On the surface, Wall Street seems to like Bank of America CEO Brian Moynihan.
The country's second-largest bank announced last week that its revenue fell less than expected, and the media painted it like a victory. Stocks have gone up.
Ask analysts and investors and you'll get a vague consensus. “This CEO has been here for 15 years.” Let the board grant his wish. Let him run the place for five more years until he is 70 years old.
But internally, the military is restless for a variety of reasons. Culturally, Moynihan is oddly suited to an attire based on wheeling and trading.
He is a lawyer by training and joins as general counsel from Boston-based Fleet Financial, one of BofA's many acquisitions.
In fact, bank insiders say CEOs bring their lawyers' hesitations to the job.
Frustrated staffers point to a lazy management style and unwillingness to take appropriate risks, particularly at the trading desk that supports large corporate clients and their banking transactions.
They say this is a key reason why BofA, despite its huge balance sheet, continues to operate in investment banking and consistently lags behind the likes of Goldman Sachs and JPMorgan.
That's why BofA's stock has lagged far behind JPMorgan and Goldman's during the last five years of the bull market for financial stocks.
“Brian likes to brag that his desk hasn't lost money in years,” said one BofA official. “That's true, but you can't acquire big-money bank customers without losing some of the customers who support you. That's why we keep losing to Goldman and JPM.”
A BofA spokesperson had no comment.
Since the 2008 financial crisis, the trading risks of betting banks' capital on the market have been notorious, but the reasons are not entirely bad.
Trading errors were one of the reasons the entire financial system crippled, and regulators have since made it difficult to operate large-scale, so-called proprietary trading.
Of course, the roots of the financial crisis are more complex. The panic-inducing housing bubble started with government policies that encouraged banks to make mortgages to everyone, including the unemployed.
Banks then rolled those loans into bonds and got sloppy, leaving a ton of loans on their books. Bonds tanked, hollowing out the balance sheet of the entire system.
Of course, BofA was one of the victims. That's how Moynihan got the job. Ken Lewis was fired, and the board turned to in-house lawyers led by Moynihan to resolve the situation.
He did a decent job in that regard, convincing Warren Buffett to make strategic investments. Stock prices are far from their post-financial crisis lows.
That said, the right kind of trading risk in using his $3 trillion balance sheet to support customers has been eliminated from the business model, and it's now hurting the company, the company says internally. critics told me.
Regulators have little interest in such transactions. The 2008 crisis is over and banks are much better capitalized.
So now is the time to take a little risk and use your balance sheet to support your clients, such as supporting trades for a large investment banking client who is just getting into fixed income trading.
If you don't show up for deals like this, as BofA has been doing, you're going to lose a lot of high-end customers, insiders told me.
Mr. Moynihan's supporters will point to sales and trading revenues increasing for 10 consecutive quarters.
What they cannot deny is that his risk aversion, while putting money in the pockets of bankers at Goldman Sachs and JPMorgan, will not save the banks from looming Armageddon.
Regardless, internal conversations suggest that's probably why Buffett has been unloading his holdings lately. If this starts to spread to the public, your boss may be forced to retire sooner than you would like.
