Bank of America
CEO Hugh McColl would step down a year ahead of schedule didn't faze Wall Street on Monday, perhaps because some analysts are saying his successor is ready to push the bank forward.
Bank of America, the second-largest bank in the country, wouldn't comment on published reports that its strong-willed chairman and CEO is expected to say as soon as Wednesday that he'll step down in April, a year earlier than expected. McColl is expected to turn his responsibilities over to COO Ken Lewis, who, according to a number of analysts, has essentially been running the bank for a year anyway.
"Having watched the way Ken Lewis has performed, he's ready to go forward," says Larry Cohn, banks analyst at
. "He's just running the company." (He rates the bank a hold and his firm has no underwriting relationship.)
Other bank experts are hoping Lewis will get a better handle on the mammoth bank's consumer and commercial franchise, as well as its investment banking platform. "The whole franchise was basically built on acquisitions, sometimes at a very frenetic pace," says James Schutz, senior bank analyst at
in Chicago. Now, they've got to make it work, he says.
McColl was noted for the seemingly endless stream of acquisitions and mergers he engineered, starting in 1983 at NationsBank predecessor NCNB and ending in 1998, with NationsBank's merger with BankAmerica. (Schutz rates the stock an outperform. His firm has no underwriting relationship with the bank, though it acted as an adviser on a previous NationsBank merger.)
Others take a more critical view of McColl's management style and welcome a change. "This is a CEO who acquired anything he could. He lost sight of what he was doing," says Tom Brown, manager at New York-based
Second Curve Capital
, which invests in stocks of financial services company. "They have a franchise that is firing on three cylinders as opposed to eight," he says. (Currently, his fund has no position in Bank of America.)
Though Brown is not particularly happy about the fact that one of McColl's handpicked successors will be running the bank, "there has got to be some improvement," he says. "I can't believe Lewis would be worse than McColl." Brown says he has seen improvement at bank branches and at customer call centers but still thinks Bank of America needs to decentralize and "push decision-making back down to the field," particularly in the retail business.
The Charlotte, N.C.-based bank has seen its fair share of earnings pressure this year, as increasing levels of troubled loans ate into profits. In the fourth quarter, the bank saw net charge-offs for bad loans more than double, to $1.1 billion from $501 million in 1999. And nonperforming assets (those past due that have not been charged off yet) jumped to $5.5 billion from $3.2 billion in the prior year. Some analysts also have expressed concern with the lack of earnings growth at the company's consumer and commercial banking franchise, particularly amid the backdrop of slower economic growth.
The stock rose $1.19, or 2.4%, to $50.38 Monday, while the
Philadelphia Stock Exchange/KBW Banks Index
, which tracks the nation's 24 largest banks, rose 1.3%. Trading at 10.2 times estimated 2001 earnings, Bank of America lags behind the 13.1 times earnings that the banks index currently fetches.
Some analysts are puzzled by the timing of the move. "I'm not sure what's driving it," says James Mitchell, banks analyst at
. McColl "has been taking a back seat for the past year or so." (He rates the stock a hold and his firm has no underwriting relationship with the bank.)
Mitchell says he doesn't believe the move will really change much but says he expects to see continued "fine tuning" in a number of areas, including the recently unprofitable auto-leasing business, which he thinks could be "jettisoned at some point."
Though Brown says he has expected the news for a while, he is enthusiastic nonetheless. "It's good news. The reign of terror is finally expected to end." Asked what changes he would like to see next, Brown replies, "the people right below him."