Why Sallie Krawcheck had to leave BofA

September 7, 2011
no longer particularly important to Bank of America.

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Here’s how best to explain what happened to Sallie Krawcheck yesterday: Krawcheck was the head of Merrill Lynch’s Thundering Herd, reporting directly to Bank of America CEO Brian Moynihan. But Merrill Lynch’s Thundering Herd is no longer particularly important to Bank of America. When Krawcheck was offered a position commensurate with the importance of her team to the bank, she quit — as Moynihan knew she would.

Here’s a simpler way of seeing the same thing: the words “Merrill Lynch” appear exactly once in the BofA press release — and then only in the context of  “institutional investor services such as Bank of America Merrill Lynch Global Research.” See if you can spot the Thundering Herd in this sentence:

Darnell is responsible for those businesses serving individual customers and clients including deposit, card, home mortgage, wealth management, small business, and related products and services.

Yep, it’s that “wealth management” in the middle there, squeezed in between home mortgages and small businesses — a good indication of how important it is, these days, to Bank of America.

In that context, Moynihan basically had two choices: he could promote Krawcheck out of Merrill to give her all of Merrill Lynch’s consumer businesses, or he could demote/fire her. Given that she has little in the way of consumer-banking experience, and risks in the mortgage area are the biggest existential threat to BofA right now, he chose the latter.

Is it the right decision to marginalize Merrill’s brokers in this way, making them just one part of a wealth-management operation which itself is just one part of the “individual customers” group at BofA? Josh Brown makes the case that over the long term it’s probably inevitable: “the jig is up,” he writes, “and everyone knows that Merrill Lynch’s fiduciary responsibility is to the shareholders of Bank of America first and the clients second.”

Which is undoubtedly true. Here’s the end of the press release:

Removing a layer of operations management, aligning leaders with our customer groups, and simplifying the organization reflect the primary objectives of the Project New BAC, begun in April 2011. These and other organizational improvements will eventually take effect across the consumer, home loans and support areas covered by phase I of New BAC…

“There is hard work ahead to finalize and implement our New BAC decisions from among the hundreds of thousands of ideas employees have submitted,” said Moynihan.

The thing to note here is the name of Moynihan’s flagship revamping project: “New BAC.” The name of the company is Bank of America; BAC is its ticker symbol. I’m sure owners of BAC shares are happy that Moynihan has them top of mind. But if you’re a wealth manager at Merrill Lynch or US Trust, you’re working for your clients first, and your clients are not going to be happy if they think that you’re ultimately working for BofA’s shareholders.

I suspect that wealth management at BofA, then, is going to act a bit like dialup revenues at AOL: a steady and dependable revenue stream, in long-term secular decline, which can be used to fund investments in the rest of the business. For the bank, that might make sense. But for Sallie Krawcheck, it clearly marked the end of the road at BofA.


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