“The California Public Employees Retirement Union will vote against the reelection of all 18 Bank of America directors, including the chairman, Ken Lewis. Bank of America will hold it’s annual meeting tomorrow. He owns 22 million shares of Bank of America and joins a number of other funds calling for a boardroom makeover. The entire board failed. Bank of America stock on that news down to 8 bucks a share.” Fox Business Network 4/28/2009.
There was pressure on Bank of America (BAC) as well as Citi (C) shares this morning as preliminary results of the governments stress test of the financial system showed that both of these massive financial institutions may need to raise capital yet again. This is particularly bad news because many analysts have criticized that the stress test are not stressful enough. The assumptions made about the economy in a worst case scenario in terms of unemployment and a shrinking GDP looks eerily similar to our current macroeconomic situation. There are reports that there may need to be a second round of stress tests in case things do take a turn for the worse. This is yet another headache for Bank of America CEO Ken Lewis to deal with after he has been entrenched in the increased drama surrounding the Bank of America takeover of Merrill Lynch.
Considering that BAC and C have already required nearly $100 billion in government funding thus far, the fact that the capital deficit remains “in the billions” is less than comforting. That being said, these are just the most high profile of the subjects of the stress tests and there is a strong possibility that more of the 19 largest financial institutions will require more capital as well. However, government officials have clearly stated that none of these institutions will be allowed to fail, so if they are not able to raise the capital on their own the government will need to come to the rescue again. Shares of Bank of America were off by about 8% this morning after the news broke.
Later in the day, one of Bank of America’s largest shareholders, Calpers or the California Public Employees Retirement fund made a very public showing of their disapproval for the Bank of America Board of Directors. In anticipation of the BofA annual shareholder’s meeting, Calpers votes their 22.7 million shares against reelection of any of the Board Members, including Chairman of the Board and CEO Ken Lewis. Calpers board President Rob Feckner said, “The entire board failed in its duties to shareowners and should be removed.” Clearly, Calpers is not alone as other major share blocks are voicing an opposition to the board and Lewis in particular. Besides the terrible performance of the stock in the past 2 years, shareholders also feel proper disclosures were not made before the vote to acquire Merrill Lynch and also massive bonuses that were paid to the Merrill executives despite the firms huge losses.