It had already been a tough morning for Bank of America and its longtime CEO Brian Moynihan following the Oct. 14 earnings report.
The bank had missed third-quarter earnings estimates, weighed down by weaker trading results. Hours earlier, it had been fined $1.2 billion by the U.S. Treasury for what the government said was lax conduct around money laundering. The stock dropped over 5%.
As Moynihan took questions on the earnings call, things got worse: UBS analyst Erika Najarian asked whether there was a "confidence issue" among investors.
Then Wells Fargo analyst Mike Mayo asked, "I just was wondering about your thoughts on a successor. How much longer do you plan on remaining CEO?"
Moynihan, 67, replied, "It's the board's decision. Ultimately, our job as a management is to tee up the talent in this company, which there's a lot." He then told Mayo, of any change, "you'll be the first to know."
Moynihan has said in the past that he would like to stay for the "short to medium" term and has indicated staying aboard as CEO until 2030, when he will be 70. Perhaps his plan is inspired by JPMorgan Chase CEO Jamie Dimon, now 70, whose bank continues to thrive. But Moynihan is no Dimon -- and Bank of America is no JPMorgan.
Succession periodically comes up on earnings calls. In this case, Mayo appeared to be giving voice to what more and more investors are likely thinking: It's time for Moynihan to move on.
Bank of America has been a laggard over the past five years in terms of both its return on capital and its stock market performance.
Over the five-year span, Bank of America's stock is up 10% to a recent $51, while JPMorgan's stock has gained almost 100%. Among the other Big Six banks, Goldman Sachs Group has doubled, while Morgan Stanley, Wells Fargo, and Citigroup shares are each up about 75%.
"While the rate environment this fall has impacted bank stocks generally, Bank of America's stock hit multiple all-time highs in 2026," a Bank of America spokesperson told Barron's.
Wall Street is bullish on the stock, with the highest percentage of analyst Buy ratings among its peer group.
Moynihan, who became CEO in 2010, got high marks during his first decade in the job, as the bank stabilized and then expanded in the wake of the financial crisis.
His mantra has been "responsible growth." That includes an emphasis on prudent lending. The bank probably has the highest-quality loan portfolio among its peers.
Mayo has written, however, that the bank may have emphasized "responsible" at the expense of growth.
Meanwhile, that tagline sounds misplaced a week after the bank was hit with the U.S. Treasury's third-largest fine in history.
Bank of America's lagging performance is one reason the company held its first investor day in more than a decade last November. At the meeting, the bank set ambitious goals around revenue and returns.
Heading into the investor day, Truist analyst John McDonald wrote that management is in the "hot seat."
A year later, at what could be a high point in the economic and market cycle, Bank of America's returns remain appreciably below JPMorgan's. JPMorgan has no structural advantage: The two banks have a similar mix of business, with large consumer franchises, big trading and investment banking operations, and large wealth management units.
Bank of America generated a return on tangible common equity, or ROTCE, of 15% in the third quarter, adjusted for the $1.2 billion fine. That's in line with its performance over recent quarters and no better than its 2019 results. By comparison, JPMorgan's return was 20% in the latest quarter, while Morgan Stanley and Goldman Sachs both had returns above 20%.
Bank of America's goal is to get to a 16% to 18% return. The spokesperson said the bank "is on course to deliver record full-year earnings, achieve a second consecutive year of double-digit EPS growth, and is on track to reach its medium-term ROTCE 16%-18% targets."
One reason for Bank of America's lower returns right now is that it's sitting on nearly $500 billion of low-yielding bonds -- mostly mortgage securities with 2% rates -- that it purchased when rates were at historic lows during the Covid era. That decision has weighed on its net interest margin and earnings.
Bank of America's intention is to hold those bonds until maturity, without ever realizing losses. But for now, the paper loss on that portfolio widened by $22 billion to $104 billion in the third quarter -- by far the largest paper loss in the banking industry. JPMorgan's loss on a similar portfolio is around $26 billion.
Beyond the financial metrics, Bank of America has also fallen behind rivals in key businesses. Morgan Stanley, for instance, is the clear leader in wealth management, a position once held by Bank of America's Merrill unit.
There is still huge potential at Bank of America. It has the country's largest consumer banking business, with about $1 trillion of low-cost deposits, on top of strong commercial lending, the Merrill wealth management franchise, a top-tier investment bank, and excellent technology, including the digital assistant called Erica that is popular with customers.
Bank of America's current valuation, though, suggests investors remain dubious about its ability to deliver. The stock trades for just 11 times projected 2026 earnings, a discount to JPMorgan and Morgan Stanley, at about 14 times.
Berkshire Hathaway, once Bank of America's largest shareholder, has cut its stake by more than 50% since July 2024 to under 500 million shares, a 7% holding. Berkshire didn't respond to a request for comment about its position.
Other large holders sold Bank of America stock in the second quarter, including Fidelity, Capital Group, and T. Rowe Price. They declined to comment.
Last fall, Bank of America addressed the question of Moynihan's potential successor when it named bank veterans Dean Athanasia and Jim DeMare as co-presidents.
But there's now an excellent external candidate. Marianne Lake left JPMorgan in June after losing out in the race to succeed Dimon. Lake, 57, has both operational and financial experience, including a well-regarded stint as JPMorgan's chief financial officer. She has yet to land a new position and is free to take any job she likes. JPMorgan didn't put any handcuffs on her when she left.
On the Oct. 14 earnings call, Wells Fargo's Mayo also asked whether Moynihan's eventual successor should come from the "outside." If not, "why not?" he asked. It was another bold -- and needed -- question.
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