For Bank of America CEO Brian Moynihan, it’s nearly judgement day.
On Tuesday, Bank of America shareholders will vote on whether the company’s board had the right nearly a year ago to make Moynihan both the company’s chairman and CEO. In 2009, shareholders had voted to force the company to split the two positions. Without approval, last year, the board recombined the two positions. If shareholders vote against the board this week, Moynihan will have to give up one of his two jobs, likely the chairman role. Moynihan has said he will stay at the company.
A number of large pension funds, including the both Calpers and Calstrs, the two giant California funds, and the New York City Employees Retirement System, have said they will vote against the provision to give BofA’s board the power to combine the roles. A number of proxy voting services, which make recommendations for how large shareholders should vote, have suggested the same. Most have argued against the provision as a corporate governance issue. I made the same point when the roles were combined back in October, saying it was a worrying sign that the watchdogs that were put in place after the financial crisis were slowly being put to sleep. The proxy voting services specifically said they don’t see the vote as a referendum on Moynihan’s performance as CEO.
That hasn’t stopped BofA. Aside from arguing that nearly every other company in the S&P 500 has the ability to combine their chairman and CEO roles, and most do, BofA has been trying to make the vote about Moynihan. The CEO has reportedly been calling large shareholders over the past few weeks in part to argue that his performance as CEO warrants being given both jobs.
That’s a hard case to make. In 2013, Moynihan told Fortune that he planned to boost the company’s revenue by revamping the bank’s branches and implementing a reward system that would encourage customers to satisfy more of their financial services needs with BofA. Those moves don’t seem to be paying off. Revenue at BofA has continued to drop, from $93 billion in 2011 to $85 billion today.
A lot of that is not Moynihan’s fault. Banks sell loans, and interest rates have been remarkably low for some time. Also, we are coming off the biggest credit bubble in U.S. history. Revenue is falling at most other big banks as well.
The real problem at BofA is expenses, which are higher than at other banks. This is despite Moynihan’s cost-cutting efforts and a bank-wide initiative launched last year intended to “simplify and improve” operations. Such efforts haven’t led to much improvement. BofA’s non-interest operating costs rose last year to $75 billion from $69 billion the year before. Of course, most of that bump was due to legal expenses.
In the first six months of the year, operating expenses at BofA fell to $30 billion, down from $41 billion in the first half of last year. But $9.4 billion of that $11 billion drop came from lower legal expenses, not a repeatable improvement. Revenue at BofA was down by $1 billion. And the bank’s provision for credit losses rose by $100 million. That means Moynihan’s cost cutting efforts resulted in a boost of $500 million in the first half of this year, or $1 billion a year. That’s just 1.2% of the company’s overall revenue of $80 billion; not much to boast about.
Bank of America’s efficiency ratio, a closely watched measure of expenses, has improved. But compared to its peers, Bank of America is still the laggard. Last quarter, the bank’s efficiency ratio was 68%. Compare that to 60%, 58%, and 56% at JPMorgan Chase, Wells Fargo, and Citigroup.
To be sure, Moynihan did pull BofA out of the financial crisis. And he rescued the firm from one disastrous deal, Countrywide, and another not so great one, Merrill Lynch. But six years later, BofA’s numbers are not great. That fact should make shareholders wonder if Moynihan still deserves a top job at the bank. It’s very hard to make the case that he deserves two.