| BofA CEO Unscathed After Crucial Vote, to Remain Chairman | |
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About 63% of Bank of America Corporation’s BAC shareholders rejected the call to split the roles of chairman and CEO, currently held by Brian Moynihan, at a Special General Meeting on Sep 22. Shareholders ratified the 2014 revisions to the company’s bylaws that allowed the board of directors “to determine its leadership structure.”
Following the announcement of voting results, Moynihan said, “We are pleased our shareholders had the chance to express their views, and we appreciate their support to continue driving our company forward for them and for our customers and clients.”
Why Split the Roles?
Moynihan has been holding a dual position since last October, after the resignation of the then-chairman Chad Holliday. BofA, having considered the issues related to pre-crisis acquisitions of Countrywide and Merrill Lynch a problem of the past, deemed separation of the roles of chairman and CEO as no longer necessary.
However, shareholders of the bank were of different opinions. Many investors displayed their disapproval and compelled BofA management to convene a shareholder meeting and resort to voting to reach a decision.
Pension funds and other institutional investors, including The California Public Employees' Retirement System, the California State Teachers' Retirement System, Cwt Investment Group and Norges Bank Investment Management pressed for separate role for both positions.
They were of the opinion that the CEO requires more oversight an independent overseer on the board, as BofA has been underperforming under Moynihan's leadership. Further, they were dismayed with the fact that the company had unilaterally changed its bylaws, after investors had voted to separate them in 2009.
In 2009, shareholders were successful in segregating the role of CEO and the Chairman, as Moynihan's predecessor, Ken Lewis, had taken many unfortunate decisions which hurled BofA into one of its worst crises.
Why Moynihan Is Favored?
Much water has flown under the bridge since the 2009 vote to separate the dual roles. BofA, under Moynihan, was able to successfully override the 2008 financial crisis. Though ill-timed decisions during that period compelled the company to pay legal expenses worth billions of dollars, the bank, presently, remains keen on improving its profitability.
BofA is successful in implementing its cost-saving plan – Project New BAC. Further, the company is undertaking several initiatives to consolidate and streamline its operations. This has led to improvement in capital and liquidity positions.
Additionally, BofA is now paying 5 cents per share as quarterly dividend, up significantly from the paltry 1 cent that was being paid after the 2008 crisis. Moreover, the company has a share repurchase authorization in place. Apart from these, BofA continues to make efforts to boost top-line growth, which is under strain owing to a low interest rate environment.
Tough Time Not Yet Over for Moynihan
Nevertheless, we believe that despite successfully steering the company toward profitability, Moynihan will continue to face increased shareholders’ scrutiny regarding BofA’s financial performance in the future. Notably, the company’s stock is down nearly 13% this year. Further, by September-end, the company is required to re-submit its revised 2015 capital plan.
Also, BofA still has a long way to go before it can reach its historical pre-crisis performance. Shareholders are keeping a close watch on all the developments and could vote against Moynihan’s dual roles in case they are not satisfied with the company’s performance in the upcoming quarters.
Among the major U.S. banks like JPMorgan Chase & Co. JPM, Wells Fargo & Company WFC and Citigroup Inc. C, only Citigroup has a separate chairman and CEO.
Currently, Bank of America has a Zacks Rank #3 (Hold).
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