Why Sallie Krawcheck had to leave BofA

By Felix Salmon
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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5 comments so far

Interesting to compare Carney piece:

“Many Merrill Lynch veterans are surprised that Krawcheck was not offered the co-chief operating officer position that Darnell got….They had assumed that the great performance of Bank of America’s wealth management business would keep Krawcheck safe in her position.”

with the hatchet quote in the Reuters piece:

“It was never clear that Sallie Krawcheck gained traction with the retail salesforce,” said Jonathan Finger, managing partner at Finger Interests Ltd, a Houston-based investment management firm that owns Bank of America shares. “I’m not sure she ever had the respect of the bank’s retail brokers.”

Are you going to call out Joe Rauch’s publishing of b.s.?

Posted by klhoughton | Report as abusive

#1 BofA will badly miss Sally K. She was by every account I’ve ever seen a smooth operator. The only line of business BofA can ever hope to grow is Wealth. They are already #1 in home loans (and wish they weren’t.) They are already #1 in Cards which is probably the best banking line left… but they can’t win much more of that pie. They can do more business banking I guess, but all of those things require more capital which they clearly don’t have. Sally was growing wealth management globally without tying up large amounts of scarce capitol… so it makes no sense to me that they would marginalize that business.

#2 Merrill Lynch cannot have fiduciary responsibility to their customers unless we change the definition of fidicuiary. Merrill is first and foremost a broker. They make markets in everything. They can and do trade in their own name for their own benifit.

When you buy a stock, bond, or structured instrument, through Merrill it is often comming out of their inventory… not unlike buying a car off a dealers lot.

What standard of care does a car dealer owe you? Can they knowingly sell you damaged or defective goods without disclosing it… no. A car dealer, like a brokerage house, owes you the general standard of care which includes honesty and accurate disclosure. A broker or a car dealer however both have every right to sell you an asset they own at a price you are willing to pay.

A fidicuary standard of care goes farther and cannot be met if I am selling you something I own. I can meet the fidicuary standard if I survey the market place and negotiate the best deal on your behalf from another car dealer. When Goldman was getting grilled on Abacus this was the central issue. Our senators did not know the difference between a customer and a counterparty.

Posted by y2kurtus | Report as abusive

Moynihan is a moron. He, along with his mentor, chief Bozo Ken Lewis, has purged the last of the Merrill Lynch senior management. FINALLY, he has gotten rid of those well dressed, well educated, well spoken Ivy League entrepreneurs who the BoA Associates (as all employees are called) hated to see in the elevators. Nope, no more of those guys and gals that worked 12-14 hours per day, and weekends. Not for Brian. He now has the same old lazy, junior college educated, KMart dressed workers that are more worried about their vacation days and whether they would get their 3% salary raise each year. And, he doesn’t have to pay them because that is the culture of BoA. They don’t EXPECT to be paid, and they certainly wouldn’t want to be on a compensation plan that actually paid you for what you produce. No, No, please not that. Long lunches, lots of vacation, including extra vacation time off without pay if you would like (they are allowed to “buy” extra vacation days by forfeiting their salary on those days—what a novel idea, wouldn’t busineeses be better off giving a set amount of vacation time so the employess could actually get some work done?) This purging of Sallie K. is going to be the last straw for the Thundering Herd of brokers at Merrill. They can clearly see that they are quickly becoming “bank teammates” and will soon be shown a salary and taken off commission. Many have thrown in the towel already and are preparing to go to another brokerage firm–more will follow. And finally, Moynihan will have the employee sheep that he so much wants. Unless of course, these brokers do not all leave prior to the first of the year when the board of directors will decide to go with “fresh” leadership and show him the door.

Posted by Shootstraight | Report as abusive

Shootstraight -I can smell your Greed a mile away… you are a idiot and obviously work for ML where you were skillfully programed to believe you are better than everyone else. The Pompousness than runs deep within the entire ML entity is what led you to the verge of bankruptcy (that…and GREED), where the “Big Dumb Bankers” rescued your A**. Otherwise, you were 24 hours away from Lehman…oh, and where are they? That’s right, out of business. So in Merrill fashion if you do not work 22 hours a day, 52 weeks a year you are not committed (guess that excludes the Friday Meetings with “Clients” at the Golf course, or the trips to the strip bars and high dollar call girls on business trips, etc.??)… guess what, you will die a lonely old burnt out man who focused on nothing but money, with a family that resents you for doing so…you will die with all of your greedy wealth, which by the way, you can’t take with you… If you were all so “smart” how did you get bought by a bank anyway…and for way more than you were ever worth…24 hours and you would have been done….and you know it. If your “Clients” only knew how little you have their interests at heart…they most likely wouldn’t care about the “K Mart Suits” in exchange for your $4000 suits and Rolex watches you commandeer at their expense. It’s you Greedy Bast*rds that destroyed Wall Street and Millions of American’s retirement plans and dreams they actually worked their A**ses off for…so don’t talk to me about “work ethic” as none of you have any…GREED is what drives you and inevitably what will take you down. Peace Dollar Monger….

Posted by RockerChk | Report as abusive

Then Dan Bianco was fired for having an opinion that was too optimistic. Mary Ann Bartels made a Bloomberg appearance and said: “There is no reason to be long this market”. Fine, that was the flavor of the week. It seems that no one at Bank of America thinks about next week at all anymore. Nor about loyalty, disclosure, clarity, or even basic tools so that investors and advisors know where they stand.
All the while the nightmare deepens for clients and advisors as the back offices are incapable of functioning or communicating. Is it fixed or real? Is it possible that Bank of America is so broke that they can’t provide what etrade can? How do you manage wealth when current profit and loss can’t be determined? Is this deliberate and just another way to nickel and dime througlh incoherent accounting manipulation or is it just stupidity and a desire to drive any intellegent clients and advisors away? One thing is clear: without clear communication, policy and coherent support from a shocking aray of “back offices”, none of whom seem to communicate with each other wealth management becomes a farce and wealth destruction becomes the driving force. How sad and how stupid. Unfortunately I’m the most stupid as I not only am working blind, but am imprisioned by back office errors that make leaving impossible and suing perhaps the only way to ever get at the truth. How terribly wasteful and sad.

Posted by disallusioned | Report as abusive
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