Brian Moynihan was impatient. It was August 2011, and the Bank of America Corp. chief executive officer was reviewing plans to impose a $5 monthly fee on debit-card users.

Joe Price, the company’s retail head at the time, wanted to test the charge in small markets, as competitors JPMorgan Chase & Co. and Wells Fargo & Co. were doing. Moynihan, who had been in the job about 18 months, teased Price about his caution, according to four people with knowledge of the meeting at the bank’s headquarters in Charlotte, North Carolina.

Then the CEO ordered his subordinate to roll out the fee coast to coast, say the people, who asked not to be identified because they weren’t authorized to speak publicly about the matter, Bloomberg Markets will report in its April issue.

The decision, announced that September, was met with protests at branches from Los Angeles to Boston. Gerri Willis, a Fox Business Network anchor, shredded her Bank of America debit card on air. Thousands of customers closed accounts. Even President Barack Obama jumped in, blasting the efforts of banks to recoup some of an estimated $8 billion in revenue lost after the 2010 Dodd-Frank law capped fees on debit-card purchases, saying they “don’t have some inherent right just to get a certain amount of profit.”

Five weeks later, the bank — the second largest in the U.S., with $1.1 trillion in deposits, 53 million customers and 5,500 branches — reversed course. David Darnell, the new head of retail, took responsibility for the mistake.

From difficult year to recovery

The incident capped a difficult year for Moynihan, 53, one in which he careened from crisis to crisis. In January 2011, he told investors that refunds on defective home loans sold to Fannie Mae were a thing of the past, a prediction that proved wrong within the first quarter as unresolved claims from U.S.-owned mortgage firms surged 90 percent to $5.4 billion. In March, he raised expectations of a dividend increase, only to have them dashed by regulators when the bank failed a stress test. Shares plunged 58 percent in 2011 as investors speculated about who might replace Moynihan.

“He has lost a lot of credibility,” Paul Miller, an FBR Capital Markets Corp. analyst, said in August 2011. “If we continue to see the stock crater, at some point, people are going to rise up and say, maybe we need to break this bank up, and Brian is probably not the guy to lead that.”

Stung by the debit-card backlash, Moynihan was advised by strategy and marketing chief Anne Finucane to scale back on public and corporate appearances, according to people with knowledge of the conversation.

An Ohio-born lawyer who rose through the ranks at FleetBoston Financial Corp. before its 2004 acquisition by Bank of America, the ruddy-faced CEO sometimes befuddles listeners, tripping over a flood of thoughts as they leave his mouth. He would be better off focusing on what he could control, Finucane told him. Moynihan, Finucane and other top executives at the bank declined to be interviewed. Larry DiRita, a company spokesman, declined to comment.

The advice paid off. Last year, Moynihan made strides shrinking the company, erasing expensive debt from its balance sheet and whittling away at the pile of toxic mortgages inherited from predecessor Kenneth Lewis’ purchase of Countrywide Financial Corp.

The bank, which didn’t ask the Federal Reserve for permission to raise its dividend in 2012, passed its stress test that March. Capital levels rose to a record 9.25 percent by the end of the year, more than 1 percentage point above previous targets. Shares more than doubled in 2012, the biggest gain in the 30-company Dow Jones Industrial Average.

“He learned pretty quickly that underpromising and overdelivering is the best strategy for a CEO,” says Marc Oken, Bank of America’s chief financial officer from 2004 to 2006 and now managing partner at Falfurrias Capital Partners LP, a Charlotte-based private-equity firm.

Moynihan, who was confident enough in March 2011 to call the bank a “growth company,” stumbled because “he was feeling pretty good about what he was doing, and he wanted to share that with the people around him,” Oken says. “It’s a natural impulse you have to learn to curb.”

For an executive whose performance prompted doubts that he could hold on to his job, Moynihan has staged a remarkable recovery. The bank’s board agreed, giving him a raise of more than 70 percent, to $12 million, for the job he did in 2012.

Moshe Orenbuch, a New York-based analyst at Credit Suisse Group AG, predicts that Bank of America’s rising capital levels will allow the firm to increase its penny dividend for the first time since the financial crisis.

Buffett investment

The bank’s revival also has impressed Berkshire Hathaway Inc. CEO and Chairman Warren Buffett, who announced a $5 billion investment in the company in August 2011.

