the bank’s headquarters. He wasn’t available to talk for this story, but from interviews and speeches I covered as a banking reporter for Bloomberg News from 2008 to 2011, it’s obvious he’s different from the men who turned the “crossroads of the Carolinas” into the nation’s No. 2 financial center. BofA’s Hugh McColl Jr. and Lewis exuded brash, unbridled ambition, as did Cliff Cameron, Ed Crutchfield and Ken Thompson at First Union Corp. and, later, Wachovia Corp. Moynihan’s demeanor is more akin to that of a cerebral, McKinsey-type consultant. A Financial Times story in 2013 described him as “famously hangdog,” and his speeches and responses to analysts’ questions earned him the nickname “The Mumbler.” Recent photos and TV interviews reveal more smiles, a credit to the bank’s improved fortunes and advice from colleagues, including Anne Finucane, chief of global stra-tegy and marketing, or, as The New York Times noted in 2012, “chief image officer.” Of course, bravura didn’t turn out so well for Thompson, whose purchase of Oakland, Calif.-based Golden West Financial Corp. wrecked Wachovia, or Lewis, whose $130 billion spent on six acquisitions between 2004 and 2009 decimated BofA’s capital. With federal regulators watching their every move, BofA’s directors have opted for a data-driven, risk-averse manager willing to work around the clock. Having a legal background didn’t hurt, either.

Moynihan arrived at BofA through the $47 billion purchase of FleetBoston Financial Corp. in 2004. As part of the deal, Lewis agreed to let its CEO, Chad Gifford, chair the combined banks’ board. (Less than a year later, he would take back the title; Gifford remains a director.) Moynihan, a key Gifford lieutenant, was named head of wealth management. The two former Fleet execs played key roles as BofA grew like crazy, but Lewis and his Charlotte-centric management team got the blame for buying Calabasas, Calif.-based Countrywide Financial Corp., one of the worst acquisitions in U.S. corporate history, and New York-based Merrill Lynch & Co., which may turn out to be one of the best. Lewis announced plans to resign in September  2009 amid the most devastating downturn in U.S. banking since the Great Depression. The board settled on Moynihan in December, with a push from Gifford. The announcement came a week after BofA repaid its $45 billion bailout from the federal government‘s Troubled Asset Relief Program. The choice surprised experts. “I’ve known Brian for more than 20 years, and I always thought of him as a consigliere, a strategic, backroom guy,” says Nancy Bush, a Georgia-based analyst. “I look at him as an accidental CEO who has grown in the job.” Repeating a phrase often used to describe him, she calls him “a nose-to-the-grindstone kind of guy who stays there till his nose is ground down.”

It has been a grinding five years marked by troubles in 2011, when regulators nixed his pledge to raise the bank’s dividend, and triumph in 2012, when the stock price doubled as investors concluded BofA would survive the housing crisis. Moynihan raised more than $60 billion by selling off stakes in Chinese, Mexican and Brazilian banks and other businesses, and he showed dexterity in handling lawsuits. Early in his tenure, he promised to fight to protect shareholders from exaggerated damage claims of investors who bought bonds from BofA that were backed by souring home loans. “If you think about people who come back and say, ‘I bought a Chevy Vega, but I want it to be a Mercedes with a 12-cylinder’ — we’re not putting up with that,” he told analysts in October 2010. Settling rather than battling wasn’t easy for someone as competitive as Moynihan, co-captain of his Brown University rugby team. (He later earned a law degree at Notre Dame and spent nine years with a Providence, R.I., law firm).

His tune changed as criticism of the bank’s practices, including actions taken by Country-wide and Merrill Lynch before they were bought by BofA, proved relentless. The bank has spent more than $60 billion on settlements with investors and federal agencies over actions by Countrywide, Merrill Lynch and its own units, as Moynihan avoided high-profile courtroom battles. “They had to get out of the bull’s-eye,” Bush says. The largest recent settlement, announced with the U.S. Justice Department in August, involved $16.7 billion and largely exonerated the bank from future federal scrutiny over its mortgage bond sales. Whether the deal made financial sense is unknown because no one disclosed how much the bank had to lose. When the settlement was announced, BofA shares climbed 4%, suggesting investors liked it.

