EXCLUSIVE: A SAFER CIGARETTE? • THE $4.8 BILLION DIVORCE ANNIVER THE WORLD’S 1OO PLUS: RY TEN H SA T JUNE 16 • 2014 EDITION MOST POWERFUL WOMEN AMERICA’S BEST AND WORST FRANCHISES END OF THE MEGABANK THE BUSIEST MAN ON THE INTERNET NICARAGUA’S EMERALD COAST MARY BARRA HOW TO MAKE MONEY FROM: COAL, BONDS AND POPEYE! “WE STILL HAVE WORK TO DO REBUILDING TAKES TIME.” GM’S POWER SHIFT THE NEW CEO MUSCLED INTO DETROIT’S CAR-GUY CLUB NOW CAN SHE FIX AMERICA’S MOST ICONIC COMPANY? 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Yawn lEadERBOaRd 14 | michaEl’S immORtal mOnEy machinE The King of Pop can’t be stopped A third of his $2.8 billion career earnings have come in the fve years since his death 16 | SummER REadS Too persnickety for Thomas Piketty? Brave enough to read The Confdence Code? 20 | tEll uS EvERything: JESSica SimpSOn 22 | BiZ QuiZ Can you ace our plutocrat photo puzzle? 24 | EyE-pOpping pOpEyES Steve Wynn’s $28 million Popeye isn’t the most expensive art world Gazookus 24 | thE $4.8 BilliOn BREakup Elena Rybolovleva was just awarded the largest divorce settlement in history But can she collect? 26 | activE cOnvERSatiOn: can nOvaRtiS kill cancER? thOught lEadERS 28 | thE apOthEcaRy by jonathan bush Health care reform: Disruptors need not apply 30 | innOvatiOn RulES by rich karlgaard Buys and sells: if colleges were stocks 64 | ms fix-it Mary Barra just became the most powerful woman in corporate America First order of business: Refurbish General Motors StRatEgiES 32 | cOal caSE Share prices have plunged as draconian regulations and falling natural gas prices cripple miners Sounds like a good time to buy by christopher helman cover photograph by jamel toppin for forbes | FORBES JunE 16, 2014 ©2013 movado group, inc MOVADO TC™ ULTRA-THIN CASE DESIGN IN STAINLESS STEEL WITH MODERN BLACK DIAL MOVADO.COM JARED® THE GALLERIA OF JEWELRY contents — June 16, 2014 38 | mat in amERica By wrapping $150 car foor liners in the fag, WeatherTech’s David MacNeil is creating one of the world’s more unlikely luxury brands by dale buss tEchnOlOgy 42 | FiRE-BREathing catS FOR SalE Young Asians spend millions on cute images they text one another Entrepreneurs are betting the craze won’t get lost in translation to the West by parmy olson 14 | earnings from the crypt Death becomes him 42 | cute attacks! Jeanie Han hopes your kids will start blowing their cash on imported digital doodads 38 | heartland hero David MacNeil believes in clean car foors and homegrown jobs 48 | hwang’S wORld Tim Hwang plants ideas all over the Internet, even if he has to scam a little bit to make them stick by kashmir hill EntREpREnEuRS 50 | BRing yOuR Own dEvicE Sunny Bajaj turned the mundane job of managing a mobile workforce into a raucous success by alexander konrad invESting 54 | thE laSt lOng BullS Are Van Hoisington and Lacy Hunt just stubborn? Or they know something all the other fxed-income pros don’t about 30-year Treasurys? by daniel fisher 58 | FixEd-incOmE watch by richard lehmann Income without growth 60 | intRinSic valuE by john buckingham Priced for imperfection 62 | thE cOntRaRian by david dreman 50 | dmi’s sunny bajaj “I’ve drunk tequila with Samsung, with Good Technology You can be serious but have a little fun.” Double your money in an index fund thE wORld’S mOSt pOwERFul wOmEn 64 | pOwER ShiFt Mary Barra made history by working her way into Detroit’s car-guy club and becoming the frst female CEO of General Motors Now can she fx the company? Plus: The World’s Most Powerful Women by joann muller 76 | gEEk chic These six e-tailer entrepreneurs ofer a stylish retort to the oft-heard lament: “Where are all the women in tech?” by caroline howard | FORBES JunE 16, 2014 The cloud that is helping cure cancer Research that once took years now happens in hours Using Microsoft Azure and HDInsight, scientists and engineers at Virginia Tech harness supercomputing power to analyze vast amounts of DNA sequencing information and help deliver lifesaving treatments Now the next big breakthrough might not be found in a test tube, Productivity but in big data This cloud makes data make a difference This is the Microsoft Cloud Social Platform Insights learn more at microsoftcloud.com contents — June 16, 2014 84 | next-gen cigarette PMI’s André Calantzopoulos has a new smoke to sell 96 | slim chance Fitness franchise Curves needs all the help it can get FEatuRES 84 | thE FutuRE OF SmOking Philip Morris International is quietly developing a new cigarette that could replicate the traditional smoking experience, while killing fewer customers by daniel fisher 100 | utility playER Other than cutting costs and strengthening capital, Brian Moynihan has no grand plans for Bank of America Amen to that by halah touryalai FRanchiSE ScOREcaRd 100 | banking for dummies Brian Moynihan’s strategy for Bank of America: Keep it simple 92 | hOuSE callS As more of the population ages and tries to avoid nursing homes and hospitals, fast-growing Right at Home ofers help with basic chores or medical care Plus: America’s best and worst franchises by carol tice 96 | cRaSh diEt 108 | hot mukul Nicaragua’s frst ultraluxury resort boasts a private beach club, a walk-in humidor and a David McLay Kidd golf course Once the largest ftness franchise, Curves has been shedding thousands of units and enraging many franchisees Can the new owners turn it around? by karsten strauss liFE 108 | nExt StOp, nicaRagua Will sophisticated travelers make it the next elite destination? by ann abel 112 | thOughtS On women | FORBES JunE 16, 2014 Achieve financial security with a plan that addresses risk first Create your financial plan with a Northwestern Mutual Financial Advisor Together, we’ll design a disciplined and balanced approach to protecting, accumulating and managing your wealth, so you can take advantage of life’s opportunities Who’s helping you build your