After Ken Lewis: Bank of America Searches for Its Next CEO

Friday morning's announcement of weak third-quarter earnings—including a loss and missed forecasts—marks yet another blow for beleaguered Bank of America. But CEO Ken Lewis may have had a quieter than usual morning, as attention was not directed at him. The beleaguered CEO has been embroiled in conflicts with regulators and Congress and even agreed to pay back all of the salary he's earned this year. Lewis announced in early October that he will be stepping away from Bank of America by the end of the year. But more than two weeks after announcing his retirement, the bank's board still hasn't named a successor—someone who might be able to help it rebound from its rough spell.

Getting Lewis out of the way will clear the path for a new CEO to deal with the financial, cultural, and legal issues facing Bank of America. But the October timing of Lewis's retirement seems to have left Bank of America flat-footed, even though they have had plenty of time to think about it. At an April shareholder meeting, Lewis was able to cling to his job but was stripped of his chairmanship Since then, Lewis's departure was seen by many BofA watchers as a matter of when, not if. Despite the anticipation, the bank has not named a successor. A report on Oct. 6 said the board would name an emergency interim CEO if legal troubles force Lewis to step down before December 31 as planned. But still no interim CEO has been named.

Speculation on who will replace Lewis abounds. Most of the spotlight has focused on BofA veterans Brian Moynihan, Sallie Krawcheck, and Thomas Montag. All three were among those moved around in a shuffle last month that Lewis said would "position a number of senior executives to compete to succeed me at the appropriate time."

"Ideally you like to do these [transitions] simultaneously," says Anthony Polini, an analyst at Barclay's Capital. "You don't need someone to change world. The business model is viable." But the lag highlights the complications Bank of America faces in hiring a new chief. The ideal candidate needs to be a good public face for the firm's image, which has been damaged, but also a good risk manager who can understand a huge bank. He or she would also leave behind the top-down style Lewis espoused, while also meshing with the culture of the Charlotte, N.C.–based bank, which likes to identify itself more with Main Street customers than Wall Street executives.

"I think it needs to be a Charlotte type of person," says Nomi Prins, a former investment banker and author of It Takes a Pillage. "It can't be someone who's going to be just a consumer banker and let whoever's running divisions like Merrill Lynch gloss over numbers. What would be bad for everyone involved would be to have someone run it like an investment bank, but you need someone who understands Wall Street."

In that respect, Brian Moynihan has the inside track—Polini put the odds at 2 to 1 that he will take over. It isn't the first time his name has come up: he was mentioned as a potential chief as early as April, when it was unclear whether Lewis would hold on to his post. Lewis tapped Moynihan, an attorney, to head Merrill in January, but he was shifted to lead consumer banking in August. That puts him in a powerful position atop the bank's core division, but that group is struggling, and Prins says he might be most valuable to Bank of America if he stays in that job and shores up the division's operations. Moynihan is also something of an outsider; he joined the firm in 2004 when it bought FleetBoston Financial Corp.

Sallie Krawcheck, the head of wealth management, is also said to be a contender. She replaced Moynihan in the August shuffle. Before coming to Bank of America, she was chief financial officer at Citigroup but left in a dispute over whether the company should reimburse clients burned by the hedge funds that Citi had pushed. Her pro-consumer stance could end up giving her an edge at a bank that could sorely use some good publicity. Still, she has her share of weaknesses. Polini says she is talented but "not at all qualified" to run the bank only a few weeks into her tenure. Furthermore, she has just begun efforts to remake Merrill Lynch, recently launching a $20 million marketing campaign for the brokerage. Like Moynihan, her greatest value might be in her current job. She's also a consummate Wall Streeter. At a press conference on Oct. 5, Krawcheck refused to answer questions about her candidacy for the job, but she did position herself as an executive who is comfortable at the bank. "I speak wealth management, I speak bank, and I speak Southern," she said, pointing out that she was raised in South Carolina and attended the University of North Carolina at Chapel Hill.

Then there is Montag, chief of global markets and investment banking operation. Earlier this month, he won plaudits for keeping veteran Merrill banker Andrea Orcel, a top performer, at Bank of America. No one doubts his financial acumen, but Montag carries heavy baggage: He was one of several officials who disgraced former Merrill chief John Thain, hired from Goldman Sachs shortly before he was forced to sell the firm to Bank of America. His associations with Thain and Goldman would make him a tough sell.

With so many flawed candidates, many observers are left scratching their heads about who at Bank of America could be promoted. It might be no one, says independent analyst Nancy Bush. "The board is all over the place with this thing," she says. "I can only interpret this as meaning that regulators are placing pressure on them to get a CEO in place and do it soon, and I don't think it's going to be somebody internally."

The government's favored candidate would likely be highly experienced in a range of financial services and not part of the company culture. "I don't think the Charlotte mentality has done that company a lot of good," Bush says. "That may be something that's desired inside the company, but the further from the Charlotte mentality the person is the better." There aren't many people who fit that description. Former Wachovia CEO Robert Steel, a North Carolina native, has been mentioned as a possibility, but he is tainted by his association with Goldman and Hank Paulson's Treasury Department and by his shaky though not disastrous handling of Wachovia. A handful of other potentials haven't run large banks, don't have retail banking experience, or carry other baggage.

BofA itself is hearing plenty in favor of both internal and external candidates, says spokesman Bob Stickler. "I don't think there are a lot of people who are arguing about the franchise we've got, the strategy to grow it organically, and the ability to execute, which historically has been very good—it's just a matter of what side of the fence you're on," he says. As for rampant speculation, Stickler says there's little truth in most of it.

Ironically, it is Montag's old boss, Thain, who might have been the most qualified replacement for Lewis. Before Thain was a poster boy for corporate excess, he was a respected turnaround artist, credited with modernizing the New York Stock Exchange. When Bank of America purchased Merrill, he was poised as a successor. In a move that some viewed as an attempt to save his own hide, an embattled Lewis made Thain the scapegoat for Merrill's bloated bonuses and forced him out in January. Journalist William Cohan told Bloomberg on October 1 that although Thain would be a "tough person to bring in," he deserved another chance.

The most important thing for the bank right now might not be who succeeds Lewis, provided someone steps up quickly. With so many questions about Lewis's performance, he has become "a distraction," said Mike Williams, director of research at Gradient Analytics. "If they can't get a hold on the rate at which the loans are going bad, it's a potential source of failure."