5. Bank of America
> CEO name (tenure): Brian Moynihan (3 years)
> YTD stock: down 57%
> Latest quarter EPS: $0.56 from a loss of $0.77
> Insider ownership:0.2%
> Key event: announced 30,000 layoffs
Bank of America (NYSE: BAC) management teeters between telling Wall St. that its business is viable and raising money, which would imply it is not viable. Wall St. lost confidence in Bank of America as management tried to explain away the future of its nearly $2 trillion in real estate loans, many of which have soured. It faces billions of dollars in lawsuits that claim it fraudulently marketed packages of mortgage backed paper. CEO Brian Moynihan tried to quiet Wall St. with assurances the bank had adequate reserves to survive even in a difficult economy. He then quickly took $5 billion from Warren Buffett under unfavorable terms. He also sold a valuable interest in China Construction Bank. As it raised the capital, Bank of America announced it would fire 30,000 employees, a sign it is not nearly prepared for Federal Reserve stress tests next year.
> CEO name (tenure): Glenn Murphy (4 years)
> YTD stock: down 13%
> Latest quarter EPS: down 3% to $0.35
> Insider ownership: 44%
> Key event: announced shuttering of 21% of stores
The Gap (NYSE: GPS) has had trouble managing its portfolio of Gap, Banana Republic, Old Navy and Athleta brands. November continued a string of mostly awful same-store sales comparisons. Same-store sales for Gap North America brand were off 2% from November of last year. Old Navy’s were down 7%. International sales declined 9%. In October, Gap did something no large retailer wants to do. It announced a huge series of store closures in North America. The move will end up closing 21% of its flagship stores, or 200 locations, through 2013. Gap’s management has not found a formula to keep customers who now go to J. Crew, Abercrombie & Fitch (NYSE: ANF), and American Eagle Outfitters (NYSE: AEO).
> CEO name (tenure): Meg Whitman (less than 1 year)
> YTD stock: up 22%
> Latest quarter EPS: up 7% to $0.12
> Insider ownership: 3.1%
> Key event: fires CEO
Hewlett-Packard (NYSE: HPQ) is widely regarded as the largest American company with both a dysfunctional and inept board of directors. It has fired successful CEO Mark Hurd and unsteady replacement Leo Apotheker within a year of one another. The board then hired Meg Whitman, former CEO of eBay (NASDAQ: EBAY), without an executive search. Whitman has never run a large technology company. In the last days of Apotheker’s stewardship, HP said it might spin off its PC operations. Whitman contradicted that soon after she joined the company. All through these series of dramas, HP’s financial results deteriorated. The board was unable to cobble together neither a strategic plan nor a management team after Hurd’s departure. When the company announced its most recent quarterly numbers it said revenue would be below expectations in the next fiscal year. That will not do when rivals IBM and Oracle improve results each quarter.
> CEO name (tenure): Andrew Mason (3 years)
> YTD stock: (IPO 11/3) down 3%
> Latest quarter EPS: N/A
> Insider ownership: N/A
> Key event: shares drop 40% following IPO
Groupon (NASDAQ: GRPN) had credibility problems before it went public. The company has never made any money. Last year, it managed to lose $390 million on $313 million in revenue. In the first three quarters of 2011, Groupon lost $308 million on $1 billion in revenue. Groupon’s first set of IPO financial data deeply disturbed accountants, and this damaged the e-commerce coupon company’s reputation. Groupon used “nontraditional” accounting methods to realize revenue and operating income. This, in turn, improved its financial picture when compared to typical GAAP measures. Groupon’s management has also done an extremely poor job explaining how the company will hold off competition from similar online sites like Living Social and related products created by Google and big-box operations like Walmart. Groupon has compounded an accounting problem with an inability to address skepticism about its basic business model.
> CEO name (tenure): Reed Hastings (14 years)
> YTD stock: down 60%
> Latest quarter EPS: up 66% to $1.16
> Insider ownership: 8.9%
> Key event: price increase alienate customers
Netflix (NASDAQ: NFLX) raised its subscriber rates by 60% in July. When customers revolted, it tried to remedy the situation by separating its online and DVD rental operations. A few days later, it put them back together again. In the process it lost about 800,000 customers, according to its latest quarter. On the heels of these problems, Netflix sharply cut its guidance for the upcoming quarter and said it would lose money in 2012. Four Wall St. analysts downgraded the stock the following day. The trouble did not end with that. In late November, Netflix said it needed capital because of its expected losses next year and would therefore raise $400 million. This caused investors to worry the license costs of its premium programming would be greater than revenue from it subscription growth. Netflix’s management did not foresee the costs of its content rising as much as they did, or it would not have claimed earlier this year that it would be profitable next year. It also neglected to see that a 60% subscription fee increase would drive away customers in droves.
Douglas A. McIntyre