“He walked into a situation where not only was capital on the low side, it was exposed to deterioration in a way that they couldn’t afford,” says Buffett, whose deal grants him 10-year warrants to buy 700 million shares. “You get beaten up in the press, you get beaten up by regulators. You know you’re not going to see results in a week, a month or a year. It takes some guts to take on a job like that.”

Like leaders of other too-big-to-fail banks, Moynihan is grappling with regulations and capital rules that have squeezed profits in both retail banking and Wall Street trading. He’s also facing calls from investors and policymakers to break up big banks, including Bank of America and Citigroup Inc., both of which took $45 billion in government bailouts during the financial crisis. The industry, while recovering, is still far removed from the profits it generated before 2008.

Moynihan installed a new management team in 2011, surrounding himself with deputies whose judgment he trusted. Out went Price, wealth-management head Sallie Krawcheck and CFO Charles Noski.

In their place, he named two new chief operating officers: Darnell, in charge of consumer banking and wealth management, and former Goldman Sachs Group Inc. trading head Thomas Montag, overseeing corporate and investment banking. Bruce Thompson replaced Noski, and Gary Lynch, a former Securities and Exchange Commission enforcement chief, was brought in to handle legal issues. More recently, Moynihan expanded the board, adding half a dozen directors.

The bank has sold $60 billion in assets and businesses since Moynihan became CEO in 2010, including stakes in Brazilian, Chinese and Mexican lenders and overseas credit card and wealth-management units collected during Lewis’ decade-long acquisition binge. Moynihan approved more than $45 billion in settlements tied to Countrywide, which sold $1.6 trillion in mortgages in the four years before the credit crisis, many without regard for borrowers’ ability to repay debts.

He also announced that the bank would cut $8 billion in expenses and 30,000 jobs by 2015, about 11 percent of its workforce as of the end of last year.

How to make more money

While the Countrywide burden has been eased, the race is far from over. Bank of America’s return on equity, a measure of how well it reinvests earnings, was 1.27 percent last year compared with 13 percent for Wells Fargo, 11 percent for JPMorgan Chase and 4.1 percent for Citigroup.

The question now for Moynihan is how Bank of America can make more money, says Credit Suisse’s Orenbuch, who has a neutral rating on the stock. The bank earned $3.1 billion in 2012 before taxes and posted pretax losses of $230 million the previous year and $1.3 billion in 2010. In March 2011, Moynihan said his company could earn $35 billion to $40 billion annually in two to three years.

“They’ve got to recover some of the earnings that have disappeared,” Orenbuch says. “In some cases, it’s hard because they got rid of businesses. In others, it’s about restructuring customer relationships, a fancy way of saying raising prices.”

Darnell, 60, with his focus on consumers, may have the tougher challenge of the two COOs. Profits in retail banking were crimped after new rules limited debit and credit-card fees as well as overdraft charges. Moynihan also scaled back on mortgages, ceding market share to JPMorgan Chase and Wells Fargo. Bank of America, which had the largest home loan business in the U.S. after buying Countrywide in 2008, is now No. 4.

Rather than court new customers, Bank of America’s strategy is to wring more profit from existing ones, soliciting checking-account holders for mortgages, credit cards and investments. That’s easier when people appreciate the job you’re doing for them. The bank had the lowest customer satisfaction of the four biggest lenders in 2012, according to the Ann Arbor, Michigan-based American Customer Satisfaction Index.

The steadiest business on the retail side is wealth management, with 15,000 Merrill Lynch advisers. The unit made $2.2 billion last year and has increased profit every year of Moynihan’s tenure.

Unlike the Countrywide deal, buying Merrill Lynch & Co. proved worthwhile. Bank of America’s investment-banking, trading and brokerage units, made up largely of Merrill Lynch businesses, generated $28.2 billion in profit over the past three years. During that time, the real estate division lost $34.9 billion, largely because of Countrywide’s shoddy loans.

While the units headed by Montag, 56, posted declining profits during the past two years because of less-lucrative trading and uncertainty created by the European debt crisis, there are signs that he’s now taking more risk. The bank’s value at risk, a measure of potential trading losses, in fixed income, currencies and commodities doubled in the last quarter of 2012, which should boost revenue this year, Thompson said Jan. 17.

Bank of America’s weaknesses provide opportunities for improvement, says Thomas Brown, CEO of Second Curve Capital LLC, a New York hedge fund that invests in financial firms. Long-term debt costs of 3 percent are higher than those of other big banks, giving Bank of America room to improve margins as it pays down more-expensive bonds and borrows at lower rates, he says.