financial future? northwesternmutual.com Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries Securities ofered through Northwestern Mutual Investment Services, LLC, broker-dealer, registered investment adviser, subsidiary of NM, member FINRA and SIPC NCAA is a trademark of the National Collegiate Athletic Association FORBES EDITOR-In-CHIEF Steve Forbes CHIEF PRODUCT OFFICER Lewis D’Vorkin FORbEs MagazInE EDITOR Randall Lane ExECUTIvE EDITOR Michael Noer aRT & DEsIgn DIRECTOR Robert Mansfeld FORbEs DIgITal vP, InvEsTIng EDITOR Matt Schifrin ManagIng EDITORs Dan Bigman – Business, Tom Post – Entrepreneurs, Bruce Upbin – Technology sEnIOR vP, PRODUCT DEvElOPMEnT anD vIDEO Andrea Spiegel ExECUTIvE DIRECTOR, DIgITal PROgRaMMIng sTRaTEgy Coates Bateman assIsTanT ManagIng EDITORs Kerry A Dolan, Luisa Kroll – Wealth ExECUTIvE PRODUCER Frederick E Allen – Leadership Tim W Ferguson FORbEs asIa Kashmir Hill sIlICOn vallEy Janet Novack WasHIngTOn Michael K Ozanian sPORTsMOnEy Mark Decker, John Dobosz, Deborah Markson-Katz DEPaRTMEnT HEaDs Avik Roy OPInIOns Kai Falkenberg EDITORIal COUnsEl bUsInEss Mark Howard CHIEF REvEnUE OFFICER Tom Davis CHIEF MaRkETIng OFFICER Charles Yardley PUblIsHER & ManagIng DIRECTOR FORbEs EUROPE Nina La France sEnIOR vP, COnsUMER MaRkETIng & bUsInEss DEvElOPMEnT Jack Laschever PREsIDEnT, FORbEs COnFEREnCEs Michael Dugan CHIEF TECHnOlOgy OFFICER Elaine Fry sEnIOR vP, M&D, COnTInUUM FORbEs MEDIa Michael S Perlis PREsIDEnT & CEO Michael Federle CHIEF OPERaTIng OFFICER Tom Callahan CHIEF FInanCIal OFFICER Will Adamopoulos CEO/asIa FORbEs MEDIa PREsIDEnT & PUblIsHER FORbEs asIa Rich Karlgaard PUblIsHER Moira Forbes PREsIDEnT, FORbEsWOMan MariaRosa Cartolano gEnERal COUnsEl Margy Loftus sEnIOR vP, HUMan REsOURCEs Mia Carbonell sEnIOR vP, CORPORaTE COMMUnICaTIOns FOUnDED In 1917 B.C Forbes, Editor-in-Chief (1917-54) Malcolm S Forbes, Editor-in-Chief (1954-90) James W Michaels, Editor (1961-99) William Baldwin, Editor (1999-2010) juNE 16, 2014 — volumE 193 NumBER FORbEs (ISSN 0015 6914) is published semi-monthly, except monthly in January, February, April, July, August and October, by Forbes LLC, 60 Fifth Ave., New York, NY 10011 Periodicals postage paid at New York, NY and at additional mailing ofces Canadian Agreement No 40036469 Return undeliverable Canadian addresses to APC Postal Logistics, LLC, 140 E Union Ave., East Rutherford, NJ 07073 Canada GST# 12576 9513 RT POSTMASTER: Send address changes to Forbes Subscriber Service, P.O Box 5471, Harlan, IA 51593-0971 COnTaCT InFORMaTIOn For subscriptions: visit www.forbesmagazine.com; write Forbes Subscriber Service, P.O Box 5471, Harlan, IA 51593-0971; or call 1-515-284-0693 Prices: U.S.A., one year $59.95 Canada, one year C$89.95 (includes GST) We may make a portion of our mailing list available to reputable frms If you prefer that we not include your name, please write Forbes Subscriber Service For back Issues: visit www.forbesmagazine.com; e-mail getbackissues@forbes.com; or call 1-212-367-4141 For article Reprints or Permission to use Forbes content including text, photos, illustrations, logos, and video: visit www.forbesreprints.com; call PARS International at 1-212-221-9595; e-mail http://www.forbes.com/reprints; or e-mail permissions@forbes.com Permission to copy or republish articles can also be obtained through the Copyright Clearance Center at www.copyright.com Use of Forbes content without the express permission of Forbes or the copyright owner is expressly prohibited Copyright © 2014 Forbes LLC All rights reserved Title is protected through a trademark registered with the U.S Patent & Trademark Ofce Printed in the U.S.A | FORBES JUNE 16, 2014 IN BRIEF Smart Moves On Smartphones by lEWIs D’vORkIn I got a digital wake-up call a few weeks ago when my obsession with data turned to mobile trafc In April we had the same number of readers visit our home page via smartphone as we did the desktop The same was pretty much true for our popular Billionaires list Briefy, we even crossed the newest digital divide During the frst weekend of May 51% of visits were mobile—39% smartphone, 11.5% tablet What’s it all mean? Making money in the media business increasingly means fnding ways to tap consumer interest in online streams I’ve been focused on the fow of content for some time, at my startup and now FORBES I’ve watched readers move across our magazine, its app and Forbes.com via desktop, tablet and now smartphones I see the fow— mainly on phones—as a new opportunity to serve both consumers and marketers If done right, editorial, native ads, marketing messages and promotions can live together, even serve one another, all within the fow In some ways Facebook and Twitter paved the way They buried the adage ad agencies recited like lemmings: Readers don’t scroll The trick for news outlets is to construct a mobile fow that appeals to visitors but also supports video, sponsorships, interstitials, galleries and more It takes the right publishing tools, collaboration with the sales and marketing teams, and integration with an ad server Maybe most challenging: getting editors to think like marketers of content, not simply creators The task fts nicely with the newest trend Text-based social feeds, a popular kind of fow, are becoming more visual (think Facebook’s Paper app and TwitPics) We laid the groundwork with headline text modules within mobile streams In the last months we’ve supplemented these headlines with visual modules promoting our ebooks Smartphones present news organizations with interlocking challenges On computer ad exchanges, mobile rates go for less than $1 CPM Desktop rates are $3 Each is a far cry from premium digital ads sold by humans—$15 to $30 on desktops—and $40 to $50 for print ads That means the cost of quality content in the fow must come down Print to digital Narrowband to broadband Desktop to mobile