On Wednesday, Bank of America announced that its CEO Brian Moynihan was going to take on the title of chairman of the bank as well. The current chairman, Chad Holliday, is going to stay on the board but in a reduced role.
There’s a good case to be made that Moynihan deserves a promotion. And we have made that case. In August, my Fortune colleague Shawn Tully called Moynihan the most underrated CEO in America. He said Moynihan was on the verge of turning BofA from a crippled bank into one of the most profitable companies in America. Shares of BofA (BAC), a laggard after the financial crisis, are up nearly 20% in the past year. The bank’s shares are now doing better than those of Citigroup (C) and Goldman Sachs (GS), which are up just 5% and 14%, respectively, over the same time. Now Moynihan will have more freedom to steer BofA how he likes, which, given recent history, sounds like a good thing.
It’s not.
Back in the fall of 2008, and in the months that followed, pretty much everyone seemed to agree that we needed more checks in place to make sure that risk-taking at the nation’s biggest banks didn’t get out of hand. So we got the financial reform law Dodd-Frank, the Consumer Financial Protection Bureau, and, at a number of big banks, independent directors.
In 2009, BofA was the first to split its chairman and CEO roles. (Wells Fargo (WFC) had already split its chairman and CEO roles, but it did it in 2007 before the financial crisis.) Citigroup followed in 2012. Goldman, under pressure to do the same, named a lead outside independent director. Morgan Stanley’s board was called underworked and overpaid by activist investor Daniel Loeb.
The big push came in early 2013, when, in the wake of the $6 billion London Whale loss, many concluded that even Wall Street’s greatest CEO, JPMorgan Chase’s Jamie Dimon, could use a boss.
And then, nothing happened.
The shareholder vote to force Dimon to give up his chairmanship was defeated. Loeb backed off from Morgan Stanley. And Goldman’s so-called independent outside director resigned. The bank, of course, quickly named a long-time Goldmanite to take over the role.
Now BofA—which initially brought in an independent chairman because CEO Ken Lewis’ unchecked appetite for disastrous mergers had nearly bankrupted the bank—is saying its CEO no longer needs to be supervised. Citi’s independent chairman would probably be gone too if CEO Michael Corbat was doing anything better than a mediocre job.
Moynihan’s ascension to the chairmanship of BofA is not a story of triumph, either. In an increasingly financialized economy, it’s not that surprising that one of the nation’s biggest banks would also be one of the most profitable. (Have we forgotten why that’s not a great thing, too?) The recent spate of good press for Moynihan came after he was able to negotiate a deal in which BofA only had to pay $16.65 billion to the government to settle its tab for the financial crisis, and that comes on top of tens of billions of dollars in other penalties it has paid. Nice work, Brian.
Internally, it appears to be a tale of acquiescence. According to The Wall Street Journal, when the idea was first brought up to make Moynihan chairman of the bank, a number of board members opposed it. Those people were slowly pushed out. That’s why Moynihan is getting the job now.
What’s happening at BofA isn’t all that different from the story that was told this weekend by NPR’s This American Life and non-profit reporting group ProPublica about the New York Federal Reserve. Back in 2009, the New York Fed decided it needed tougher staffers to oversee the banks. One of those hires was bank examiner Carmen Segarra, who seemed to have just the type of stuff that the Fed wanted in 2009. She got the hardest assignment for a Wall Street regulator, Goldman Sachs. But by 2012, the Fed no longer seemed all that interested in having someone like Segarra around. After complaining a number of times that her superiors were too lax with Goldman, she was let go. Segarra is now suing the Fed.
Moynihan’s promotion is just another sign that we are slowly forgetting the lessons of the financial crisis. That’s good news for the banks. But it’s terrible for the rest of us.
