In its regulatory filing on Wednesday, Bank of America Corporation (BAC) stated that CEO Brian T. Moynihan’s compensation in 2010 had been lowered to $1.94 million. Though the CEO’s salary was hiked to $950,000 from $800,000, the stock awards declined to zero from $5.2 million in 2009.
Additionally, BofA also granted $9.05 million as restricted stock awards to Mr. Moynihan, which he would get only on fulfilling certain financial targets. However, as per the Securities and Exchange Commission (SEC) guidelines, these stock awards are taken into consideration in the year when they are paid and not when announced. Therefore, after adjustments, BofA paid nearly $10 million to its CEO.
The performance-based compensation would begin only when BofA’s return on assets (ROA) come to 0.5%. Also, the full payment would require the ROA at 0.8%. The SEC rule also states that only 40% of such awards will be paid in cash and remaining in stock. Furthermore, the cash part would be paid one year after the target is met, while any stock portion would be paid after March 2014.
BofA has also included the “clawback” provision while granting these stock bonuses. As per this provision, these stock bonuses can be withdrawn from the underperforming employees. The clawback provision is an important part of the financial reforms ensuring that bankers avoid short-term risks.
In addition, BofA also paid $270,234 as perks to its CEO. This is quite higher than what he had got in 2009.
Since last year when Mr. Moynihan was appointed as the CEO and the President of BofA, the company has been struggling to remain profitable and suffered huge losses in 2010. Moreover, the company had to write down $10.4 billion for its credit card unit, pay $2.8 billion to Fannie Mae (FNMA) and Freddie Mac (FMCC) to settle home mortgage related claims, and set aside $1.5 million for litigation expenses.
Also, earlier in this month, BofA was denied any increase in its quarterly dividends by the Federal Reserve. In January, the company along with other 18 U.S. banks had submitted their capital plans to the Federal Reserve for the second round of stress test. With the company’s failure to meet the required capital levels, the Federal Reserve has asked it to resubmit it plans.
Concurrently, BofA announced that one of its directors, Mr. William P. Boardman, would step down from the post and would not seek a second term at its annual shareholders’ meeting in May. Earlier in the month, the company’s board of directors named Mukesh D. Ambani, chairman and managing director of India-based Reliance Industries Limited as a director. Mr. Ambani will have to get himself elected at BofA’s 2011 annual meeting of shareholders.
Latest efforts to reduce mortgage repurchase concerns on the government sponsored enterprise (GSE) front are expected to result in manageable losses for BofA. Though the company is poised to benefit from its large scale operations, prudent capital management, non-core asset shedding and improving credit quality, concerns over rising expenses, pressure on net interest yield, and limited claim experience for non-GSEs will check bottom-line expansion in the near term.
BofA currently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering its fundamentals, we have a long-term “Neutral” rating on the stock.
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