-
Bank of America shareholders voted Tuesday to allow Brian Moynihan to keep his dual titles of chairman and chief executive, with 63% of votes cast in favor of Moynihan.
September 22 -
Bank executives and outside experts finger technology as the area most in need of improvement when it comes to vetting financial institutions' ability to withstand the next bit economic shock.
September 21 -
The Federal Reserve on Thursday approved Bank of America's model for assessing its risk-based capital requirements under Basel III's so-called "advanced approaches" process, making it the final U.S.-based global systemically important bank to have its own model approved.
September 3 -
The moves disclosed Wednesday were broad, multifaceted and affected nine executives.
July 22
Now that Bank of America chief Brian Moynihan has won a vote of confidence from shareholders to keep his additional role as chairman, albeit with 63% of the vote, he can relax briefly and celebrate, right?
Wrong.
In just a week will be another major test of his leadership: B of A has to submit its revised capital plan to the Federal Reserve. Then, on Oct. 14, the bank is scheduled to release its results from the third quarter -- perhaps the diciest quarter this year for U.S. banks staring down market volatility, deflated stock prices and uncertain forecasts about the economy and monetary policy.
B of A's deadline to resubmit its capital plan comes just two months after a management reshuffling in which Bruce Thompson stepped aside as chief financial officer. Terry Laughlin is leading the stress-test resubmission and will partner with new Chief Administrative Officer Andrea Smith for the filing due next spring.
"Failure is not an option," Cliff Rossi, the chief economist at Radian and a former chief risk officer at Citigroup, said in reference to the updates to the capital plan. "There's no trivializing it or pretending it away. It's very important for [Moynihan] as a successful leader."
The Fed's Comprehensive Capital Analysis and Review is critical for B of A, which has had to resubmit its capital plan for two consecutive years after passing the exam in 2012 and 2013. B of A has said it planned to spend more than $100 million on outside consultants to improve its processes.
"They have put a lot of resources toward the resubmission process," said Jason Goldberg, a senior analyst at Barclays. "Ultimately I think they'll get a clean bill of health."
B of A received a conditional "nonobjection" to its capital plan in March, meaning it could still return capital to shareholders even after the Fed found "certain weaknesses." The Fed specifically cited weaknesses in B of A's "loss and revenue modeling practices and some aspects of [the bank holding company's] internal controls."
The bank had submitted an "adjusted" capital plan in 2014, which fell short of regulatory capital minimums and included a $4 billion accounting error.
Moynihan told investors at the Barclays Global Financial Services Conference in New York last week that he is confident in the submission slated for next week.
"We've done what they've asked us ... and hopefully [we will] get through that over the next 75 days, [which] is their time period for announcing the results," Moynihan said.
B of A must correct the weaknesses in order to pass CCAR, the stringent Fed test that determines if a bank can make dividend payments or stock repurchases while being able to absorb losses like those that occurred in the last financial crisis.
Other banks in recent years including Citigroup, Goldman Sachs and JPMorgan Chase have received conditional approvals from the Fed. Yet, with CCAR now in its sixth year, regulators' focus has also shifted to a bank's risk culture. The exam encompasses all of a bank's internal controls and requires a massive, companywide effort.
Rossi suggested that Citigroup's Chief Executive Michael Corbat serves as a guidepost for Moynihan, since Citi won approval of its plan in March and immediately announced a higher dividend and stock repurchase.
B of A's shareholder vote of confidence, which allowed Moynihan to keep the dual roles of chairman and CEO, "earned him the right to show just how good he is," Rossi said. "If Moynihan pulls it off, he can show that he put together the right people at the right time to get a complicated regulatory aspect of their business put away."
The capital plan involves multiple levels of risk modeling that have to be individually validated and projected out nine quarters in the future.
Most of the time the issues are procedural or process oriented, but missing data or loose controls - areas that the Fed might identify as "matters that require immediate attention," or MRIAs -- can pile up. Moreover, though hundreds of people may work on the modeling and processes, a bank's top management has to understand and incorporate the tests into its overall strategy.
Ron D'Vari, the CEO of NewOak Asset Management, a risk advisory and financial consulting firm, described CCAR as "a compass" with Moynihan essentially as "the captain of the ship."
"B of A is under the gun because the bar by definition is higher since they did not pass the first one," ?said Ron D'Vari, the CEO of NewOak Asset Management, a risk advisory and financial consulting firm. "But Bank of America has turned itself into a more streamlined bank, and that should play in their favor. It was a good wake-up call."
Meanwhile, B of A and the rest of the banking industry are facing strong headwinds as the end of the third quarter approaches. Some banks have warned about continued slim margins and further expense cuts. Low energy prices, market volatility and slowing loan growth are among the factors likely to weigh down profits for the rest of the year.
Moynihan has warned that B of A's revenue from fixed-income and equity markets could decline by 5% to 6% in the quarter, compared with a year ago.
Still, in the second quarter, B of A more than doubled its profits to $5.3 billion, up from $2.3 billion a year earlier.
B of A's profits in 2Q came more from expense cuts than higher revenue, and analysts are still concerned that revenue growth is tough to achieve while slashing expenses.
