November 22, 2011BofA Warned to Get Stronger
Bank of America Corp.'s board has been told that the company could face a public enforcement action if regulators aren't satisfied with recent steps taken to strengthen the bank, said people familiar with the situation.
The nation's second-largest lender has been operating under a memorandum of understanding since May 2009, following repeated tussles with regulators over the purchase of securities firm Merrill Lynch & Co. and a downgrade of the company's confidential supervisory rating. The memorandum, which isn't public, identified governance, risk and liquidity management as problems that had to be fixed, according to people familiar with the document.
In recent months, regulators met with Bank of America's board and said they wanted to see more progress on the bank's compliance with the memorandum. Otherwise the informal order could turn into a formal and public action, which would likely mean intensified scrutiny and greater restrictions as Chief Executive Brian Moynihan tries to shed problems tied to the financial crisis.
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Bank of America's directors were taken aback, said people familiar with the situation. It "put the board on the ground," one of these people said.
The threat of an enforcement action is the latest flashpoint in a tense relationship between U.S. regulators and Bank of America. Directors believe the bank has met demands set out in the 2009 document. Now, "the board's view is it's time to take us out of the penalty box," said one person familiar with the situation. A bank spokesman declined to comment.
But regulators also have told the board they have become concerned about turnover in key management posts. The latest shake-up was the departure in late October of strategy head Mike Lyons, a member of Mr. Moynihan's inner circle who often served as a liaison between the CEO and the board on certain issues.
In less than two years, Mr. Moynihan has changed chief financial officers and chief risk officers twice. In September he ousted the head of wealth management and the head of the consumer bank while elevating two other executives to co-chief operating officers.
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