Bank of America has New Chief, Credit Card Challenges

Brian T. Moynihan, 50, takes the helm of Bank of America as new chief executive officer today, and he faces many challenges that includes a money-losing credit card division in need of fresh strategizing.

Moynihan was selected by the Board of Directors to replace Kenneth D. Lewis, who retired officially yesterday.

Bank of America is the second-largest U.S. card issuer, after JPMorgan Chase, and the card division accounts for 23 percent of BofA’s revenue through the first nine months of 2009. But in the third quarter alone, credit card income declined $1.6 billion – mainly from higher credit losses on securitized credit card loans and lower fee income.

That amounts to a $4.5 billion total loss through the first nine months of 2009, and the banking giant’s credit card default rate is higher than its big competitors, at 13 percent. Moreover, Bank of America’s small-business lending default rate hit 17.5 percent in the third quarter of 2009.

Moynihan was president of Consumer and Small Business Banking for Bank of America before taking on the top job. He formed relationships with about 53 million households and small businesses across the United States, a Bank of America statement says.

Since he took over Consumer and Small Business Banking last August, Moynihan has spearheaded the introduction of a new Basic Credit Card, the freezing of credit card rates – a move that has met with some skepticism – and the amending of overdraft policies to benefit customers.

Moynihan held the position during difficult times: the ongoing credit crunch, pending credit card reform laws and persistent pressure from the White House and lawmakers to improve the rate of mortgage modifications as the top mortgage lender in the nation.

BofA has the lowest conversion rate of major rivals in getting those eligible into mortgage-reduction trials under the government’s foreclosure-rescue plan, HAMP (Home Affordable Modification Program).

Banking industry analysts agree that Bank of America may have become overly ambitious in trying to become the top credit card company and the top small business lender in recent years. Along the way, there were poor underwriting decisions made and the financial crisis of the past two years hit Bank of America hard than some of its main rivals.

BofA was slower to react to delinquent borrowers by not lowering credit lines quickly enough to avoid the industry-leading default rates, experts say.

“Before the crisis, we were the most efficient banking company…” Moynihan said. “But as the world has changed, we must continue to be flexible and build on our strong tradition, and change to meet our customers’ needs. We think of this not as changing the business model, but changing the way we do business.”