Journalists need to pay attention to the smartphone fow It might help save their jobs—maybe even jolt their metastasized culture into change F uTILITY PLAYER Other than cutting costs and strengthening capital, Brian Moynihan has no grand plans for Bank of America Amen to that by hALAh tOURyALAI phOtOgRAphed by dAvId yeLLen fOR fORbes Brian Moynihan sits at a large polished wood table in a windowless conference room clad in his bankerblue pinstriped suit and standard red tie This isn’t Bank of America’s headquarters, but it may just as well be Moynihan’s home away from home He is on the tenth foor of BofA’s Washington, D.C ofce tower, which, by no coincidence at all, is directly across Pennsylvania Avenue from the United States Department of the Treasury Just three days prior Moynihan sheepishly revealed to federal regulators that there was an accounting error on his bank’s balance sheet that would result in a $4 billion hit to its regulatory capital The bank 100 | FORBES JunE 16, 2014 bAnK Of AMeRICA was forced to suspend its plan for a dividend increase and a $4 billion share repurchase After making an impressive comeback over the last two years, its stock fell precipitously and now sits about 20% lower than its recent high of $18 Though less troubling than JPMorgan Chase’s London Whale fasco, it is yet another setback in Bank of America’s rehabilitation and redemption among stockholders Their concern, of course, is that Bank of America has merely gone from “too big to fail” to “too big to manage.” “We were right on the edge of starting the next step in healing, which is to return common equity dividends,” says Moynihan “Now [investors are] saying, ‘How could you have gotten so close and have it stopped?’ We’re just disappointed.” For Moynihan, 54, the last four and a half years as the bank’s chief executive have been exhausting Damage control, cost-cutting and extinguishing legal fres have consumed his tenure He is tasked with running one of the world’s largest fnancial institutions, yet at the same time he must wear a government-imposed straitjacket that in many ways turns the role of megabank chief executive into little more than a conservatorship It’s not without good reason Like other giant fnancial frms, Bank of America went from being awash in profts in the early 2000s to being the recipient of two federal bailouts that totaled $45 billion during the crisis The hangover from the mortgage-fueled party is still being felt Through March 2014 Moynihan has settled and reserved $55 billion related mostly to troubled mortgages, including some $23 billion for Fannie Mae and Freddie Mac and $2.4 billion for bond insurer MBIA Much of BofA’s stock market value has evaporated Precrisis, shareholders enjoyed a stock price of $54 and a $245 billion market capitalization BofA shares sank to as low as $3 in early 2009, and today, after massive equity dilution, they trade at $14.71 For Moynihan, who took over in January 2010, the low point may have been August 2011, when he faced an inquisition of questions from 6,000 investors on a conference call orchestrated by Bruce Berkowitz, the activist value investor of $8.5 billion mutual fund Fairholme Fund At the time, the bank’s share price had fallen more than 30% in a little more than a week and was hovering around bIngE bAnkERs Inspired by Walter Wriston, who transformed Citibank into a global juggernaut between 1967 and 1984, a generation of lesser banking geniuses spent their careers building today’s megabanks A feld guide to the egos behind “too big to fail” fnance wALTER shIPLEY hugh MccoLL Shipley jumped on to the interstate banking bandwagon by grabbing Texas Commerce Bank in 1987 and then New York’s Manufacturer’s Hanover in 1991 and fnally Chase Manhattan Chase was the nation’s largest bank in 1996 The hard-charging ex-Marine gobbled up Southeastern superregional banks and built a headquarters that is still the tallest building in Charlotte, N.C., known by locals as “Taj McColl.” Capped his career in 1998 by acquiring San Francisco’s Bank of America, creating America’s frst coast-tocoast bank Chemical Bank/ Chase Bank 1981–2000 NCNB/NationsBank/ Bank of America 1983–2001 John b MccoY Bank One 1984–99 A third-generation banker who grew his Columbus, Ohio bank from $9.1 billion in assets to $269.4 billion His big appetite ultimately got the better of him as giant deals, including First ChicagoNBD and credit card pusher First USA, proved hard to digest; he was forced to resign stitutional investors like Pimco and Blackrock were pounding on Bank of America’s door, demanding it buy back billions of dollars’ worth of faulty mortgage-backed securities The Federal Reserve had fat out denied the bank’s request for a dividend increase, and shareholders were suing over its arranged marriage to Merrill Lynch, claiming that Bank of America was agreeing to billions in obscene bonuses for executives and other employees while it was hiding crucial information about the troubled investment bank’s health prior to the deal Likewise inside the company, Merrill Lynch brokers and bankers harMoYnIhAn ToLd hIM ThE bAnk dIdn’T nEEd bored deep resentment for their new, bERkshIRE’s MonEY buffETT’s REsPonsE: seemingly rudderless bank parent At one point in 2011 Senator Dick I wouLdn’T bE cALLIng You If You dId Durbin of Illinois took to the Senate foor with a Bank of America debit card $7.50 Countrywide, its toxic mortgage-fogger subsidiary in his hand and urged the public to “get the heck out of that famous for liar loans, no-doc mortgages and a chief execubank.” Bank of America’s shares fell below $5 later that year, tive who epitomized the ugliness of corporate greed, was down 58% in 2011 compared to a fat S&P 500 imploding and making headlines daily Normally passive inIn the midst of the storm, Moynihan and chief fnan102 | FORBES JunE 16, 2014 RIchARd kovAcEvIch