B of A Got 99 Problems But a Chief Ain’t One

Ok, I don’t rap and seldom listen to others who do. Having grown up in the “ghetto” of Manhattan’s Upper East Side, I can’t say I really identify with the struggle on the streets. But, fresh off my Notorious B.I.G. reference, I figured I’d give a shout out to Jay-Z. The shout out wouldn’t be necessary if it weren’t for one Jay-T, that is, John Thain. After orchestrating the sale of the century – dumping Merrill Lynch into the arms of Ken Lewis and Bank of America – Thain was supposed to be the heir apparent to the B of A empire. Of course, the coronation wouldn’t happen for some time since Lewis had ostensibly navigated B of A through the credit crisis with a fair amount of success.

Alas, things changed quickly. Thain did some decorating, Merrill paid some bonuses, and soon enough, Lewis found himself on the way out with no obvious person to take his place. With Thain now decorating offices beyond B of A, the now beleaguered bank finds itself in an unexpected situation – having to search far and wide for a new CEO.


Now, I know B of A wasn’t exactly the employer of choice at Harvard (at least before the world fell apart and reduced the number of large investment banks in the US to a paltry 5). Still, I would’ve thought somebody would’ve wanted to run the place. But apparently nobody does. In fact, the antipathy towards the top job at the hobbled Charlotte giant seems to be so strong that even the NY Post has gotten wind of it.

To be sure, Bank of America has some problems, probably more than 99 actually. For one, the bank just reported another quarter of disappointing earnings, or rather losses. And if dropping $1.0 billion (or as much as $2.2 billion if you count dividend payments) isn’t bad enough, it’s not clear that the situation will get much better anytime soon given the bank’s massive exposure to the U.S. consumer. Having already set aside nearly $36 billion for bad loans and leases, the firm may have to write off even more consumer debt as unemployment breaches 10%. Indeed, the company’s colossal credit card portfolio may be as subprime as the CDO holdings of the investment bank it took over.

Yet, precisely because of its acquisition of Merrill Lynch, I think B of A may not be as bad off as some critics claim. Subprime write downs and bonus largesse aside, the Merrill purchase has already begun to yield dividends. In wealth management and trading particularly, B of A has quickly become a force to be reckoned with thanks to the Merrill move. No longer some second-rate trading institution on the order of JT Marlin, B of A is now the country’s second largest holder of derivatives (with more than $75 trillion in total notional), just a hair behind JP Morgan according to the OCC’s Q2 report (and anyway, what’s a few trillion between friends?).

It’s true that B of A’s burgeoning derivatives business may not be an unequivocally positive thing – after all, Merrill had a huge derivatives portfolio, and look what good that did. But if B of A really isn’t sitting pretty in any area, I think that’s all the more reason to want to run the place. Actually, in my view, B of A’s weakness should be the chief motivation for a would-be chief to move to Charlotte.

Quite simply, Lewis has set a pretty low bar. Facing more than 99 problems, the new B of A CEO will get credit for cleaning up just a few. And frankly, even if Lewis’s successor can’t make matters any better, he should look forward to a healthy pay package should he too be given the boot (though, if Ken Feinberg does his job, the golden parachute won’t be on the scale of Lewis’s $69 million life preserver). So, as I see it, existence atop B of A surely isn’t the hard knock life the bard Jay-Z crooned about in his ghetto anthem.