The leaders of two of the country's largest banks, Bank of America and Citibank reached out to their employees this week with essentially the same message: Our stocks may be weak but our companies are strong. Amazingly, it appears that message got to investors as well since both stocks bounced back yesterday after taking a huge beating in Monday's sell off.
Bank of America CEO Brian Moynihan distributed a memo after the bank's stock dropped 20% on Monday, explaining that ""The most important point to remember is that our company remains financially strong," according to the Wall Street Journal.
Citigroup Chief Executive Vikram Pandit used voice mail to communicate to most Citi employees that the "decline is difficult to watch and naturally reminds all of us of what happened several years ago." Still, he emphasized, "there is little similarity between now and then." Pandit urged employees to remind customers Citi's strengths, including its six consecutive quarters of profitability and large capital base.
The reassurances came as shares of BofA and Citibank rebounded yesterday from their largest one-day drop in two years-despite the fact that the rebound left the stocks are trading in ranges last seen during the financial crisis that lead to the TARP bailout. BofA and Citigroup had posted the largest share price declines among the four largest U.S. banks on Monday.
BofA's CEO also appeared on CNBC telling Maria Bartiromo in response to a question as to whether the bank is planning to sell Merrill Lynch, that Merrill and its wealth management business are a critical component of the firm. "Merrill Lynch is actually integrated" into the bank, he said. "There are other things we can sell that are much less important than what Merrill lynch does."
What is notable here is that Moynihan did not actually say, "No" and rule out a sale of Merrill Lynch, as eFinancialCareers reported earlier today on our UK site. Nor is it clear that the 'core to our clients' argument really stands. Would a sale of Merrill Lynch necessarily mean the closure of all Bank of America's investment banking activities and the attendant alienation of clients? Probably not.
What is more questionable is whether Merrill could be disentangled from BofA and how much it would be worth without it. Bank of America bought Merrill for $50 billion, but that included the retail brokerage arm. On its own, in the current climate, Merrill Lynch would be worth far less.
Employees, meanwhile, have shown concern about their compensation as bank shares decline in value. Even after yesterday's recoveries, both BofA and Citibank shares were down roughly 5% from their levels at the end of last week. "If there was a word I would put on it, it would be surprise," one Bank of America employee told the Journal.
Those who have company stock or stock-based compensation now "are wondering how long it will take until retirement," the employee said.