Norwest Bank/ Wells Fargo 1993–2008 Trained under Wriston at Citi, then left in 1986 to build up Minneapolis’ Norwest Bank In a keeping-up-with-theJoneses move purchased Wells Fargo in 1998, the same year Citi merged with Travelers and BofA with NationsBank Others saw the worst fnancial crisis in 80 years; Kovacevich saw opportunity: purchased a failing Wachovia in 2008 sAnfoRd wEILL kEn LEwIs Built Commercial Credit, a midsize credit fnance company, into the biggest fnancial services company in the world after acquiring Travelers and Citigroup Weill pushed the Clinton Administration into repealing the Glass Steagall Act, the 1933 law preventing governmentinsured banks from playing in Wall Street’s riskiest games Zero shame: now publicly advocating for megabank breakups Led the acquisitions of Chicago’s LaSalle Bank, Fleet, U.S Trust, Merrill Lynch and fnally the deal that would ruin his legacy and crush BofA’s stock, Countrywide Financial, in January 2008 Citigroup 1998–2003 Bank of America 2001–9 cial ofcer Bruce Thompson manned up to the Berkowitz conference call, facing an angry mob of institutional and retail investors But what Moynihan had to ofer during the 90-minute phone call was no magic bullet What lay ahead for the $2 trillion bank was a straightforward, even boring strategy of cutting costs, selling of noncore assets, building capital and serving its existing customers better It was the banking equivalent of a Keep-It-Simple-Stupid strategy That was just fne by Berkowitz, who already owned some 100 million Bank of America shares, which represented 6% of Fairholme’s portfolio Accustomed to playing turnarounds, he was clearly betting that the giant institution’s stock had nowhere to go but up Berkowitz would fnd himself in good company Two weeks after the conference call Warren Bufett telephoned Moynihan’s New York City ofce The two had never met, but Bufett had done his research and was about to make a $5 billion investment in Bank of America Moynihan, still insisting the bank didn’t have a severe capital problem, told him the bank didn’t need Berkshire’s money Moynihan recalls Bufett’s response: “He said, ‘I know I wouldn’t be calling you if you did.’ ” What Moynihan did need was the surge of confdence that comes with any Warren Bufett investment “We did the deal over the next 24 hours,” he says For Bufett the Bank of America deal had little downside risk He was buying preferred shares in what was essentially a government-backed entity that, unlike Treasury bonds, would pay a 6% annual dividend He also would get an equity kicker in the form of warrants for 700 million shares (Bank of America shares are up a whopping 110% since Buffett’s investment.) Of course, shrewd and cautious Bufett (his frst rule of investing: don’t lose money) may not have been counting on any miraculous turnaround at Bank of America but rather was buying a cheap long-term call option on the future of banking Like other too-big-to-fail banks, Bank of America is transforming itself into a somewhat boring utility, not unlike AT&T of old Indeed, deleveraging, or shedding assets, has become a global obsession in the industry Proprietary trading is gone, investment banking departments have shrunk, mortgage servicing is not worth the capital and far-fung operations are being sold of In short, the fun has been taken out of commercial banking The best strategic move a big bank can make these days is to hike its dividend or announce a share buyback Brian Moynihan inherited Bank of America from generations of empire builders In the 1980s and 1990s Hugh McColl turned Charlotte’s North Carolina National Bank into NationsBank by consolidating superregionals in the Southeast and then capping of his career by merging with West Coast giant BankAmerica in 1998 Then his understudy, chief executive Ken Lewis, upped the game by buying FleetBoston Financial, Chicago’s LaSalle Bank, Countrywide Financial and fnally Merrill Lynch, in an acquisition that would contribute to his downfall but ultimately give BofA 302,000 global employees and hundreds of ofces But Moynihan arrived at the top after banking’s 2008 “Come to Jesus” moment The new banker is a throwback to a bygone era when banking was a profession for principled and well-born Ivy Leaguers, and for hardworking accountants and lawyers Moynihan, who fts the bill in many ways, needs to be the antithesis of an empire builder Born and raised in Marietta, Ohio, a small town in the southeast corner of the state near West Virginia, Moynihan is the sixth son of eight children in an Irish Catholic family His father was a research chemist at DuPont and his mother a homemaker He went to public schools and was an honor student who played football and ran track At Brown University in Providence, Rhode Island, Moynihan studied history and was co-captain of the rugby club From there he went to Notre Dame Law School and then worked on bank mergers for the Providence ofce of law frm Edwards & JunE 16, 2014 FORBES | 103 bAnK Of AMeRICA bAc fRoM ThE bRInk Gut-wrenching volatility has plagued BofA’s stock, but under Moynihan’s watch the shares were recovering nicely—until the most recent scandal $50 stock price 40● 30 20 Warren Bufett invests $5 billion in the bank Weeks later Moynihan announces a management overhaul ● BofA invades New England when CEO Kenneth D Lewis nabs FleetBoston to create a $166 billion bank, the world’s second largest Lewis buys Countrywide Financial, the toxic mortgage house that will ultimately cost BofA over $50 billion in legal and settlements costs Merrill Lynch’s shotgun wedding with BofA 10 ● ● BofA bears the brunt of a $25 billion national mortgage settlement Moynihan’s eforts are on display in 2013 as BofA reports its most proftable year since 2007, and shares trounce the S&P 500, rising 180% in two years ● ● ● Lewis is out, and Brian Moynihan takes over as BofA’s CEO—a job many executives did not want Pimco and Blackrock demand BofA repurchase some $47 billion in shoddy mortgage securities ● Yet another unexpected setback for BofA shareholders when a $4 billion accounting mistake costs bank investors their expected dividend increase ● Source: InteractIve Data vIa FactSet reSearch SyStemS 2004 2005 2006 2007 2008 Angell At age 34 he pivoted from law to banking when he was hired away by FleetBoston CEO Terrence Murray in 1993 Colleagues describe Moynihan as a hard worker who is smart but unassuming and has a tendency to speak too fast (Says Moynihan, “People ask, ‘Why you eat quickly and speak quickly?’ and I say, ‘If you have ten people at the table every night, you start to learn if you don’t those two things, then you starve and you’ll never get a word in.’ ”) Says Anne Finucane, global strategy and marketing offcer for Bank of America, “I think Brian is a diferent kind of chief executive His sport is rugby Have you ever seen rugby? You can’t tell one player from another, and they’re in a scrum, but somebody is running the show That’s kind of Brian He doesn’t need to be in the spotlight.” But inside Bank of America’s scrum, which at times has been brutal if not bloody, Moynihan is slowly getting things done, selling assets, settling lawsuits and attempting to rewire the place so that it is less focused on product and footprint growth and more focused on servicing existing customers After three years of consecutive declines, revenue fnally increased in 2013 to $90 billion, up 7% from the prior year Profts nearly tripled in 2013 to $11 billion from $4 billion And despite its recent embarrassing accounting error the bank’s revised Basel III Tier common ratio still looks healthy at 9%, exceeding the proposed minimum of 8.5% required of the bank by 2019 Since 2012 BofA stock is up 164% while JPMorgan is up 64%, Citi 79% and Wells Fargo 72% “Moynihan has surprised a lot of people by hanging in there and slugging it out,” says independent bank analyst 104 | FORBES JunE 16, 2014 2009 2010 2011 2012 2013 2014 Nancy Bush “He was dealt a bad hand of cards right up front.” Perhaps the biggest challenge of Moynihan’s career has been cleaning up Countrywide To fx it, or at least stanch the bleeding, Moynihan brought in Terry Laughlin, a trusted colleague from his days at FleetBoston Financial Laughlin was just of a stint working for hedge fund billionaires like John Paulson and George Soros, who had bought IndyMac, another troubled subprime-mortgage company Laughlin waded through the mess and created from it a healthy community bank in southern California Moynihan needed Laughlin to repeat his performance at Countrywide, so Laughlin set up a bad bank known as Legacy Assets & Servicing Laughlin also built a new mortgage-servicing platform, because the existing one wasn’t able to handle the large volume of loan modifcations, short sales and foreclosures LAS has worked through million delinquent loans it has faced, and it has 275,000 more to go With Laughlin “handling” Countrywide, Moynihan focused on another core competency of postcrisis banking— downsizing At the end of 2011 he unveiled Project New BAC, a program designed to save an estimated $8 billion annually by mid-2015 Much of the savings will come from frings and eliminating things like unnecessary data centers and other noncore assets Today Bank of America employs 239,000 people, down from 284,000 in 2010, giving it a smaller head count than JPMorgan Chase, Citigroup and Wells Fargo Of course, in order to reduce payroll, Moynihan has been selling of assets: its Canadian credit card, its Spain card Invest in futures Tey come from humble beginnings But even in the face of poverty, thousands of children across the country still hope for a better life Which is why Te Salvation Army’s youth programs offer the physical, mental, and spiritual enrichment they need to break free All thanks to your donations at 1-800-SAL-ARMY or salvationarmyusa.org Yo u t h S e rv ic e s Utilit y Assistance S o c i a l S e rv ic e s R e h a bil i tat ion Emergency Response Housing bAnK Of AMeRICA and its Virgin Money Partnership, as well as LaSalle Global Trust, Columbia Management and Merrill’s overseas wealth management business In total, the bank has shrunk its legal entities from over 2,000 to 1,300 and has sold more than $70 billion in noncore assets Its risky proprietary trading operation, now prohibited by the Volcker Rule, was among the frst to go As a result its capital markets balance sheet is down to about $600 billion from $1 trillion in 2009 A smaller and in some ways simpler Bank of America will give Moynihan more time to focus on what could be his most important legacy: changing the bank’s culture “We’ve fned-tuned the business around basic principles: Who are our customers? What they need from us? And what can we be good at?,” Moynihan explains “Changing the mind-set requires getting people to stop thinking about the market share, and start thinking more about the value of a product for the customer.” Putting consumers’ needs frst instead of push- ThE bIg fouR ing products may sound like an obvious thing to do, by the nUMbeRs but those who have worked bAnk of AMERIcA under previous Bank of total Assets $2.1T America CEOs say this has employees 239k never been a top priority ROA 0.53% Even former chief execROe 4.6% utive Hugh McColl admits that his get-big-or-go-home 1-year stock Change 9.5% approach created problems for Bank of America cITIgRouP “One of the problems I Assets $1.9T had running the bank was employees 251k marketing would come up ROA 73% with some idea to sell a product, but we’d never sell ROe 7% enough of it The problem 1-year stock Change -8.8% would be we’d have to keep the damn product and supJPMoRgAn chAsE port it even though it didn’t Assets $2.4T make any money,” McColl employees 