Moynihan has shown savvy in working with Washington politicians and regulators, whose power over banks grew after the government bailout of 2008-09. A resident of the district served by former U.S. Rep. Barney Frank and the state that is home to U.S. Sen. Elizabeth Warren — liberal Democrats vilified by many bankers because of their push for sweeping financial-industry reform — Moynihan has cultivated ties with leaders in both parties. “He has been willing to come to Washington and roll up his sleeves and work,” Valerie Jarrett, an adviser to President Barack Obama, said in a 2010 interview. BofA expressed the least resistance of the big banks to the Consumer Financial Protection Bureau, created through the Wall Street reform enacted in 2010, though it remains a member of industry groups trying to gut the agency, says Ed Mierzwinski, consumer program director of the Washington-based U.S. Public Interest Research Group. BofA remained a punching bag, drawing criticism from Obama in 2011 after instituting a $5 monthly debit-card fee. Sen. Dick Durbin, an Illinois Democrat, urged customers to “get the heck out of that bank.” After five weeks of protests, Moynihan withdrew the fee. He stays engaged: A talk with Attorney General Eric Holder is credited with helping settle the latest mortgage-backed securities case.

Warren Buffett praised Moynihan for his “great progress in cleaning up” some huge mistakes by prior management.

The McColl-Lewis-era BofA was all about expansion, often with high leverage. Moynihan has focused more on cutting costs, limiting risk, persuading customers to do more business with the bank and expanding Merrill Lynch’s global reach in corporate finance and wealth management. “The core of the bank for the last five years has been Merrill Lynch,” says Tony Plath, a finance professor at UNC Charlotte. “The question for Brian is, is the company really Merrill with a big retail bank or is it Bank of America with a Merrill attached.” The largest home lender after buying Countrywide, BofA now ranks fourth and has shown no desire to regain its pre-eminence. Profit margins in Merrill Lynch’s brokerage system lead the industry, at more than 25%, while its capitalmarkets group can make a profit with a third less revenue than several years ago because of efficiency moves. Before buying FleetBoston, BofA employed about 132,500 people. Six companies acquired through 2009 had combined employment of almost 201,400, massive real-estate holdings and a mishmash of computer systems. Now BofA employs 230,000, reflecting sharp reductions in home loans and credit cards, and its efficiency ratio — noninterest expenses divided by total revenue — has improved significantly over the last two years. Assets are $2.1 trillion, down from $2.4 trillion, and the bank holds twice as much tangible common equity and has quadruple the amount of liquidity as in 2008. BofA was the first big U.S. bank to exceed stiffer capital requirements set by international bank regulators.

Among Moynihan’s biggest coups — never achieved by the famed Charlotte bankers — was gaining the confidence of Warren Buffett, who has called BofA a fundamentally powerful company capable of a big rebound. Buffett’s Omaha, Neb.-based Berkshire Hathaway Inc. put up $5 billion in August 2011 for convertible warrants that equal 6.6% of the bank’s stock. It’s paying off. After trading as low as $5 in November 2011, shares more than tripled through mid-December to about $17. About 60% of the 29 analysts who track the company have buy recommendations, compared with 50% three months earlier. That’s a contrast with the public’s depressed view of Bank of America — it ranked 94th in a 2014 survey of leading international brands by Lisle, Ill.-based consultancy Millward Brown, down from 14th in 2008, before the Countrywide fiasco, and its customer satisfaction was rated worst among the big U.S. banks last year in a study by ACSI LLC, an Ann Arbor, Mich.-based research company. The board rewarded Moynihan with total compensation of $13.1 million in 2013, about 60% more than each of the previous two years. It’s a long way from the $27.9 million Lewis received in 2006, when the bank reported a record profit of $21 billion. But BofA also is making a lot less money: Profit during Moynihan’s first five years as CEO totaled about $20 billion.

The bank’s fortunes, of course, hinge as much on the Federal Reserve’s moves on interest rates as on its CEO’s actions. “We’re always going to reflect the economy,” Moynihan said in October. BofA and other banks should benefit if the Fed hikes rates this year, as expected. That will improve the spread between its cost of deposits — almost zero, as BofA paid its depositors the lowest yields of 38 banks surveyed by Morgan Stanley in October — and interest received from loans. “That’s where he will make his money,” Bush says. “Once you get more normal spreads, their retail-banking system will become incredibly profitable.” Or, if the Fed winds up keeping rates low, the bank’s markets and brokerage businesses retain lots of growth potential. It hasn’t been easy. But a bank with roots in Charlotte and Greensboro that exploded nationally, then was assumed to be busted, now gazes again at a big future. Just ask Warren Buffett. Brian Moynihan was in the right place at the right time, after all.