The “huge amount” of cheap funding from federally insured deposits is Bank of America’s primary advantage, Buffett says, and the reason he invested in the firm. The lender’s cost of servicing delinquent mortgages should drop from $3 billion a quarter to $500 million, the company has said.

“They have more long-term debt in their funding structure, and they have higher costs elsewhere,” Brown says. “It’s a bad news, good news thing: Your margins suck so bad that this gives you a chance to improve them.”

Moynihan, the son of a chemist and an insurance saleswoman, graduated from Brown University, where he was co-captain of the rugby team, and Notre Dame Law School. He parlayed a job at a Boston law firm into an executive position at Fleet in 1993. There, he evaluated acquisition targets and helped decide whether to keep, fix or sell businesses, says Jay Sarles, a former vice chairman of the Boston-based bank. That job informed Moynihan’s approach to Bank of America, Sarles says.

“He’s one of the brightest people I’ve ever met in terms of an ability to analyze businesses, look through reams of information and reduce it to a key problem and potential solution,” Sarles says. “He had a huge impact at Fleet, and he learned every part of banking.”

One potential deal had Moynihan sitting across the table from Countrywide CEO Angelo Mozilo years before the company was bought by Bank of America. Fleet, displeased with the scale of its own mortgage business, wanted to sell it and retain a partnership with the buyer. The firms couldn’t agree on a price, and Moynihan left with a negative impression of Mozilo, whose mess he would later have to clean up, Sarles says.

Soon after Bank of America acquired Fleet, Moynihan walked into CEO Lewis’ office and tore up the Fleet contract guaranteeing Moynihan a bonus in the event of a takeover, according to a former executive at the company. Bank of America didn’t have such deals, and Moynihan knew that Lewis prized loyalty and respect for the company’s culture, the person says.

Outmaneuvering executives

Moynihan served stints at Bank of America as head of wealth management, investment banking and consumer banking. In late 2009, he outmaneuvered more-senior executives, including former Chief Risk Officer Greg Curl and Bank of New York Mellon Corp. CEO Robert Kelly, in the contest to succeed Lewis, who left amid allegations he had hidden the extent of losses at Merrill Lynch before completing the $29.1 billion acquisition.

Only an insider could quickly fix the bank, Moynihan told the board, according to two people with knowledge of the discussions. Moynihan, who still shops for groceries at Roche Bros. in Wellesley, Massachusetts, where his wife and three children live, wouldn’t cause a fuss over pay, he told the board. While Moynihan had the support of former Fleet directors, others thought he needed more experience, the people say.

That belief would be borne out in Moynihan’s tumultuous first 24 months. His early missteps were marked by a reluctance to listen to colleagues who didn’t share his views, say half a dozen current and former managers.

In January 2011, Moynihan had good news: He had hammered out settlements with U.S. mortgage giants Fannie Mae and Freddie Mac that paid them $2.8 billion in exchange for dropping refund demands on more than $130 billion in home loans. Eager to end pestering by analysts and investors about the scope of future losses, Moynihan wanted a Jan. 3 press release to state explicitly that the deal resolved that aspect of the bank’s mortgage woes, two people with knowledge of the matter say.

The CEO relented when lawyers warned him that such a statement couldn’t be supported by the scope of the deal, which only cleared existing demands from Fannie Mae, not future ones. Still, during an earnings conference call that month, Moynihan said he was “pleased to put the GSEs behind us this quarter,” referring to the government-sponsored enterprises.

It took only weeks for that to prove incorrect, as billions of dollars in new requests piled up when Fannie Mae took a more aggressive stance on loan refunds. Two years later, Moynihan agreed to an additional $11.7 billion deal that finally resolved the claims.

In March 2011, Moynihan stood before a packed ballroom in New York’s Plaza Hotel during the bank’s first full-day investor meeting in four years. He said the company would increase its tiny dividend, a vestige of the financial crisis when the firm had to reduce payouts to preserve capital. Others within the bank urged him not to make such a claim, two people with knowledge of the conversations say. Days later, Bank of America disclosed that the Fed had blocked it from raising the dividend.

“There’s a huge credibility gap with management,” Michael Shemi, a director at Christofferson, Robb & Co., a New York- based firm with $1.8 billion in assets, said in June 2011. “If you were to listen to their end-of-2010 earnings call, the sentiment was around the dividend and returning money to shareholders. All that’s gone out the window.”

