Ken Lewis was ousted as chairman of Bank of America Wednesday after shareholders angry about the company’s acquisition of Merrill Lynch voted to separate the job from that of chief executive.
Lewis will remain the CEO of the bank, but board member Walter E. Massey, president emeritus of Morehouse College in Atlanta, will become Bank of America Corp.’s chairman. The rebuke from the company’s shareholders was a stunning turn of events for Lewis, who a year ago was at the top of the banking industry — and whose job as CEO is still marked by uncertainty.
Shareholders narrowly voted at the bank’s annual meeting Wednesday to split the jobs following months of rancor over the Merrill Lynch & Co. acquisition. After the deal was sealed Jan. 1, Merrill Lynch reported $15 billion in fourth-quarter losses and it was learned that Bank of America had approved the early payout of billions of dollars in bonuses to Merrill Lynch employees.
Lewis, 62, who was chairman and CEO since 2001, has spent much of this year defending his actions — and did so again during the angry four-hour meeting.
Results of the voting were delayed for several hours, and Bank of America Wednesday evening issued a statement that the board of directors had met, elected Massey as chairman and unanimously voted to keep Lewis as CEO.
The bank said the shareholder proposal to separate the chairman and CEO jobs had passed 50.34 percent to 49.66 percent; it was the only shareholder proposal to be approved. Shareholders re-elected all 18 of Bank of America’s directors, including Lewis.
Big investors including California’s employee pension fund had called for shareholders to oust Lewis and his fellow directors at the meeting, which was attended by more than 2,000 people.
One of those investors, Michael Garland, director of Value Strategies for CtW Investment Group, praised the ouster of Lewis. His group handles 33 million BofA shares and works with union-affiliated pension funds.
“It’s huge,” he said. “It’s an enormous victory for shareholders.”
“We’ll have an independent board chairman, and now the CEO will be accountable to a board chaired by an independent director. It’s a critical critical first step,” Garland said.
At the meeting, Garland openly criticized Lewis, saying bad managment decisions led to a dramatic drop in Bank of America stock.
Jason O’Donnell, a bank analyst with Boenning & Scattergood Inc., said the vote outcome was not entirely surprising.
“It’s been building up for a while,” he said. “There’s been a lot of investor discontent regarding his decision, particularly, to buy Merrill Lynch.”
Shareholders lined up early in the gathering to speak, with many hurling criticism at Lewis and the Bank of America board for the government-brokered purchase of Merrill Lynch.
“I find it incredible you didn’t have the guts to stand up to the U.S. government,” said Judith Koenick of Chevy Chase, Md., who said she lost thousands of dollars when BofA shares plunged after the Merrill Lynch purchase.
The government pressured Bank of America into buying Merrill Lynch during the same weekend in September that another investment bank, Lehman Brothers Holdings Inc., collapsed, setting off one of the most intense periods of the financial crisis.
Shareholder Gerald Abrams, of Boca Raton, Fla., also had an exchange with Lewis about the deal, asking, “what happened to due diligence” in Bank of America’s investigation of Merrill Lynch’s finances.
Lewis responded that Bank of America didn’t anticipate the worsening credit conditions in the country, which elicited from Abrams, “why do the deal?” Lewis replied that it wasn’t in the best interest of shareholders for Bank of America to pull out of the agreement.
Later, Abrams told a reporter, “I listened to Lewis and he came off like a good guy and a knowledgable guy, but I just can’t see him staying.”
In his remarks, Lewis defended the bank’s acquisition of Merrill Lynch and another troubled company, mortgage lender Countrywide Financial Corp.
Lewis said the companies are providing “the positive counterbalance to our traditional banking businesses, which at this point of the business cycle are under much more stress from rising credit losses.”
“Countrywide and Merrill Lynch are two of the most important reasons Bank of America is the most profitable financial services company in the United States so far this year,” Lewis said. “Today, I can state without reservation that these acquisitions are not mistakes to be regretted. Both are looking more and more like successes to be celebrated.”
The Charlotte-based bank and Lewis have been under intense scrutiny because Bank of America is one of the biggest recipients of government bailout money and because the losses at Merrill Lynch turned out to be much higher than anyone expected.
Shareholders who have been calling for Lewis to resign or be dismissed as chairman and CEO are also irate over the precipitous drop in the company’s stock price. Bank of America has fallen 42 percent since the beginning of the year, closing at $8.68, up 53 cents, before the shareholder vote was announced. Shares fell as low as $2.53 in late February.
Lewis said, “I know the Merrill deal has played a role in the decline of our stock price. But I do not believe it is solely responsible for its decline.” He said every major commercial bank in the country is under pressure.
Some analysts believe that if Lewis might eventually be forced out altogether.
Gary Townsend, chief executive officer of Hill-Townsend Capital LLC, noted that Wachovia’s chairman and CEO roles were split last year after shareholders were upset about the performance of that Charlotte-based bank, which has since been sold to Wells Fargo & Co.
Just weeks after former Wachovia CEO Ken Thompson was stripped of his title as chairman, he was forced out as chief executive as well. Stripping Lewis of his role as chairman “can result in significant, rapid changes, depending on what happens the rest of the year,” Townsend added.
O’Donnell, noting that Wachovia had an ill-fated purchase, mortgage lender Golden West Financial Corp., also likened Thompson’s situation to Lewis’.
“I think the Golden West debacle is one that’s a pretty good analogy for this scenario,” O’Donnell said. “Clearly, Thompson was put under a lot of pressure to step down as a result of that acquisition and pretty much that is what we are seeing here with Lewis and his Merrill Lynch deal.”
On Tuesday, the California Public Employees’ Retirement System said it would vote against re-electing all 18 Bank of America board members, including Lewis. CalPERS, the largest U.S. public pension fund, holds about one-third of 1 percent the bank’s outstanding shares.
Massey has been on the Bank of America board since 1998. He served as president of Morehouse from 1995 to 2007 and has also served on boards of big corporations including McDonald’s Corp. and Delta Air Lines Inc.
Lewis’s total compensation, according to Associated Press calculations, fell 56 percent to $9 million in 2008 versus $20.4 million in 2007. Bank of America didn’t pay Lewis or any of its other top executives a bonus last year, like most major U.S. banks, saying its 2008 financial results didn’t meet its expectations.
The bank posted a $2.39 billion loss for the three months ended in December, but earned $2.56 billion after preferred dividends for all of 2008, down from $14.80 billion in fiscal 2007.
Bank of America has received $45 billion in government aid as part of the Troubled Asset Relief Program, and additional guarantees backing hundreds of billions more in risky investments after it took over Merrill Lynch in January.