Stock slide tips BofA CEO’s portfolio toward debt…

Bank of America

A funny thing has happened at Bank of America (BAC) as its shares have lost more than half their value over the last five months: Chief Executive Brian T. Moynihan is looking more like a creditor and less like a shareholder than he used to.

That’s not because Moynihan has been selling a significant number of shares — he still owns 481,806 shares, up 7% from a year ago, plus heaps of options and restricted shares that he may get title to eventually. Even at today’s depressed prices, the shares he actually owns are worth something like $3.4 million.

But BofA also owes Moynihan a bundle, in the form of pension and deferred-compensation promises. Unlike retirement benefits for the rank-and-file, executive benefits typically don’t actually reflect cash set aside in a dedicated pension fund or 401(k) account. Rather, they’re nothing more than IOUs — in Moynihan’s case, IOUs worth some $10.7 million as of March 16, according to BofA’s latest proxy, and probably at least a little more by now. (If some of his deferred-comp is denominated in BofA shares, it may have declined, but in the end, it’s all just a big IOU from the company, so the principle’s the same: It’s money BofA has promised to pay him, and so debt rather than equity.)

By that admittedly rough measure, if you think of Moynihan’s BofA interest as a portfolio divvied up between debt and equity, it breaks down to about a little over 60% debt and a little over 35% equity. That ignores the value of the 885,493 options he held as of March 16 — all of which are deeply underwater, with strike prices between $29 and $54 — as well as some 830,343 restricted shares that weren’t about to vest in mid-March.

Still, even counting all of that equity as full shares — a generous assumption, since the options would cost him something to exercise if they were above water, and many of the restricted shares are tied to performance — it would bring his equity up to a little over $15 million. BofA’s $10.7 million in retirement IOUs remain surprisingly large by comparison.

At least one of Moynihan’s counterparts is in a similar position. Wells Fargo (WFC) CEO John Stumpf has $14.1 million in pensions and $2.2 million in deferred compensation coming to him, to judge from Wells Fargo’s latest proxy. Not long ago, that paled in comparison to the exercisable options he held — 5.7 million at the end of the last fiscal year. But today, any of those options that he hasn’t exercised are underwater. It leaves him with something like $14 million in shares, to judge from the proxy and a recent Form 4 filing. In Stumpf’s case, however, his stash of restricted shares could make a significant difference: He has as many as 1.2 million, and possibly more, coming to him if various performance metrics are met.

By contrast, over at Citigroup (C) — almost as beleaguered as BofA in recent days — CEO Vikram Pandit still tilts heavily toward his company’s equity. That’s largely because he doesn’t have a pension or a deferred-compensation account, according to Citi’s most recent proxy. Plus, as several exhibits to Citi’s 10-Q last week show, and several news outlets reported earlier this spring, he stands to make a killing in additional Citi shares if he does his job well over the next few years.

In any case, for Moynihan, and others in his position, it’s not clear whether it’s better to be a lender or a stockholder. BofA’s shares may well recover over time, and his pension and deferred-comp accounts probably have less upside opportunity over time, just as they have less downside risk. Should a worst-case scenario come to pass, of course, he’s in trouble on both counts: Equity is at risk of getting wiped out, while those retirement IOUs are unsecured obligations — for tax reasons, companies rarely dedicate assets to paying executive retirement benefits, meaning Moynihan would have to line up with other unsecured creditors to collect whatever he could.

Because of what it would mean for a lot of other BofA shareholders, we hope it doesn’t come to that. But we do have to wonder if Moynihan’s shifting asset allocation changes his perspective on things.


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