In our bid to better prepare ourselves for the barrage of compensation related data that is sure to unfold soon, we have started reviewing 2009 compensation data for banks in the hopes that the final picture will not necessarily give us a stroke!

Yesterday, we covered JP Morgan Chase and today it is the turn of Bank of America.

For 9 months ended Sept 2009, personnel expense was $24,171 million, whereas for the same period in 2008 it stood at $14,344 million. This increase of $9,827 million is part of the total indirect expense increase and has been attributed to the acquisition of Merrill Lynch and Countrywide which increased various expense categories. But what is interesting to see is the rate of increase in personnel expenses in the 3rd quarter over the 2nd quarter is only slightly higher than the increase in the same period in 2008.

That said, the total increase in personnel expenses for 9 months ended 2008 to same period 2009 is close to 70%. This can imply that most of the increase attributable to the Merrill and Countrywide takeover happened in the first 1 or 2 quarters of 2009 and subsequently, lay-offs or other separation type events reduced the net increase as a result of the Merrill and Countrywide takeover. As a corollary of this, one can assume that fourth quarter personnel expenses will not be substantially different from the third quarter barring of course any bonus amounts and incentive related amounts paid out.

The bright spot of course is the relative lower percentage increase in personnel expenses in 2009 as compared to the same period in 2008.

Naturally, Bank of America cannot go mentioned without talking about Paymaster Kenneth Feinberg’s special ordinances for this company. In November 2009, Joe Price and Barbara Desoer (Chief Financial Officer and President, Bank of America Mortgage, Home Equity and Insurance Services) had their base salaries reduced with retroactive (November 2009) effect. As per the amendments, Joe Price had his salary reduced from $800k to $500k and was awarded $5.25 million in salary stock award units. Barbara Desoer had her salary reduced from $800k to $500k and was awarded $3.95 million in salary stock unit awards. Mind you, although they are called ‘stock units’, these salary ‘stock units’ are paid in cash, based on the Corporation’s stock price on each payment Date. The agreement stipulated that if repayment were to occur, (which did happen soon after this ordinance), all Salary Stock Units that would have become payable within the one-year period following this repayment date would be paid on the repayment date, and the Payment Dates for all remaining Salary Stock Units shall be accelerated by one year. It is not clear whether after repayment, salaries go back to original values or not, but we will soon know.

Then there was the matter of now ex CEO Kenneth Lewis’ salary and compensation. After oscillating between being the darling of Wall Street for orchestrating the Merrill takeover and being the scapegoat for the subsequent fiasco, Kenneth Lewis agreed to forgo his salary and bonus for 2009 and also negotiated a lower exit package.

From a governance standpoint, some good changes have taken place in BofA’s boardroom primarily, getting some good candidates onboard who have relevant experience and can take a fresh look at the company. In addition, naming a CEO was another step in the right direction and one can only hope that Massey and Co. will take a closer look at succession planning in the future.

Amidst much anticipation and anxiety, Bank of America (BOFA) completed its repayment of the entire amount it owed the American taxpayer under the government’s TARP program. Whether this was a well thought out and planned action or just a strategy to get away from the endless pay regulations and bloodthirsty cries of “break them (big banks) into smaller entities” , the deed is now done. Credit rating agencies such as Fitch have ‘upped’ bofa’s credit rating on this upbeat news…but isn’t this where all the problems started in the first place? Credit rating agencies hastily ‘upping’ credit ratings only to commiserate later?

Out of the $45 billion that BOFO owed on TARP, $18 billion is going to come from selling “common equivalent securities” which will get converted to common stock after shareholder approval. $4billion will be raised through asset sales. During the year, BOFA finalized a deal to sell First Republic Bank for $1 billion (expected value) that it inherited through its acquisition of Merrill. It also sold Columbia Management for $1 billion. As per the bank, it’s tier one common ratio was at a healthy 8.5% after taking into account the impact of all its capital actions stemming from the repayment. $1.7 billion is going to come from the issue of restricted stock to its associates as part of the year end incentive plan….now won’t Feinberg be pleased….aligning employee interests with those of shareholders and all that! Although it will be interesting to see what kind of stock is offered to SENIOR executives once the bank is out of Feinberg’s eagle eye.

Having already announced detailed repayment plans earlier this month, the board at Bank of America can now search for departing CEO Kenneth Lewis’ successor with renewed vigour and confidence. Or can they….?

In May of this year, BOFA was informed by Treasury that it was one of the banks that had failed the “stress test” in a major way. It needed to address a $34 billion capital shortfall. It is hard to understand the sudden change of pace….earlier in the year, the bank is the focus of a $35 billion shortfall in capital, and by the end of the year, it is ready to repay $45 billion from a mix of cash and $19 billion raised from sale of securities.

In addition, even before a detailed repayment plan was announced, analysts expressed disappointment over near future earnings estimates for Bank of America due to “high level of credit losses and uncertain revenues”.

To add to this, Bank of America’s Chief Risk Officer and potential successor to the CEO role, is under scrutiny by New York ‘s Attorney General Andrew Cuomo regarding his role in the bank’s merger with Merrill. Mr Curl is supposed to have ‘no recollection’ of a call he had with company lawyers about a key conversation concerning the merger with Merrill and to which he testified earlier in the year.

The sudden positive swing of bank of America’s fortunes reminds me of a pendulum….its too quick, too steep, wonder when its going to swing back?