Insider Sniping and Turnover at Bank of America
Senior Editor, CNBC.com
The news that Bank of America had hired Gary Lynch, formerly the General Counsel of Morgan Stanley, to the new post of global chief legal officer is a clear demonstration that the bank continues to play games with its shareholders. It is also giving rise to insider sniping about its general counsel.
The move essentially demotes current general counsel Ed O'Keefe, the Charlotte-based employment lawyer and litigator who had more or less accidentally risen to his position when Brian Moynihan was named chief executive. Bank of America , however, did not tell shareholders it was demoting O'Keefe. Instead it is going through the charade of pretending that O'Keefe is still the general counsel—who now just reports to Lynch, another attorney who outranks him in a newly created position.
O'Keefe had been, literally, a laughing matter to some of Bank of America's most sophisticated lawyers. Some felt that nothing in O'Keefe's resume qualified him to run the legal affairs of a global bank with the size and sophistication of Bank of America—except for being in the right place at the right time. When he gave his first "town hall" conference call to the global legal staff of Bank of America, some attorneys laughed at loud at the clumsiness of his presentation. He was widely regarded, especially within the Merrill Lynch units of Bank of America, as not up to the job.
"O'Keefe was deeply engrained in the culture of Charlotte, which gets you pretty far in the bank. But he just wasn't qualified to be the head lawyer for a global business," said one former Bank of America attorney who spoke on the condition of anonymity.
Those friendly to O'Keefe at Bank of America say he is a very competent attorney who has held several important positions at financial companies. Some say it is snobbery that fuels his critics.
"It's sniping from a bunch of Ivy League, New York lawyers who think they are better than everyone else," one person who works at the bank said.
O'Keefe has bachelor's degree in business administration from the University of Rhode Island. He received his law degree from Fordham University School of Law. He is based in Charlotte, North Carolina.
O'Keefe worked in private practice before joining Chemical Bank in 1987. When Chemical was wrapped into Chase, he served as a litigator and a real estate, employment and technology lawyer. He then went on to work at Deutsche Bank , where he was responsible for global staff support legal functions outside of Germany. After joining Bank of America, he served under a variety of titles, including: deputy general counsel and head of litigation, global compliance and operational risk executive, senior privacy executive and deputy general counsel for staff support.
Lynch graduated from Syracuse University and got his law degree from Duke University School of Law. He ran the enforcement divisions of the Securities and Exchange Commission from 1985 to 1989. After leaving the SEC, he joined the law firm of Davis Polk & Wardwell. John Mack, who was then at Credit Suisse First Boston, hired him to be global general counsel at the Swiss bank. When Mack moved back to Morgan Stanley , Lynch followed him in 2005.
Lynch will be based in New York. He is set to take the reins of the legal affairs of the bank after fulfilling the terms of his "garden leave" at Morgan Stanley. "Garden leave" is a British term for the period in which an employee who is leaving is subject to a non-compete agreement—usually remaining on payroll at reduced pay but not doing any actual work. So they might as well be gardening. Neither Morgan Stanley nor Bank of America have said how long Lynch's garden leave is. But it is expected to be several months.
"It was a joke to have the GC based in Charlotte," a mid-level Bank of America employee said. (That employee, of course, is based in New York.)
O'Keefe rose to the position when his predecessor Moynihan was tapped to be the bank's chief executive after long-time CEO Ken Lewis stepped aside. Moynihan himself became general counsel under very mysterious circumstances. Just four days after Bank of America shareholders had approved the acquisition of Merrill Lynch—which later cost the bank tens of billions of losses—Bank of America suddenly fired general counsel Timothy Mayopolous. That sudden firing has never been adequately explained by the bank.
To many at the bank, O'Keefe's elevation was a surprise. Bank of America deputy general counsel Greg Baer, who had been a key figure during the financial crisis and helped arrange Bank of America's repayment of $45 billion in government aid, was widely viewed as the most likely successor. After Baer was passed over for O'Keefe, Baer left to join JP Morgan Chase.
Bank of America has a pattern of suddenly demoting top executives—without actually saying it is demoting them. Dan Sontag, who ran Bank of America's wealth management business from January of 2009 to August of 2009, learned only moments before it was publicly announced that the bank was hiring Sallie Krawcheck into a position above him. This was after the bank had denied plans to fire or demote Sontag for several months.
Based on reassurances from top executives at Bank of America, Sontag had even gone out on a limb and held a town hall meeting for brokers to tell them he was going nowhere. At the same time, however, the bank had actively been meeting with top executives in the wealth management business looking for Sontag's replacement. Hours after the Krawcheck hire was announced, Sontag quit the bank.
Insiders say O'Keefe is claiming that he wasn't treated as brutally as Sontag. He is said to be claiming he was part of the decision to hire Lynch. Many attorneys and business people at the bank regard this as "pure spin," according to a person familiar with the thinking inside of Bank of America. They suspect that he learned of the hiring of Lynch only after it was "a done deal." What's more, they expect once Lynch takes his position as chief legal officer, O'Keefe will leave the bank.
"The only open question is whether that will take hours, days, weeks or months," one person at Bank of America said.
Officially, of course, O'Keefe is slated to stay on the job after Lynch becomes his boss.
Neither O'Keefe nor Lynch could be reached for comment.
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