CHARLOTTE, N.C. — This year’s annual meeting was supposed to be a victory lap for Bank of America, with many of its mortgage problems receding and its deposits and credit card business growing.
Instead, executives and board members faced
pointed questions from shareholders on Wednesday about a costly error in
the way the bank calculated its financial health. The $4 billion error forced Bank of America to suspend its planned dividend increase and raised broad issues about oversight inside the bank.
Speaking for the first time about the problem
since it was disclosed last week, Charles O. Holliday Jr., the bank’s
chairman, gave a full-throated defense of the way executives have
responded to the $4 billion capital miscalculation.
Bank of America, the nation’s largest retail
bank, disclosed the problem to regulators shortly after an employee, who
is not a senior executive, discovered it while preparing a routine
quarterly financial report.
“I believe very strongly that this bank is
not too big to manage,’’ said Mr. Holliday, who has been the bank’s
chairman since 2010.
Despite hundreds of new regulations intended
to reduce the threats that large financial institutions pose to the
global economy, the biggest banks are facing new questions about their
size and complexity.
The error stemmed from how Bank of America accounted for certain losses on bonds that it acquired when it bought Merrill Lynch in the depth of the financial crisis. The miscalculation had gone undetected for several years.
As a result of the error, Bank of America has
$4 billion less capital than it had represented to the Federal Reserve
on this year’s stress test. The bank’s shares are down nearly 5 percent
so far this year.
On Wednesday, its chief executive, Brian T. Moynihan,
expressed disappointment in what he called the bank’s “capital
adjustment” but suggested that it was a momentary breakdown in the
otherwise efficient operation of a sprawling bank.
Bank officials said they were conducting a
“third-party review” of how the problem happened, but declined to name
the firm conducting the review.
“This was an error that we found and fixed,’’
said Mr. Moynihan, whose $14 million pay package was backed by
shareholders on Wednesday.
Shareholders also re-elected all five members
of the board’s audit committee and supported the rehiring of the
independent auditor PricewaterhouseCoopers, though the vote was
nonbinding.
This week, the giant pension fund California
State Teachers’ Retirement System said that it was voting against four
of the five candidates for the bank’s audit committee, which is led by
Sharon L. Allen, a former chairwoman of the auditing firm Deloitte. The
fund said the mistake raised concerns about “board oversight.”
The issue is also testing the patience of
smaller investors like Thomas Ashe Lockhart, who has owned the bank’s
shares for about 40 years.
“Anybody involved in this shouldn’t get a raise,’’ Mr. Lockhart said in an interview after the meeting.
The miscalculation related to the complex
Merrill debt instruments – called structured notes — comes as Mr.
Moynihan seeks to showcase progress on one of his top goals: simplifying
the bank.
Mr. Moynihan described the many ways he had pared down the bank including selling off private equity
investments and winding down its troubled mortgages from 1.4 million
that were at least 60 days delinquent at the peak, to about 277,000
today.
He said the bank was extending new mortgages
and credit cards, but only directly instead of going through third
parties, which is helping improve credit quality and efficiency.
But the bank still faces billions of dollars
of legal costs to settle cases with federal prosecutors over its sale of
mortgages that quickly defaulted. Executives have declined to detail
how much they are reserving for those cases because it could hurt their
negotiating position.
In the years since the financial crisis, Bank
of America — and its shareholder meeting – has been a lightning rod for
critics. As it serviced the hundreds of thousands of defective
mortgages that it inherited through its acquisition of Countrywide Financial, Bank of America became in many ways the face of the banking system’s bumbling actions during the foreclosure crisis.
But at this year’s meeting, the focus of the
questions was not primarily on mortgages. A few homeowners and advocates
even came to the meeting to praise the bank for finding ways to lend to
lower-income people.
Still, Mr. Moynihan faced criticism from
environmental groups about the bank’s lending to coal companies and even
questions from the 13-year-old daughter of a former bank employee, who
she said had been laid off and whose job was sent overseas.
Mr. Moynihan acknowledged that the cost
cutting across the company had been a difficult process, but said the
bank did not ship jobs to other countries. “We don’t do that,’’ he said.
No comments:
Post a Comment