251k says “What Brian has done is get rid of a lot of that.” ROA 75% Under Lewis, who ROe 9% succeeded McColl and 1-year stock Change 2.9% left the bank at the end of 2009, Bank of America became even more product- wELLs fARgo Assets $1.5T driven, including the goal of having as many credit employees 265k card and checking acROA 1.5% counts opened as possible ROe 13.87% Today, the bank isn’t 1-year stock Change 22.9% focused on new custom106 | FORBES JunE 16, 2014 ers It’s all about getting to know existing ones better and wringing more profts out of the relationship In other words, providing a jumbo mortgage to a Merrill Lynch client, opening a Merrill Edge investment account for a retail banking customer or transferring a middle-market company’s retirement plan to Merrill Lynch It’s a return of the old synergy strategy combined with a heavy dose of cross-selling “Brian has really broken a lot of traditionally held beliefs and, quite frankly, sacrifced some earnings to the right thing for the customer,” says Laughlin For example, Moynihan had the bank change an overdraft policy that allowed customers to swipe their debit cards and buy items despite insufcient funds This earned BofA lucrative fees amounting to an estimated $2 billion per year, but pissed of customers, who were being charged what amounted to usurious interest rates Moynihan also assigned Laughlin, now president of strategic initiatives, the task of simplifying bank processes Example: reduce BofA’s checking account options from 70 to Says Laughlin, “It’s not about stretching for every last dollar from a client That’s a big change.” To be sure, Moynihan’s back-to-basics approach is not without potential The bank currently has 50 million customers, but its share of their wallets is only 20% The story is similar in its credit card business, where Bank of America has $95 billion in balances but says its customers have another $90 billion with competitors On Merrill Edge, the largely digital brokerage service for customers who have between $50,000 and $250,000, assets stand at $100 billion, up from $40 billion two years ago But the opportunity is in the trillions, BofA executives say In all, the bank estimates it has the potential to win more than $8 trillion from its existing customer base The changes Moynihan is trying to make will not be easy It’s one thing to dole out $200 bonuses to bank tellers who open checking accounts tied to active direct deposits; it’s another thing to keep the bankers and brokers of Merrill Lynch happy in the new era of low-cost, low-risk banking Perhaps to prove a point to the bank’s 239,000 employees and to investors, Moynihan is among the lowest paid of all bank chief executives Last year he made $14 million, compared with $20 million for JPMorgan’s Jamie Dimon and $23 million for Goldman Sachs’ Lloyd Blankfein Even Bank of America’s chief operating ofcer, former Goldman banker Thomas Montag, who runs Merrill Lynch, earned more than Moynihan in 2013, with a total compensation of $15.5 million Says Moynihan, “This is not about me I have this job for a short time What we have to is build a lasting capability The other thing is that you always have to have a healthy fear of what could happen if you don’t get this right.” F THE COURAGE OF ONE Change starts with one person standing up and saying “no more.” The Somaly Mam Foundation is dedicated to ending sex slavery and empowering its survivors as part of the solution Our multilateral approach supports rescues and recovery centers, survivor-driven advocacy, and next-generation change through strategic partnerships, grassroots activism, and the media, all led by the vision and life’s work of Cambodian survivor and anti-trafcking activist Somaly Mam Stand with Somaly Together, we can end sex slavery Donate Today | somaly.org FORBES LIFE TRAVEL A Hidden Gem On The Emerald Coast With the opening of Mukul, Nicaragua’s frst luxury resort, entrepreneur Carlos Pellas has invested in his country’s future By ANN ABEl M y biggest motivation to build Mukul was not a return on investment,” says Nicaraguan entrepreneur Carlos Pellas, the spiritual and fnancial force behind the country’s frst true luxury beach resort “It was to create a family legacy that would help pull my country out of poverty.” Mukul, which opened last year on the country’s Emerald Coast—a mecca for surfers and a site of spectacular Pacifc sunsets—is the result of what will eventually be Pellas’ $250 million dream, a private beach community that will comprise a 37-key resort (where beach villas and smaller hillside bohios start at $500 a night), a residential development, a lavish spa (or “spas,” as the marketing director refers to each of the six fully tricked-out treatment casitas), a private beach club, a walk-in humidor, a David McLay Kidd golf course and a tasting room for Flor de Caña rum, which has been owned by the Pellas family for fve generations and is one of the most highly regarded Latin American rums Pellas intended Mukul (Mayan for “secret”) to be a showplace for Nicaragua’s treasures: rum, cigars, cofee, grass-fed beef and art—90% of the furnishings throughout the resort were made by local artists and artisans Pellas, one of Nicaragua’s wealthiest men, has reason to be a booster for his country After founding the BAC Credomatic fnancial network—which serves 108 | FORBES JUNE 16, 2014 virtually all of Central America—in 1985 and selling it in 2010 (in what’s regarded as the largest fnancial transaction in Central American history), he now heads a family business that employs more than 18,000 people in sectors including transportation, computers, sugar, ethanol, rum and the Vivian Pellas Hospital, which together total sales of more than $1.2 billion per year As the Stanford-educated president of Grupo Pellas, he oversees a conglomerate with more than $5 billion in assets But