Lewis out as BofA chairman

But he's still CEO, and Bank of America shareholders give him an earful

The Charlotte ObserverApril 30, 2009 

— Bank of America shareholders, angry about the company's acquisition of Merrill Lynch and weak stock price, ousted Ken Lewis as chairman Wednesday, voting to separate the job from that of chief executive.

Lewis will remain CEO and president, but the Charlotte-based bank named Walter Massey chairman after a proposal to split the positions was narrowly approved with 50.3 percent of the vote at the company's annual shareholder meeting.

Massey is president emeritus at Morehouse College in Atlanta and has been a director since 1998.

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.

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, 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 on Wednesday evening issued a statement that the board of directors had met, elected Massey as chairman and unanimously voted to keep Lewis as CEO.

All 18 board members, including Lewis and lead director Temple Sloan, were re-elected.

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 first step," Garland said.

At the meeting, Garland openly criticized Lewis, saying bad management 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 vent

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, 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 the bank's investigation of Merrill Lynch's finances.

Lewis responded that Bank of America didn't anticipate the worsening credit conditions, 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.

Long-brewing problem

Support for separating the chairman and CEO jobs has been growing in the U.S. for the past decade, but the financial crisis has brought it momentum. Angry legislators and investors have fumed that lax directors rubberstamped banks' risky practices. Wachovia, Bear Stearns and Washington Mutual hastily split the positions in 2008 to show shareholders they were serious about recovery, though the move couldn't save any of them. Citigroup split the position in late 2007.

Last year, 39 percent of S&P 500 companies had separate positions -- up from 16 percent in 1998, according to the Spencer Stuart Board Index.

At Bank of America, this was the fourth consecutive year that a shareholder proposed splitting the jobs. Last year, the measure gained 38 percent of votes cast.

During the meeting, Lewis used his remarks to defend his controversial acquisitions of Merrill Lynch and Countrywide Financial, which he noted were strong contributors to first-quarter earnings. "When economic conditions return to normal, no one will be better positioned than Bank of America to thrive and win," he said.

The 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.

Are his days numbered?

Some analysts believe that 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.

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 and Delta Air Lines.

The Associated Press contributed to this report.

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