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Bank of America's Lewis Stays Positive

Bank of America's outgoing CEO Ken Lewis extolled the merits of his company at a recent presentation in New York, leaving the issues confronting BofA for another day.



) -- Anyone listening to Ken Lewis' keynote speech at the Bank of America-Merrill Lynch financial services conference on Tuesday morning couldn't be faulted for believing that

his replacement

will have a hard time mucking things up.

Bank of America

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is the country's biggest bank with the broadest reach, offering a cornucopia of financial services just a stone's throw away from 80% of U.S. households. According to Lewis, it's also the best bank, with leading positions in "all the most important sectors" from home lending to deposits to credit cards and brokerage services.

"The advantage of scale, diversity of income and national reach are key to our success," the departing CEO said at the Grand Hyatt hotel in Midtown Manhattan. "These advantages allow us to create efficiencies smaller competitors cannot duplicate. We have a national brand; we have lower unit costs; and as one thinks about what happened in the most recent crisis, it was the universal banks that not only survived but help

ed absorb those that could not."

The CEO predicts the biggest near-term challenge will be keeping

credit costs

in check, but he also believes that those costs have

started to peak

. He also said that consumer-protection laws to limit bank fees and sudden interest rate hikes pose a serious threat to fee income. But Lewis sees silver linings in all the clouds of economic data -- from stabilizing home prices to higher production levels to slowing job losses -- and chose to focus on those instead.

Even reports that the banking industry's bread-and-butter business of lending has been curtailed is a positive sign in Lewis' view, because overleveraged households were what caused credit costs in the first place.

"I know that sounds strange to hear coming from a banker," said Lewis. "Obviously we make our money providing credit. But the fact is that a key cause of this crisis was the predominance across the country of overleveraged household balance sheets. When more U.S. households achieve a more healthy debt to income ratio, it will greatly improve our ability to generate strong, consistent economic growth in the future."

The 62-year-old executive has a tendency to look on the bright side. But on Tuesday he even managed to gloss over the biggest headwind facing America's biggest bank: The U.S. government.

Lewis made no mention of BofA's

$45 billion worth of Troubled Asset Relief Program funds

that still need to be returned. He also failed to address a shareholder concern that the government could force BofA to raise tens of billions of dollars in fresh capital through potentially dilutive stock offerings before allowing it to repay TARP.

Nor did Lewis shed any light on Treasury Secretary Timothy Geithner's suggestion that the biggest, most diverse financial firms

may need to break up

into smaller, sector-focused banks.

Such a move would make moot all of the positives Lewis strained to highlight on Tuesday, and hurt other large "financial supermarkets" like

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, which shares with BofA the undesirable title of banks that have received "exceptional" government support, is in the process of winding down or selling off several businesses.

Another missing talking point was the litany of regulatory probes into the

Merrill Lynch

deal, which at one time was thought to be the crowning jewel of his

eight-year acquisition spree

. Instead, he took the opportunity to tell listeners that $7 billion in cost savings from the deal are far ahead of schedule - expected to clock in at 45% instead of the initial forecast of 25% by the end of 2009.

He also countered suggestions that Merrill's wave of employee defections continues, saying that the bank managed to maintain 94% of "high producing" financial advisors, with a current headcount of 15,000. He added that Sallie Krawcheck, the newly appointed president of wealth management, has done a "terrific job" of "retaining out best talent and attracting new talent."

Lewis has a reason to look on the bright side: He's out of there in roughly 50 days, with a retirement package valued at upwards of $70 million. He may also be correct in characterizing BofA as a premier banking franchise that "came through the eye of the storm" as "a much stronger company with more capabilities." Analysts certainly think so, with several having boosted their stock ratings to buy over the last month, as BofA shares have become more attractive, tumbling from over $18.50 in mid-October to trade more recently between $14 and $15.

But the analysts also warn that regulatory uncertainty and the CEO succession plan may create an overhang for some time.

"There are obviously a number of events that could potentially make the road to normalized a bumpy one over the coming quarters," AllianceBernstein analyst John MacDonald wrote in a report last week.

Though MacDonald reiterated his outperform rating on BofA shares, with a price target of $25, he named the CEO transition, TARP repayment and loss of talent as potential "bumps" in the road.

Lewis, who announced his surprise resignation on Sept. 30, did make a glancing reference to his dwindling days at the helm. In bittersweet opening remarks, Lewis noted that his predecessor, Hugh McColl, "did not like analysts" and was happy to pass off the job of communicating with them.

"When I became chief operating officer in 2000," Lewis recalled, "Hugh wrote to all the analysts, and he said, 'I have seen you in the good times, I have seen you in the bad times, now I have seen you for the last time.' ... In a way for different reasons, I guess the saying is still the same."

But Lewis gave no clues as to who may succeed him, or the challenges BofA's board faces in selecting a solid leader who will be able to satisfy several constituent groups: Vocal, activist shareholders who want an outsider; top executives and board members who want an insider; regulators who will keep the next CEO under their weighty thumbs; and taxpayers who just want their money back.

Echoing McColl, Lewis declined to take any questions after his presentation.

-- Written by Lauren Tara LaCapra in New York