‘Strategic error’

In August 2011, Moynihan, who had insisted Bank of America didn’t need to raise capital, jumped at Buffett’s $5 billion investment in preferred shares paying the billionaire $300 million a year in interest.

By that December, three ratings firms had downgraded the bank, citing rising mortgage costs, slowing economies and a lower chance that the government would offer support in a future crisis. Hedge funds and other institutional clients had to be reassured that doing business with the bank was still prudent, Montag told employees in January 2012.

Moynihan hit his nadir with the debit-card fee, which was seen as a move by greedy bankers to reach further into consumers’ wallets.

“Clearly, it was a strategic error, especially since they backed down from it,” says Bill Cheney, CEO of Washington-based trade group Credit Union National Association. His members were among the beneficiaries of Moynihan’s missteps, gaining 650,000 new account holders in the month after the $5 fee was announced.

In December 2011, with Bank of America shares in free fall, the company’s market value dropped to $52 billion, about the same as U.S. Bancorp, a Minneapolis-based lender with one-sixth of the larger firm’s assets.

Moynihan’s shortcomings weren’t unknown to his bosses. He oversaw the 2006 integration of U.S. Trust Corp., the private bank that traces its roots to the 1850s, after Bank of America bought it for $3.3 billion. Alarmed at the exodus of top managers who clashed with Moynihan, Lewis told him in 2007 that he needed to be more inclusive and make crisper decisions, according to two people with knowledge of the discussion.

Moynihan has learned to accept more input from others and to be more circumspect, says a senior executive at the firm. He’s also more mindful of how his moves will be interpreted by the media. He overruled a deputy’s plan to reduce the 2013 payout for Merrill Lynch brokers by 2 percentage points to offset the cost of new incentives, saying that news organizations would focus on the cuts, not the new bonus program, the person says.

“He’s learned to lower the bar and manage expectations more carefully,” says Jonathan Finger, whose family-owned investment company, Finger Interests Ltd., holds 1.1 million Bank of America shares.

Moynihan has also delegated more responsibility. Thompson, the bank’s CFO, has become Moynihan’s stand-in at investor events and typically does more speaking during quarterly earnings calls than his boss.

“Bruce knows every number in this company cold and makes my life easy,” Moynihan told employees at an October town hall meeting. “I just listen for an hour and enjoy what he does a great job of.”

‘Bad presentation’

That may be by design. After one investor conference in June 2011, veteran bank analyst Richard Bove says he called the lender’s investor relations department to complain.

“I told them I didn’t believe such an incredibly bad presentation could be made,” Bove says of Moynihan. “He doesn’t have the ability to speak off the cuff, and to let him is to destroy shareholder wealth.”

Moynihan’s lack of eloquence is the main reason he’s underestimated, says Bill Miller, chairman of Legg Mason Capital Management Inc., whose funds own about 4 million Bank of America shares. Miller says the stock can double within three years.

“There’s a tendency to impute much greater skill on the part of somebody like Jamie Dimon, who is very smooth, over someone like Brian,” Miller says. “People say, ‘Oh, he doesn’t speak well, and he stumbles over his words and he’s sweating.’ “

For Bank of America shares to exceed the $15.06 level at which they traded the day before Moynihan took over in January 2010, he will have to boost revenue and fend off remaining mortgage claims. The CEO has been more adept at cutting costs than inspiring employees to increase revenue, says an executive of a business bought by the lender. The stock dropped about 5 percent this year through March 1 to $11.34.

By late 2012, Moynihan had regained some of his swagger. Investors who have met with him recently say he believes he has finally boxed the Countrywide issues. Analysts expect revenue to increase in the first three months of this year for the first time in six quarters, according to data compiled by Bloomberg.

“We have the top capital in the industry, the top liquidity,” Moynihan told employees at the October town hall meeting.

Last year, as Citigroup’s Vikram Pandit was ousted and JPMorgan Chase’s Dimon was stung by a $6.2 billion trading loss, Moynihan made strides simply by making fewer errors.

“Brian certainly doesn’t show up on anyone’s list of most-admired bankers,” Miller says. “If he’s successful, he will have a lot more stature than is now the case.”

Buffett, who stands to become Bank of America’s largest shareholder, says he has little doubt Moynihan will succeed.

“I’ve been around other companies that have great underlying strengths, where some huge event has gotten them into major trouble,” the 82-year-old billionaire says. “Sometimes, you can make a very good investment when that happens.”

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