Sunday, March 25, 2018

Observations about Bank of America, and more market talk

The recently received 2017 Annual Report of Bank of America tells some stories, some intended and some maybe not.  The report is a throwback to annual reports as they traditionally were before brevity was favored after 2001 and austerity became the rule after 2008.  There is an opening 32 page glossy section of photos and happy talk.  Page 2 is a full page portrait of  CEO Brian Moynihan.  In this section there are 15 photos of women and 3 of men.  Investing and lending for lofty goals is a theme, as is sustainability and environmental issues.  This is a document that promotes ideals and the Chairman more than it does the financial performance of the firm. It goes unsaid that they can  choose to do this due to better performance and a significantly higher stock price after being in the doldrums for years.

What are the observations?  The photo of the CEO is a  red flag.  It is not a photo of a leader meeting with clients or talking to employees.  It is just his full page mug.  Supporters inside the firm would say that his leadership requires this, and that the PR, ad, and design firm folks recommended it.  Of course they did, because their real job is to intuit what the person that pays them wants.  Choosing to do this speaks of hubris, no way around it.  Hubris is rarely a positive.

The focus on ESG values, aka environmental, social, and governance focused investing, is to some extent laudable, but this annual report overwhelms.  "Responsible growth" is the mantra.  It could remind one of the now deposed Jeff Immelt of GE, who projected a saintly presence while managing, or not managing, an increasingly dysfunctional franchise.  There are multiple examples of the goodness of the bank, and to quote one, "I'm in a happy place now because Bank of America saved my life".  Again, it overwhelms.  If this felt like a priority to the company, one or two quotes from credible and well known outside observers or investors would have been a good idea. 

The proxy statement continues this push to greatness.  Proxy statements are traditionally viewed as fact based legal documents.  The section on election of directors has descriptions of each one, as is customary.  Moynihan, as a director, is described as being responsible for leading the "transformation" of the company and "conceiving" the drive for responsible growth.  The description is more opinion based than the norm.

To speak more broadly and project this approach to the large corporate market as a whole, it is a classic hallucination for companies and their leaders to view strong performance as personal achievement while ignoring an environment that allowed it to happen. It has been a positive period for large financial firms.  The best thing a CEO can do is not get in the way.  A sense of celebration and back slapping across corporate America is not a good sign.

Is this another peak market indicator...

Postscript:  a 6/5/07 post here described the annual report of a former North Carolina bank, Wachovia, and the profile of its CEO.  There are parallels.


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