his infuence in Nicaragua isn’t limited to his corporate life He’s president of the board of INCAE, which was founded by Harvard University and ranked by América Economía as the top business school in Latin America He also serves on the board of the nonproft American Nicaraguan Foundation, which promotes development in Nicaragua’s poorest communities and helps feed more than 100,000 people a day And he is a cofounder with his wife, Vivian, of the Nicaraguan Burned Children Care Foundation, which has helped treat more than 128,000 children since its establishment in 1991, two years after the two were severely burned in a small plane crash Pellas sees the $130 million he’s invested so far in Mukul, the golf course and the residential development as being in line with his eforts to improve the lives of Nicaraguans “We see Mukul and Guacalito, the resort development where Mukul is situated, as a long-term project—built out over 10 to 15 years We’re in for the long haul.” In the meantime, he’s proud to have made the local community part of the development since the beginning The current staf, as well as most of the 1,500 workers who spent three years building the resort, are from the surrounding communities “When we started, there was practically no real employment in the area Most people had only informal jobs,” he recalls So he set up a hotel school in a village nearby “The training still goes on daily We support the local schools, built parks and an infrmary, and we ofer small loans and training for local businesses.” He also has an airport in the works miles away, to increase visitor numbers when it opens to private jets and commuter fights from Managua and Liberia, Costa Rica next year (Right now it’s about a two-hour drive from Managua, though helicopter transfers can be arranged.) “Mukul and Guacalito are true examples of sustainability,” Pellas says, “as the development of the local communities are very much a part Agua de Nicaragua: Each of Mukul’s 23 bohios comes with an ocean view and its own private plunge pool of the growth and success of the resort.” That doesn’t mean anything that the mostly American guests experience at Mukul feels like a charity project The architecture and service rival what you fnd at top resorts in Mexico or Costa Rica The extensive “Cocina NiKul” menus, which meld local ingredients with Latin and Mediterranean accents, are delicious Activities range from private surf lessons and hiking with on-site rangers to fshing charters and helicopter day-trips to Granada, the Cerro Negro volcano and the Flor de Caña distillery The smaller accommodations, the hillside bohios, are larger than 600 square feet, with a tree-house-like feel, stunning sea views through huge windows and smart details like built-in icemakers (so guests don’t have to call room service for ice to chill their complimentary Flor de Caña) The larger one- and two-bedroom beach villas are residential in scale, with private pools, gardens and outdoor showers And the six-bedroom, 20,000-square-foot Casona Don Carlos—where the Pellas family stays when they’re in residence, which is often—is positively palatial, crowned by 80-foot-high palapa ceilings and rambling in its indoor-outdoor design Pellas doesn’t hole up when he stays, though, preferring to meet guests and share those Nicaraguan treasures in person “The creation of this magical beach community is motivated by my desire to leave a legacy that triggers the transformation of Nicaragua into the kind of tourist destination that will make our children and our children’s children proud,” he says “Through this authentic and responsible tourism development we are taking the frst step in transforming a country that has given so much to our family for the last 140 years.” TRENDING What the 55 million Forbes.com users are talking about For a deeper dive go to FORBES.COM/lIFESTylE PERSON IGGy AZAlEA Hip-hop’s unlikely new star: a blonde Australian woman Her first album, The New Classic, landed at No on the U.S charts, the highest debut spot by a female rapper since Nicki Minaj in 2010 COMPANY PORSCHE The 2015 Macan, which hit the U.S this spring, might be a compact SUV, but analysts expect big sales Some predict the Turbo ($72,300 base price) could become Porsche’s bestselling vehicle IDEA STUDy ABROAD Remember that magical Prague semester? Recapture the experience with Road Scholar, a nonprofit specializing in adult educational travel First up: six-week language classes in Paris and Florence. FINAL THOUGHT CREDIT RIGHT “I haven’t been everywhere, but it’s on my list.” —SUSAN SONTAG JUNE 16, 2014 FORBES | 109 FORBES | MARKETPLACE Troy Ounces U.S Mint Silver shown at actual size! 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Te Soothing Sound Of Guaranteed Income Many Forbes investors currently own or are considering annuities Afer all, they are sold as safe investments, ofering dependable and predictable returns, no matter what the market does And that sounds very appealing, especially afer sufering through the worst bear market since the Great Depression So what’s the problem with annuities? What You Might Not Know About Annuities Could Come Back To Haunt You Before you put your hard-earned money into an annuity, or if you already own one, please call 1-800-695-5929 for a special report, Annuity Insights: Nine Questions Every Annuity Investor Should Ask It could help save you hundreds of thousands of dollars and untold fnancial heartache Te vast majority of annuities are really complicated insurance policies that make it very difcult to fully understand the implications and unintended consequences And once you buy into an annuity, it can be a very difcult and potentially very costly investment decision to reverse Tat’s why it is vital you “look before you leap” and ensure that you have “your eyes wide open” before you purchase an annuity And if you already own an annuity, this free report is just as valuable as it can help you sort out the good, the bad and the ugly aspects of annuities What You’ll Learn From Tis Free Report • Te diferent types of annuities and the advantages and disadvantages of each • Why annuities can be complex to understand • What you need to ask an annuity salesman when evaluating his product • Te infation risk, tax implications, estate planning considerations and typical annuity fees Stuck In An Annuity? Because people ofen regret their annuity decision, Fisher Investments has helped many investors extract themselves from annuities In fact, if you have a portfolio of $500,000 or more, we may rebate some or all of your annuity surrender penalties Rebates average over $13,000.