Pressure intensifies for Lewis, Bank of America board members
Bank of America shareholders have lost a lot of money in the last several months, especially after the company's $50 billion acquisition of Merrill Lynch. Many shareholders blame Chairman and CEO Ken Lewis, and at least three board members. There's now an aggressive campaign to push them out. This fight comes to a head Wednesday at Bank of America's annual shareholders meeting in Charlotte. In this report, WFAE's Simone Orendain and Julie Rose preview the meeting and examine what's at stake. Two of the most aggressive groups leading the charge against Chairman and CEO Ken Lewis and the directors include the Houston-based investment bankers, father and son Jerry and Jonathan Finger. Their $100,000 campaign to oust Lewis includes a cable TV ad that tells viewers there's been billions in shareholder losses since Bank of America purchased Merrill Lynch. The ads asks, "Isn't time for change?" The Fingers own 1.1 million shares of Bank of America. Jonathan Finger says he never imagined he'd be leading an uprising. "We really felt like management and the board violated the trust of shareholders. Especially when Ken Lewis in mid-January went ahead and completed ML transaction for the 'good of the country,' " Jonathan Finger says. "We think it was more important to do it for the good of the shareholders. It was his legal and ethical obligation." The Fingers are upset Lewis went ahead with the deal even after it was clear Merrill Lynch would be posting a $15.3 billion loss in its final quarter as a standalone company. As part of the acquisition, the bank increased its government bailout money from $25 billion to $45 billion. Since the deal was announced in September, Bank of America's stock has plummeted 66 percent to $9.10 as of Friday's close. Michael Garland of CtW Investments in Washington, D.C., says Lewis wasn't upfront with investors. "By that time it was clear to management the company they contracted to acquire was in worse shape than they'd thought," Garland says. CtW represents the pensions of seven unions that hold 33 million, or half a percent, of BoA shares. CtW and the Fingers are focused on three issues. One, they want shareholders to vote against retaining Lewis and two other board members. They also want to separate the roles of chairman and CEO and limit executive pay. Their effort has the support of three major proxy advisory groups. Proxy groups are highly influential and consult large-volume shareholders such as mutual and retirement funds and insurance companies. The state of Connecticut last week said it would vote to oust Lewis based on proxy advisors' recommendations. Raymond James investment analyst Anthony Polini is telling his clients Lewis made a mistake with the Merrill Lynch deal but has proven himself over the long-run. "In some ways he was the victim of a recession that was accelerating. We also became wrapped up in a financial crisis so I think the odds are Ken Lewis had grounds to walk away from the Merrill deal but couldn't. So do we fault Ken Lewis for doing the patriotic or right thing for the country?" Last week it was revealed that Lewis gave a deposition to the New York Attorney General's office in which he said he was pressured by the Federal Reserve and Former Treasury Secretary Henry Paulson to stick with the $50 billion deal. He testified he tried as late as December 21st to back out but was told by Paulson it wouldn't be in the best interest of the bank. If BoA backed out of the deal, Lewis testified, the Fed would remove the bank's board and management. Paulson corroborated the testimony. It's generally hard for shareholders to vote a director out on the spot, according to UNC Chapel Hill finance professor Anil Shivdasani. But he says they don't always need 50 percent or higher to have an effect. "Even if 25 percent to 30 percent of shareholders withheld their vote, that would be seen as a sign of extreme dissatisfaction on the part of the investors," Shivdasani says. "It would certainly be more challenging for the board to say Ken Lewis is the right person to lead the company." Bank of America spokesman Scott Silvestri refused to be recorded for this story. He says the bank has been very restrained in its response to shareholders like the Fingers because he says they're often not factual or are misleading. Silvestri didn't elaborate. The small shareholder Say you don't own enough stock to make much of a difference with your vote. That puts you in the same boat as nearly half of Bank of America shareholders - holding a few hundred or a few thousand shares. And maybe you're wondering if you should even bother going to the annual meeting. "It's a very daunting experience, particularly when you first go because you don't know what to expect," says local real estate developer John Moore. What you can expect is Moore to take the microphone to criticize the bank's executives for abusing their power and paying themselves too much. He goes to as many as 10 bank annual meetings a year. "They really don't want you to show up at the annual meeting," says Moore. "They many times have the meetings in a place that doesn't offer parking. Quite often they will have the microphone at the back of the room. They will say very emphatically that you must limit your questions to three minutes. And sadly it's an almost arrogant attitude why 'Who would dare to ask us a question as to the way we are operating this company?'" With only about 18,000 shares in Bank of America, Moore's vote isn't enough to change things. So he figures having his say at the annual meeting is his best shot. "I was hoping that there might be one or two individuals on a board that would be open to trying to rein it in," says Moore. "But perhaps I was overly optimistic." "I personally feel like it would be falling on deaf ears," says Jim Claire, who takes the opposite view of annual meetings. He's a laid-off bond trader from Bank of America, the kind of investor who watches Bloomberg and CNBC simultaneously as his computer beeps steadily with stock updates. And yet he's never once gone to an annual meeting. Never even been tempted. "Unless I was just looking for some free banquet food or something like that, I'm not gonna get any new information out of it that I'm not already able to get my hands on via the internet and such," says Claire. Forget speaking directly to bank management. Claire says just selling his stock is a much better way to send a message. "If everybody who has 500 or 1,000 shares of a company starts selling it, going to push the stock price down. The boards of directors are going to get that signal. It's going to make a difference. " For the record, Jim Claire thinks Ken Lewis and the Bank of America board are doing a fine job in a tough situation. John Moore wants Lewis to resign. But both agree that whether you go to Wednesday's meeting or not, you should definitely exercise your right to vote. Of course, you can do that online or by mail without even showing up the annual meeting. And this year, Bank of America would probably prefer that, says UNC-Charlotte banking professor Tony Plath. "This is not a time when the management teams of those big banks want to have to sit and listen and hear what their shareholders want to say," says Plath. "These are likely to be very contentious meetings, and somewhat embarrassing from the standpoint of management." So no matter what happens Wednesday, it's guaranteed to be a good show.