BofA boss needs to kick it up a notch — or two

July 19, 2011

By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

NEW YORK — Brian Moynihan needs to kick it up a notch or two. The Bank of America boss has spent much of his 18 months in the corner office cleaning up the mess left by predecessor Ken Lewis. But despite the yeoman efforts, he has failed to persuade investors he’s turning the firm around.

Another lackluster quarter won’t help. It’s not so much the huge $8.8 billion loss; that was the result of $20.1 billion of charges announced at the end of June to settle a raft of mortgage-related issues, so was expected. But even without that, the underlying performance was still pretty dismal.

After stripping out $3.1 billion of one-off pre-tax assistance from securities gains, investment dividends and the sale of insurer Balboa and its remaining stake in BlackRock, net income was just $1.7 billion. That amounts to a paltry 3.3 percent annualized return on equity.

What’s more, at around $33 billion, according to Citi, annualized pre-tax pre-provision earnings for the quarter came in as much as a third below what management laid out earlier this year as its normalized expectations.

Granted, most banks are being dragged down by the sluggish recovery and fears of broader systemic problems, from the U.S. debt debate to the European crisis. But investors have whacked BofA more than many. The shares have fallen 10 percent since Moynihan announced the raft of mortgage charges last month — while JPMorgan’s and Wells Fargo’s are both up. BofA now trades at less than half of book value.

That illuminates a lack of confidence in the firm’s earnings potential, its management — or both. Showing some sustainable improvement in the business performance is crucial. And perhaps some new blood would help; Moynihan’s one major hire, Chuck Noski, lasted less than a year as finance chief. But Moynihan should act fast. He may be running out of time to win investors over.

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