Kenneth Lewis's fellow board members at Bank of America (BofA) knew something was not quite right when their chief executive returned from a brief holiday with a fulsome and rather bushy set of whiskers. But they soon learnt that sprouting facial hair had not been the sole effort preoccupying Mr Lewis during his time off. He tendered his resignation, effective at the end of the year.
Many believe the decision should have been made months ago, as the past year since Mr Lewis initiated BofA's ill-fated merger with the Wall Street powerhouse Merrill Lynch has been fraught with the sort of problems that have led many a chief executive to throw in the towel. And there are those who say that Mr Lewis is just the latest in a long line of Wall Street executives who must walk the plank before the US financial system can regain its former standing in the world.
Despite the shareholders stripping him of the chairman's title at this year's annual meeting, and despite the civil actions and investigations into allegations of impropriety surrounding the payment of billions of dollars of bonuses at Merrill Lynch, it must have been a tough decision for Mr Lewis to make. Bank of America was his baby. The 62-year-old joined a predecessor of BofA as a credit analyst in 1969 at the age of 22. In 2001 he became chief executive, whereupon he set about building the company through a string of acquisitions.
But Mr Lewis always dreamed of conquering Wall Street. He wanted to beat those stuck-up Yankees at their own game and prove to them that a plucky high street banker from Charlotte, North Carolina could do anything that they could. But he was wrong. It was his fumbled attempt to buy Merrill Lynch that led to his untimely resignation. John Thain, the former Merrill Lynch chief executive who was forced out of the bank in an earlier round of the bonuses scandal, played Mr Lewis for a fool.
In negotiating the deal, Mr Thain made sure his thundering herd of Merrill investment bankers and his colleagues further up the food chain got their share of the loot before the Southerners took over. One Wall Street banker who has been very close to Merrill for most of his career described the BofA-Merrill deal as an act of sabotage on Mr Thain's part. "Thain set fire to all but one lifeboat, then jumped ship leaving Lewis and his chums to go down with her," he said.
Now Wall Street is ruminating on who will succeed Mr Lewis, with plenty of the usual suspects' names in the ring. Robert Steel, a former US Treasury official who briefly ran the bank Wachovia before its collapse, is one possible contender. Brian Moynihan, the head of BofA's consumer and small business banking unit, is also thought to be high on the list. Other potential successors include Sallie Krawcheck, a former Citigroup chief financial officer, and Tom Montag, a former Merrill executive who runs BofA's corporate and investment banking unit.
But why Mr Lewis finally gave up and who will replace him are not as important as the role his departure will play in the rebuilding of America's financial services sector, and the financial system as a whole. There are those who think that Mr Lewis and all the other American banking executives who prospered before the financial collapse, and who benefited from billions of dollars of government bailout cash, must go if the financial system is ever to recover.
Elizabeth Warren, the chief watchdog of America's US$700 billion (Dh2.57 trillion) bank bailout plan, has called for the removal of top executives from all the banks and financial institutions that have received government funds. Ms Warren, a top Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Programme (TARP), also believes shareholders in the same institutions should be "wiped out" if America's financial rescue plan is to succeed. And she is not some leftist nutter. Ms Warren is one of the foremost academics in America who has studied economic depressions all over the world.
"The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management and operations is preposterous," Ms Warren told me in a recent interview. "It is crucial for these things to happen. Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade."
Ms Warren this year published a detailed report that examines how other banking and financial crises were overcome - the Swedish banking crisis of the 1990s, the Japanese banking crisis of the 1990s, the US savings and loan crisis of the 1980s and the Great Depression of the 1930s. "We concluded that to successfully overcome these crises, three things had to happen," Ms Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is entirely accurate, then the management of the institutions receiving subsidies from the government must be replaced, and thirdly the equity investors are always wiped out."
In the recovery so far, none of these apparently crucial elements has been allowed to take place in full. Shareholders have been wiped out at Lehman Brothers and partially at Bear Sterns, but nowhere else. Some chief executives of companies that received bailout money have gone, but those forced out are in the minority. And we still have absolutely no idea what the value of those once haunting toxic assets on the balance sheets of all the banks in the world is likely to be.
In fact we have stopped talking about toxic assets altogether, yet they are still there and they are still a threat. Ms Warren shows that full financial recovery did not occur in any of the major financial upheavals she studied, all of which were in many ways less severe than the most recent crisis, until her three elements came together. Indeed Japan has still not recovered, because it has not fully come to terms with its banks' transgressions.
If Ms Warren is right, and there are many economists and financiers who believe she is, Kenneth Lewis will not be the only Wall Street titan growing a beard this winter.
business@thenational.ae