* Please call for details and to see if you might qualify If you own an annuity or if someone is trying to sell you one, I urge you to call for your free report Annuities can lock you into low returns, complicate your tax situation, tie up your wealth and hit you with high fees If you have an annuity, my team can help you decide if it is right for you And if it isn’t, we might be able to help you get out of it and even help you ofset some of the annuity surrender fees.* Tis free report could save you from making one of the biggest investment mistakes of your life And for owners of annuities, the free analysis could be a life saver Ken Fisher About Fisher Investments Fisher Investments is a specialized money management frm serving successful individuals as well as large institutional investors With over $54 billion** in assets under management and with an over 25-year track record in bull and bear markets, Fisher Investments uses its proprietary research to manage money for prudent investors – CEO and Co-Chief Investment Ofcer, Fisher Investments – Forbes “Portfolio Strategy” columnist for 29 years – Author of 10 fnancial books, including four New York Times bestsellers Please hurry! Tis ofer contains time-sensitive information Call today for your FREE report! 1-800-695-5929 Ext A607 ©2014 Fisher Investments 5525 NW Fisher Creek Drive, Camas, WA 98607 Investments in securities involve the risk of loss *Rebates are for investors who liquidate an annuity with surrender penalties and fund a Private Client Group account Average rebates from August 2011 to September 2013 were $13,227 Terms and conditions apply See www.AnnuityAssist.com/Terms-and-Conditions for further information **As of 3/31/2014 junE 16, 2014 ® FOR MARKETPLACE ADVERTISInG, CALL 212-206-5563 THOUGHTS FINAL THOUGHT “Women’s taste in neckties is as bad as men’s in chintz.” —MALCOLM FORBES ON wOMEN “No one has ever asked an actor, ‘You’re playing a strong-minded man. …’ We assume that men are strong-minded or have opinions But a strongminded woman is a diferent animal.” —meryl streep “In the future, there will be no female leaders There will just be leaders.” —sheryl sandberg “She openeth her mouth with wisdom; and in her tongue is the law of kindness.” —proverbs 31:26 “For most of history, Anonymous was a woman.” —virginia Woolf “A woman’s guess is much more accurate than a man’s certainty.” On Seventh Avenue in New York City, frenzy is a way of life, for Seventh Avenue is the never-never land of U.S industry where the risks are big, the potential profts bigger still, and where nothing, but nothing, appears to make sense Even the fact that Seventh Avenue is the center of the nation’s $8 billion garment business—the “rag business,” as its denizens call it—appears to defy all logic.” —rudyard Kipling “Some guy said to me, ‘Don’t you think you’re too old to sing rock ‘n’ roll?’ I said, ‘You’d better check with Mick Jagger.’ ” OTHER THOUGHTS FROM THAT ISSUE: “There’s a special place in hell for women who don’t help other women.” FORBES’ NEw PRESIDENT Malcolm S Forbes has been elected to succeed —madeleine albright DOGS ARE MORE RELIABLE THAN PEOPLE It’s dog-eat-dog in the “You don’t know a woman until you’ve met her in court.” —from the July 1, 1964 issue of forbes his late brother, Bruce C Forbes, as president of Forbes Inc Now 44, Malcolm Forbes has spent his entire working life in the publishing business Since 1954 he has been publisher and editor-in-chief of FORBES magazine dog-food business today; and so far that frisky terrier, the Ralston Purina Co of St Louis, has more than held its own with giant General Foods 112 | FORBES junE 16, 2014 —norman mailer —Cher are TH E E C O N O MY ’ S B A C K B O N E CONSIDER OUR a LIT TLE S U P P O RT EARN UNLIMITED 2% CASH BACK OR DOUBLE MILES ON EVERY PURCHASE, EVERY DAY With a Spark BusinessSM credit card from Capital One,® you’ll get more than unlimited rewards with fraud alerts, free employee credit cards and no foreign transaction fees Learn more at capitalone.com/smallbusiness Credit approval required Offered by Capital One Bank (USA), N.A © 2014 Capital One Working with IBM, Banorte analyzes the data of millions of customers to better anticipate their needs Now the bank can deliver more personalized services ibm.com/madewithdata Made with IBM IBM and its logo, ibm.com and Made with IBM are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide See current list at ibm.com/trademark ©International Business Machines Corp 2014 ... for forbes | FORBES JunE 16, 2014 ©2013 movado group, inc MOVADO TC™ ULTRA-THIN CASE DESIGN IN STAINLESS STEEL WITH MODERN BLACK DIAL MOVADO.COM JARED® THE GALLERIA OF JEWELRY contents — June 16,. .. Editor-in-Chief (1917-54) Malcolm S Forbes, Editor-in-Chief (1954-90) James W Michaels, Editor (1961-99) William Baldwin, Editor (1999-2010) juNE 16, 2014 — volumE 193 NumBER FORbEs (ISSN 0015 6914) is... efective opposition becomes well nigh impossible That’s why Moscow regarded VOA and RFE/ JUNE 16, 2014 FORBES | 11 FORBES RL as lethal foes They provided a these attacks and, indeed, to going on critical