Bank of America CEO’s Support Erodes Ahead of Meeting

(Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis is losing shareholder support heading into today’s annual meeting amid speculation that government stress tests will show the bank needs more capital.

Lined up against Lewis’s re-election as chairman of the biggest U.S. bank by assets are the California Public Employees’ Retirement System -- the nation’s largest public pension fund -- as well as proxy advisers Glass Lewis & Co., RiskMetrics Group Inc. and Egan-Jones Proxy Services, among other investors. Shareholders have also targeted 70-year-old lead director Temple Sloan Jr.

Ballots will be cast at the bank headquarters in Charlotte, North Carolina on whether to re-elect directors and split the chairman and CEO jobs held by Lewis. Dislodging Lewis after eight years as chairman may depend on how mutual funds and brokerages vote, opponents including CtW Investment Group said.

“It’s largely up to the big mutual fund companies and they are usually very hesitant to cross with the management of financial services companies,” said William R. Atwood, executive director of the Illinois State Investment Board, which will vote its 1.5 million shares against Lewis’s re-election.

Lewis, 62, may face demands from regulators to raise capital after results of government stress tests are released May 4. The bank needs $60 billion to $70 billion of capital, according to Friedman, Billings, Ramsey Group Inc. analyst Paul Miller, who cited separate tests performed by his firm, which assumed a 12 percent jobless rate, compared with about 10 percent used by the government test.

Stress Tests

Bank of America is among 19 U.S. financial institutions assessing the results of the Treasury’s stress tests. Lewis has vowed the bank can recover without any more U.S. aid, while Treasury Secretary Timothy Geithner has said regulators may replace management and directors of banks that need “exceptional” assistance.

Lewis has presided over a 79 percent decline in Bank of America shares over the past year, and a $1.79 billion fourth- quarter loss, amid a worldwide credit crisis and recession. The bank slipped 77 cents, or 8.6 percent, to $8.15 yesterday in New York trading. Scott Silvestri, a Bank of America spokesman, declined to comment on Lewis yesterday.

The CEO has come under fire for failing to divulge spiraling losses at Merrill Lynch & Co. before shareholders voted in December to endorse Bank of America’s purchase of the largest securities brokerage. The Merrill Lynch acquisition was completed on Jan. 1, after the U.S. government provided loan guarantees to prop up the deal.

Lewis’s Future

Lewis’s future “is probably out of his hands at this point,” said Christopher Whalen, managing director of Institutional Risk Analytics, a California research firm that rates banks. “The time for Ken Lewis to hang tough was when he could have told the government, ‘No, I won’t buy Merrill Lynch,’” Whalen said in an interview yesterday.

The bank’s 18-member board solidly supports Lewis and shares his view that the acquisitions of Merrill Lynch and mortgage lender Countrywide Financial Corp. will be among its best long-term purchases, said Robert Stickler, a bank spokesman.

Both sides have said the vote may be close. Stuart Plesser, an analyst at Standard & Poor’s Corp., said a move against Lewis could deprive the bank of a 40-year company veteran skilled at handling acquisitions.

“Ken is the guy to integrate this thing, now that they own Merrill and Countrywide,” Plesser said in an interview. “He’s great at this kind of stuff.”

Chairman, CEO

Included in today’s vote is a resolution to divide the jobs of chairman and CEO. Such a split, whether by shareholders or at the behest of the board, has been a precursor to the ouster of other bank CEOs including Wachovia Corp.’s Kennedy Thompson and Washington Mutual Inc.’s Kerry Killinger.

Lewis is likely to win re-election to the board by a wide margin, the Wall Street Journal reported, citing unidentified people familiar with the preliminary results of the shareholder vote. With about 75 percent of the shares outstanding counted, slightly more than 50 percent favored splitting the chairman and CEO positions, the newspaper said.

Lewis may be aided by improvements at Merrill Lynch’s bond- trading business, plus a surge in home-loan refinancings that spurred a $4 billion profit in the first quarter. Because the profit included extraordinary gains from selling shares of a Chinese bank and accounting changes, the quarterly profit didn’t quiet critics or impress investors who drove shares down 24 percent on April 20, when the finances were disclosed.

Merrill Lynch Deal

“Now is the appropriate time to change management because Mr. Lewis has lost the confidence of the investing public and the confidence of his employees,” said John Moore, a Charlotte insurance-agency owner who urged Lewis to drop his chairman’s title at last year’s annual meeting.

Lewis may face pressure also from federal regulators, whom he accused of pushing Bank of America to keep Merrill Lynch’s losses secret and to complete the acquisition, according to New York Attorney General Andrew Cuomo. The Wall Street Journal reported yesterday that a leak of the stress-test results shows that Bank of America may need billions of dollars in capital.

“The timing of this leak a day before the annual meeting is not any coincidence,” said Tony Plath, a University of North Carolina finance professor. “This is a clear attempt to bring down a sitting CEO.”

Board Members

Lewis’s opponents include pension funds representing judges in Illinois, teachers in Ohio and state government employees in Virginia, and the TIAA-CREF investment fund for educators. Yesterday, Lewis lost the support of Calpers, the California pension fund, which said it will vote its 22.7 million shares against the entire board.

The largest group to announce public opposition to Lewis’s re-election, TIAA-CREF, controls less than six-tenths of 1 percent of the bank’s 6.4 billion shares. Phone calls to Hye-Won Choi, TIAA-CREF’s head of corporate governance, weren’t returned.

Proxy adviser RiskMetrics Group’s ISS Governance Services has said it will vote against Lewis; Sloan, the lead director; and board members Frank P. Bramble Sr., 59, a former vice chairman at MBNA Corp.; Monica C. Lozano, 52, publisher of Impremedia LLC’s La Opinion magazine; Robert L. Tillman, 65, former CEO of Lowe’s Cos.; and Jacquelyn M. Ward, 69, a former managing director at Intec Telecom Systems Plc.

In addition to Lewis and Sloan, proxy adviser Glass Lewis said it will vote against directors Virgis W. Colbert, a former executive vice president at Miller Brewing Co.; Joseph W. Prueher, a retired Navy admiral; and Charles O. Rossotti, a Carlyle Group Inc. adviser.

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