BOA

BofA's Wall Street Retreat
Casualties of Pullback:
Investment-Bank Chief
And 3,000 Employees
By VALERIE BAUERLEIN

CHARLOTTE, N.C. -- Bank of America Corp., in a reversal of a decade-long effort to reach the top tier of Wall Street, is forcing out the top executive at its investment-banking unit and launching a strategic review that is likely to shrink parts of the operation.

The moves include eliminating about 3,000 jobs, with the cuts coming largely from the company's global corporate and investment bank, which currently has about 20,000 employees. The bank said the cuts are spread throughout the unit, which includes commercial banking and treasury services in addition to capital markets and investment banking. Bank of America, known colloquially as BofA, announced the shake-up late yesterday.

The top-to-bottom assessment of the investment bank, coming less than a week after the company reported $1.45 billion in third-quarter trading losses that caused its overall profit to tumble 32%, is the strongest indication yet that the nation's largest consumer bank may face insurmountable hurdles in its quest to compete against giants such as Goldman Sachs Group Inc. and Merrill Lynch & Co. on Wall Street.

The moves represent another setback for the financial-conglomerate strategy, in which banks try to offer every product and service desired by their customers. While Bank of America's primary goal is to squeeze more and more profit from the nation's largest consumer bank by deposits and branches, Chairman and Chief Executive Kenneth D. Lewis insisted until the trading embarrassment that a leading investment bank was needed in order to satisfy commercial customers.

While some investors may cheer Bank of America's decision to downsize its investment-banking ambitions, the move puts pressure on the bank to rev up growth elsewhere. Despite the recent turmoil, the global corporate and investment bank generated about 22%, or $3.3 billion, of net income at Bank of America in the first nine months of this year. And the company's huge consumer bank is showing growing signs of stress from the housing slump and uncertain economy.

The biggest surprise was the abrupt retirement of R. Eugene Taylor, a Bank of America vice chairman who led the investment-banking unit since 2005 and is a longtime ally and close friend of Mr. Lewis. Both men joined predecessor North Carolina National Bank in 1969, climbed the corporate ladder together and are frequent dinner companions. Mr. Taylor, through a Bank of America spokesman, declined to comment.

The hard-charging Mr. Taylor was put in charge to improve communication and referrals between Bank of America's commercial and investment operations. But the unit continued to struggle, despite $675 million spent in the past two years to hire brokers, traders and other talent.

Through the first nine months of this year, Bank of America ranks 10th in equity and equity-related deal proceeds, with a 5.8% market share, according to Thomson Financial. Bad market bets in the third quarter, which plunged Bank of America's trading account deeply into the red, compared with $707 million in profit a year earlier, convinced Mr. Lewis that the time had come to make major changes.

Brian Moynihan, who is succeeding Mr. Taylor, said that the moves don't amount to a retreat from investment banking as much as an effort to acknowledge weaknesses and start rebuilding for the future. "We're in this business," Mr. Moynihan said in an interview. "We're in for our customers, we're in to help them achieve their objectives." Those customers include commercial clients, hedge funds and institutional investors, he said.

The review of Bank of America's investment bank unit will closely examine how much scale is needed in trading and more-exotic structured instruments. Mr. Moynihan said the bank will remain active in treasury management, commercial lending, debt issuance and other key services for the bank's big customers.

Mr. Moynihan, who is 48 years old and joined Bank of America in its $47 billion acquisition of FleetBoston Financial Corp. in 2003, said revenue growth by the investment bank had been steady until this year's third quarter. But he acknowledged that Bank of America executives have come to the "realization" that the unit's future revenues "will not be as robust as they have been. It's a reshaping of the business to meet that reality."

The strategic review is expected to be a comprehensive workup similar in scale and intensity to what Bank of America would undertake in the due diligence of a potential acquisition.

Bank of America predecessor NationsBank Corp. paid $1.2 billion for Montgomery Securities in 1997, but a culture clash led to a personnel exodus. Mr. Lewis had hoped that internal growth would minimize such problems, but the investment bank still suffered from turnover.

Alvaro G. de Molina, the architect of the unit's current operating structure, announced his departure in December. Ian Banwell, the chief investment officer, left in May to start a hedge fund that is affiliated with Bank of America. Shortly before last summer's upheaval in financial markets, Mr. Lewis pushed aside several trading veterans who had been close to Mr. de Molina.

Mr. Lewis declined to comment yesterday. Last week, he angrily complained that he had "all the fun" he could take from investment banking. He has long worried about the inherent volatility of trading and underwriting results from quarter to quarter, while frowning on the free-wheeling, every-man-for-himself attitude of many investment-banking stars.

In a statement, Mr. Lewis said that the "vast majority of our company is performing quite well and we continue to invest in a number of those businesses to support future growth." He added that "there are areas where we need to improve and are moving decisively toward that goal." Finding a new strategy that Mr. Lewis can live with is crucial. Despite all its investment-banking problems, Bank of America needs to increase its heft in nonretail banking because it is constrained by a federal law prohibiting any bank from acquisitions giving it more than 10% of all U.S. deposits.

Mr. Taylor's 38-year career at Bank of America was marked by devotion to Mr. Lewis and his predecessor, Hugh L. McColl Jr. Starting in grunt jobs, Mr. Taylor consistently proved himself. And like Mr. McColl, an ex-Marine, Mr. Taylor exuded tough-guy confidence, finishing the New York City Marathon eight years in a row during the 1980s and 1990s.

He moved whenever there was a new market to conquer or problem to fix. In 1998, Mr. Taylor was put in charge of retail bank operations in the western U.S., including parts of the former BankAmerica Corp. He kept rising even as other longtime executives quit, were eased out or retired following acquisitions such as the Fleet purchase, which gave Bank of America a major presence in the Northeast.

In Florida, Messrs. Lewis and Taylor were part of a brash, aggressive group of bankers still known as the "Florida mafia." The two executives also played tennis together regularly. The bank said Mr. Taylor, 60, will retire at the end of this year.