BofA's Ken Lewis in the hot seat

The CEO of Bank of America will have his hands full dealing with the troubled Merrill Lynch. But analysts argue his job is secure...for now.

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By David Ellis,

Bank of America Chairman and CEO Ken Lewis has faced plenty of scrutiny in recent weeks over his decision to acquire Merrill Lynch.
Bank of America shares are worth just half of what they were two weeks ago.

NEW YORK ( -- Bank of America CEO Ken Lewis is quickly learning just how lonely life at the top can really be.

Last week, the Charlotte-based company reported its first quarterly loss in years, hit hard by rising credit costs and sizeable writedowns.

Making matters worse, the Treasury Department needed to give the bank an additional $20 billion in government funds last week to help it complete its purchase of Merrill Lynch. That left many investors wondering whether the company overpaid for the brokerage giant.

That was followed by Thursday's ouster of former Merrill CEO John Thain from Bank of America. Thain's departure is the latest in a string of exits by high-ranking former Merrill employees.

And with Bank of America (BAC, Fortune 500) shares worth less than half of what they were just two weeks ago, investors are not happy with Lewis.

"I wouldn't call his job secure," said Ray Soifer, chairman of Soifer Consulting, who formerly covered the commercial banking industry for Brown Brothers Harriman. "[His fate] is still up in the air."

A meteoric decline

For someone who was regarded as one of the top CEOs in the rough-and-tumble financial services industry as recently as December, Lewis' star has fallen pretty far in a short period of time.

Until the fourth quarter of 2008, Bank of America remained profitable. And Lewis won praise for pulling off two massive purchases last year during a time of turmoil, the acquisition of the troubled mortgage lender Countrywide and, of course, Merrill Lynch.

Lewis' respect within the industry ran so deep that he was even bestowed with the title of "Banker of the Year" for 2008 by the industry trade publication American Banker.

But that now seems like ages ago. The Merrill deal looks like a disaster after Bank of America revealed that the brokerage giant lost a whopping $15.31 billion in the fourth quarter.

Many investors and analysts fear that Bank of America's results will continue to be hurt by Merrill's exposure to risky mortgage assets and other securities that have soured during the credit crisis. And analysts say Lewis deserves blame for not doing enough due diligence on Merrill.

"I certainly fault him for taking on this risk and really paying too high a price," said Stuart Plesser, an equity research analyst for Standard & Poor's. "That is where he is culpable."

Hurdles ahead

Other company observers are quick to point out the challenges for Lewis are more complicated than just dealing with Merrill Lynch's books.

The Bank of America chief will also have to find a way to meld the two firms' businesses and dissimilar cultures - an issue that some believe prompted the recent exit of Greg Fleming, head of Merrill's investment banking business, and its top broker Bob McCann.

Luckily for Lewis, he should be able to hold onto the bulk of Merrill's army of brokers -- the so-called "thundering herd" -- given the current economic climate and drastic consolidation in the brokerage industry in recent months.

What worries some analysts, including Soifer, is the fate of Bank of America's investment banking business. With Thain's departure, Bank of America may have lost a key Wall Street "rainmaker" who could have done a lot for that ailing division.

"You could sell it off, but that leaves you with one hand tied behind your back in competing for corporate clients," Soifer said.

The ongoing digestion of Countrywide could also create headaches, and Lewis will also likely have to deal with greater oversight from banking regulators following the Treasury's move to invest $45 billion in the company.

No white knight expected to come in

Some investors appear to be frustrated enough that they are trying to find someone else to lead the bank.

The Wall Street Journal reported last week that a shareholder group had approached former Bank of America chief financial officer James Hance about replacing Lewis. Hance, who now works for private equity giant The Carlyle Group, reportedly said he was interested but sources told the paper they were doubtful efforts to oust Lewis would succeed.

Still, even as some investors raise their eyebrows about the current Bank of America chief, analysts are not convinced that Lewis is on the way out anytime soon.

For starters, notes Plesser, he is the probably the most adept candidate at running the banking giant, given how many challenges the firm faces.

"From the standpoint of investors, this is the guy you want in there at this point," said Plesser. "In terms of integrating [Merrill] and cutting expenses, I think he is the guy you want to be doing this right now."

The subject of leadership could come up at a regularly scheduled Bank of America board meeting next week. But a source close to the matter said that the agenda does not include a discussion over the CEO post.

"I don't think this is a scenario where someone rides in on a white horse and saves [Bank of America]," said Soifer.

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