BofA: Is Declaration of Victory a Bit Too-Soon?
Bank of America (NYSE:BAC) Chief Executive Brian T. Moynihan had one clearly established, oft-repeated goal since the day he took over the bank in January 2010 – to achieve what he termed a “fortress balance sheet.”
Last week, in a staff meeting broadcast company-wide, Moynihan proudly announced that Bank of America had realized that goal, and was now equipped with the “top capital” of all the big banks.
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“We’re going to officially declare victory on one of those operating principles,” Moynihan told his employees. “The reason why is, we have the top capital in the industry, the top liquidity in the industry.”
The confident Moynihan reiterated that Bank of America was now ahead of its peers, touting the industry’s best balance sheet, improved capital, and perhaps a newfound ability to increase dividends for shareholders. However, Moynihan chose his words carefully regarding that last item, suggesting the possibility that such an increase in payout would be “on the table” for 2013, but making no guarantees. The CEO said he didn’t wish to “get ahead” of the Federal Reserve’s 2013 approval process and promise increased dividends before they’ve been officially sanctioned, a lesson he undoubtedly learned after making that very mistake last year.
However, in spite of Moynihan’s brazen confidence in the position of his company, some analysts believe he may be overselling Bank of America’s advantages over its peers. FBR Capital Markets analyst Paul Miller has stated the large gains in capital that Moynihan has been trumpeting may not be so large in reality. In truth, Miller explained, Bank of America’s capital could still be significantly lessened by costs from defective mortgages and impending litigation that Moynihan failed to consider.
“They still have a lot of liabilities, and it’s going to put pressure on their capital base if these lawsuits go the other way,” Miller said. “What he has done is shrunk the balance sheet more than generated a lot of capital.”
To achieve that shrunken balance sheet, Moynihan has aggressively sought to trim and streamline the company wherever possible, including a large-scale job reduction plan that ultimately aims to shed 30,000 employees and $8 billion in costs per year. The bank – the U.S.’s largest bank by employee total – laid off 2,866 workers in the third quarter.