Felix Salmon

Tom Lindmark says I should give Ken Lewis a break:

Felix Salmon made a good point in a post yesterday when he said that running a mega bank was not something that any individual was capable of doing…

While Felix thinks that bank CEO’s cannot positively influence the outcome of their institutions, he seems perfectly willing to assert that they can destroy the bank. This makes no sense logically but it does typify the sort of disparagement that has been dealt out to Lewis and others.

I do think that the importance of CEOs is often overrated, but of course Ken Lewis is and was entirely capable of destroying shareholder value. One of the ways he did that was by growing Nationsbank, by acquisition, into a bank which is now too big to manage or effectively run. Another way he did that was by buying Countrywide and Merrill Lynch.

Conversely, there are ways for bank CEOs to protect shareholder value. In an interest-rate environment like the one we have right now, banks will be steadily and highly profitable on a week-to-week basis. The job of senior management is to keep an eye on the risk book, and make sure that no one is taking outsize risks which can’t be managed. Goldman Sachs and JP Morgan are both very good at this. Ken Lewis was always very bad at that aspect of the job: when things started heading south in the housing market, he decided the best thing to do was to redouble his housing bets by buying Countrywide.

Lindmark suggests that the disparagement of Lewis is snobbish NYC elitism:

Lewis’s real problem was never about his ability to run a bank but rather about his looks, demeanor, background and geographic location. He isn’t Jamie Dimon smooth and he looks like a man either in a permanent state of confusion or one about to rip out a subordinates throat. He never made any bones about his middle class background nor about his strong desire to succeed and running a bank based in Charlotte automatically knocks you down a lot of pegs in the viewpoint of the New York crowd.

Jamie Dimon bought Bear Stearns and got a sweetheart deal from the government to make it work. Ken Lewis bought Merrill Lynch and went back after the fact to get their backing. Little is said of Dimon’s deal while Lewis is vilified for everything connected with the Merrill acquisition.

This is ridiculous. People hate Lewis because he’s middle class? Er, no. Because he’s ambitious? (And Dimon isn’t?) Because he’s based in Charlotte? Come on. They hated on Stan O’Neal and Dick Fuld and Jimmy Cayne and Chuck Prince just as much, and they were based in New York.

As for Ken Lewis getting more grief for buying Merrill than Dimon has got for buying Bear, well, yes. Lewis overpaid massively for his failing investment bank, while Dimon got the Federal Reserve to subsidize his purchase to the tune of $29 billion. Both CEOs are ambitious, but only one let his ambition get the better of him. And he’s the one who just resigned.

Running a bank the size of BofA is impossible. So long as the Fed does its best to make the banking system profitable, you could put a baked Alaska in charge and the bank would throw off billions of dollars a year in profits. The job of the CEO is not really about managing down, so much as managing out — repairing relationships with Andrew Cuomo, Sheila Bair, Barney Frank, Mary Shapiro, Elizabeth Warren, and other Washington VIPs. The board will want an experienced manager, to be sure. But they’ll really want someone with political skills, who can calm the savage beast that has woken up DC and which is eyeing the giant of Charlotte.

Which is one reason it’s not so ridiculous that Sallie Krawcheck is being talked of as a serious contender for the top job at BofA. She has the kind of credibility as a straight-shooter that the company desperately needs, and she might be able to mollify some of the bank’s more antagonistic foes.

Meanwhile, if the board starts looking at external candidates, all such candidates must be thinking in the back of their head that a very similar opening is likely to appear at Citigroup sooner rather than later. Vikram Pandit has done amazingly well just to outlast Ken Lewis — his ability to stay in his job is impressive, even if it’s largely a function of the fact that Citi has no succession plan. But as the last of the great destroyers of value still to be drawing a paycheck, he can’t last much longer.

It’s a good time, then, to be a potential megabank CEO. But it’s still a thankless job. Both banks are too big to manage, and both are likely to be broken up eventually. And that kind of decision can’t come from a new CEO: it has to come from the board.