CHARLOTTE, N.C. ( TheStreet) -- Bank of America's ( BAC) board appears to be looking for a clone of current CEO Ken Lewis, in which case its timing is unfortunate. The Wall Street Journal reported Wednesday that the bank's board is rejecting the notion that Bank of America ought to become less large and complex, along with CEO candidates who subscribe to it. The board has made no secret of this view, nor has Lewis. They also have made it clear that they are uncomfortable with certain consumer protection laws that will cut into fee revenue, that they would like to begin paying back funds from the Troubled Asset Relief Program, that they would like to offer competitive pay packages to top talent, and that they believe Bank of America is the best banking franchise in the world, just the way it is. Grow larger? Perhaps. Shrink? Not a chance. The problem with the board and Lewis' attitude is not that they are necessarily wrong, but that they may not have a choice in these matters if regulators have anything to do with it. Fees will be cut and consumers will (supposedly) have better protections. The pay czar will crack the whip. Whatever its capital levels and desire, Bank of America isn't paying back TARP until the Treasury Department says so. And if lawmakers and regulators say it's too big to fail, then doggone it, Bank of America may have to scale down -- in business lines if not in footprint. Taxpayers are angry and the government is making moves to mollify their screams. Whether the regulatory overhaul will achieve the Obama administration's desired goals won't be determined for quite some time. But from a banker's point of view, one thing is clear: Playing nice with Washington is the only way to succeed.
The reality of the situation is evident from the fact that Bank of America has a CEO search to begin with. Supporters say that Lewis is a talented and experienced banker whose knowledge and dedication still make him the best man to lead Bank of America. But critics -- taxpayers and shareholders alike -- are unhappy with his handling of the Merrill Lynch acquisition in the midst of the financial crisis. As the investigations, lawsuits and regulatory pressure piled up, he announced his resignation on Sept. 30 upon returning from an end-of-summer holiday. He was supposed to have stayed on board well into 2010 -- at least until Bank of America started to repay TARP funds -- while priming an internal candidate to replace him. Lewis described his surprise departure as a personal choice. But there's little doubt that at some point during his fiesta in the Colorado mountains a Federal Reserve official's threat to get "a pound of flesh" out of him might have come to mind. Whomever replaces Ken Lewis will have a difficult task ahead, whatever his or her relationship with regulators. But Lewis is leaving without a salary for 2009 and as a defendant in several lawsuits; Citigroup ( C) CEO Vikram Pandit is defending himself against what appears to be a government-originated smear campaign; and Bob Benmosche has fought tooth and nail for American International Group ( AIG)salaries. On the other hand, JPMorgan Chase's ( JPM) Jamie Dimon's name is being tossed around as a potential Treasury secretary. His bank is nearly as large as Lewis', but no one is threatening to take an axe to it.
Furthermore, the Journal story suggests what has long been assumed of Bank of America's board members: An impertinence toward outsiders whose views differ from theirs. Several directors have left or been replaced over the past year. However, some shareholders still fear that the board's close-minded attitude will prevent Bank of America from making any substantial changes even once Lewis is replaced. The board itself appears to be fractured over the best way to go -- split over an inside vs. outside candidate, a Southerner vs. a Northerner, a dealmaker vs. a lawyer, an investment banker vs. a traditional banker, and so forth. It has already passed a few self-imposed target dates. Whatever candidate is ultimately chosen will need some sort of approval by regulatory charges as well. Lewis is reportedly open to staying past his planned New Year's Eve exodus if necessary. Given the circumstances, and difficulty in finding a clone, the board may simply have to extend his life. -- Written by Lauren Tara LaCapra in New York