On Tuesday, Bank of America Corp. (BAC) announced an immediate reshuffling of its top management, including the exit of two executives. The reorganization arranges the company’s operating units according to its key customer groups –– individuals, companies and institutional investors.
The departing executives are Sallie Krawcheck, head of global wealth and investment management, and Joe Price, president of the consumer bank. Former Citigroup (C) chief finance officer, Krawcheck was hired in late 2009. Joe Price, who was the chief financial officer under Lewis, joined BofA in 2010.
On the other hand, the company appointed David Darnell and Tom Montag to the newly created positions of co-chief operating officers. David Darnell, president of commercial banking, will be responsible for the BofA consumer businesses. Former Goldman Sachs (GS) executive and president of BofA’s global banking, Tom Montag will be accountable for the commercial and wholesale business.
Barbara Desoer, who had joined as the overseer of the mortgage unit after BofA took over Countrywide, will continues as president of BofA Home Loans. However, he was demoted to report to Darnell instead of CEO Moynihan.
Apart from Darnell and Montag, a number of other executives will also be answerable to Moynihan. These include Global Technology and Operations Executive –– Cathy Bessant, Global Strategy and Marketing Officer –– Anne Finucane, Corporate General Auditor –– Christine Katziff, Chief Risk Officer –– Terry Laughlin, Global Chief of Legal, Compliance, and Regulatory Relations –– Gary Lynch, Vice Chairman –– Charles Noski, Global Head of Human Resources –– Andrea Smith, Legacy Assets Servicing Executive –– Ron Sturzenegger and Chief Financial Officer –– Bruce Thompson.
The management reshuffling is part of BofA’s cost-cutting program called Project New BAC, which the bank started in April 2011. The latest actions are part of the first phase of New BAC. The bank intends to implement more changes with the second phase beginning October and running through March 2012.
The whole intention behind this streamlining move is to remove a layer of operations management, aligning leaders with the company’s customer groups and simplifying the role and structure of the management team. According to Moynihan, de-layering and simplifying at the scale in which the company operates requires tricky decisions. The company expects these actions to result in significant expense reductions with the closure the first phase in the coming weeks.
On September 2, 2011, the U.S. Federal Housing Finance Agency (FHFA) sued 17 financial firms, including Bank of America, for infringing commitments on the quality of mortgage securities sold to Fannie Mae and Freddie Mac during the housing bubble. The billions of dollars worth of mortgage-backed securities eventually turned toxic when the housing market collapsed.
The lawsuit filed by the FHFA is expected to significantly impact Bank of America’s financials in the upcoming quarters. Along with Countrywide and Merrill Lynch, Bank of America was sued for selling mortgage-backed securities worth $57.5 billion.
At such a crucial moment of fluctuating world economy, compensation of billions would make it difficult for Bank of America to gain ground any time soon. The company is significantly optimistic about the success of its management reshuffling. We, however, don’t think BofA will be able to overcome all its concerns with the management reshuffling at least in the near to medium term.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, considering the fundamentals, we have a long-term Underperform recommendation on the stock.
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