Help (still) wanted: Bank of America CEO

The search for a successor to Ken Lewis continues, stymied by a limited pool of candidates and the heavy hand of the U.S. government.

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By David Ellis, CNNMoney.com staff writer

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Bank of America CEO Ken Lewis will retire at the end of this year, following a 40-year career with the company.
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NEW YORK (CNNMoney.com) -- Of all the headaches Bank of America faces these days, none is more painful than its ongoing quest to find a new CEO.

More than a month-and-a-half has passed since Ken Lewis announced his plans to retire from the Charlotte, N.C.-based bank at the end of the year. Still, a successor has yet to emerge.

Some have blamed disorganization among company board members, who were arguably caught flat footed when Lewis first made his stunning announcement at the end of September.

Lewis had previously said he planned to serve until after the bank paid back the money received last fall under TARP, or the Troubled Asset Relief Program.

But the government aid might be part of the problem. Over the past year, regulators pumped more than $45 billion into the nation's largest bank, nearly half of which came after Bank of America (BAC, Fortune 500) realized that the scope of losses at investment bank Merrill Lynch were much more severe than first thought. BofA agreed to buy Merrill last year just as Lehman Brothers was about to go under.

As one of seven companies to get "exceptional" assistance, BofA has had to succumb to a handful of government demands, including having the pay packages of its top executives reviewed by Kenneth Feinberg, the Obama administration's so-called "pay czar".

That has apparently scared away some potential successors.

William Demchak, for example, a leading executive at Pittsburgh-based PNC (PNC, Fortune 500), reportedly brushed aside inquiries by the firm amid fears about what kind of scrutiny might be imposed by Feinberg, according to the a recent report by the Wall Street Journal.

Robert Kelly, the chairman and CEO of Bank of New York Mellon (BK, Fortune 500), was also believed to be in the running for BofA's top post earlier this month before announcing to staff he was not interested.

"No one wants to work for an institution where the government is calling the shots," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Looking inside and out

That reluctance could give some internal candidates, who have already come to grips with life under the government's thumb, a leg up on the competition.

At least two BofA insiders are believed to be in the running for Lewis' job - Brian Moynihan, the recently appointed head of BofA's key retail banking business and Greg Curl, the bank's chief risk officer.

Neither candidate, however, has won a ringing endorsement from Wall Street.

"We believe the board will find it cannot justify either candidate based on their professional merits," wrote Jonathan Finger, a partner at the Houston-based investment manager Finger Interests, in a regulatory filing earlier this month. The firm owns shares of BofA.

Finger and other big institutional investors who helped lead a successful campaign to strip Lewis of his title of chairman earlier this year, have instead lobbied for making a clean break with the Lewis era.

They have demanded that the company hire an outsider, or at least someone who has been away from BofA for some time.

A Bank of America spokesperson said that the company was interviewing both internal and external candidates, but would not comment on recent speculation on who those candidates might be.

Two names outside the company that were widely cited in the wake of Lewis' resignation were James Hance and Alvaro de Molina, two long-time BofA veterans. Both had previously been chief financial officer for the bank. Hance is now the chairman of telecom firm Sprint Nextel (S, Fortune 500).

Molina has suddenly become available after stepping down as CEO of auto financing firm GMAC on Monday. Some experts have downplayed his chances though since he may have generated some ill will by hiring away dozens of BofA employees following his departure in late 2006.

"Even burned down bridges can be repaired, but I don't know if BofA can forgive his recruiting efforts when he left," said Raymond James analyst Anthony Polini.

The speculation hasn't stopped there. Even New Jersey governor Jon Corzine, who lost a bid for re-election this month, was briefly mentioned as a successor, before the former Goldman Sachs (GS, Fortune 500) executive quashed such rumors last week.

Many challenges for a new leader

As rabid as the speculation is about who will replace Lewis, no decision is expected to be made until next week at the earliest. A company spokesperson said the board was looking make a decision "around Thanksgiving."

Whoever does secure the position, however, will certainly have their hands full.

The new CEO will have to establish an exit strategy to pay back TARP funds and get out from under the government's thumb.

Lewis' successor will also have to navigate a minefield of new industry regulations that could hurt BofA more than other banks.

A sweeping set of changes are set to go into effect for the credit card industry in February. BofA is currently the second largest issuer of credit cards in the country, according to the industry trade publication Nilson Report. Even more changes are likely ahead as Congress pushes forward with additional financial regulatory reforms.

There has even been increased talk on Capitol Hill of giving regulators the power to break up some of the nation's largest financial institutions, a group that would most certainly include BofA.

On top of all that, there are many internal challenges facing the company, namely the integration of Merrill Lynch, said William Atwood, executive director of the Illinois State Board of Investment, which owns nearly 2 million shares of BofA.

The company also faces what could be an ugly legal fight with the Securities and Exchange Commission over BofA's alleged failure to notify shareholders of its decision to pay Merrill executives outsized bonuses last year.

BofA had originally worked out a $33 million settlement with the SEC over the matter, but a judge threw out the agreement, setting the stage for a trial early next year.

"The board has a singular opportunity to get it right," said Atwood. "In one fell swoop they can really strengthen the whole organization." To top of page

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