Bank of America Corp's embattled CEO, Kenneth Lewis, may have to give up the post of chairman as shareholders hold a referendum on his eight-year tenure as head of the largest U.S. bank.

At the bank's annual meeting on Wednesday, Lewis is likely to be re-elected to the board by a wide margin, but the vote on a shareholder proposal to strip him of the chairmanship is likely to be close, The Wall Street Journal said.

Shareholders, some standing, packed a 2,000-capacity theater in uptown Charlotte and welcomed the chief executive with 30 seconds of applause. About 15 protesters picketed outside.

Lewis, 62, faces criticism over Bank of America's January 1 purchase of Merrill Lynch & Co, including the bank's failure to quickly disclose huge losses that Merrill was amassing even as it was paying out $3.62 billion in bonuses to employees.

In a speech prepared for delivery later in the day, Lewis defended buying Merrill, saying it was good value and that abandoning the deal would have caused serious harm to U.S. banks. He also said he sees no need for Bank of America to make further acquisitions.

The bank's shares rose in morning trade amid a broad rally in financial stocks. Some investors were hopeful that Federal Reserve comments indicated the economy is improving.

To me, the leadership (at Bank of America) is not as important as the health of the consumer and the housing market, and many of the economic datapoints are not deteriorating like they were, said Robert Lutts, chief investment officer of Cabot Money Management. I think that overwhelms whatever leadership issues there are.

Bank of America shares rose 54 cents to $8.69 on the New York Stock Exchange, while the cost to insure the bank's bonds against default fell.


Since becoming chief executive in 2001, Lewis has spent well over $100 billion on big acquisitions including Merrill, FleetBoston Financial Corp, credit card issuer MBNA Corp, and, last July, mortgage lender Countrywide Financial Corp.

Bank of America needed a federal bailout to absorb Merrill, and Lewis indicated that regulators pushed him to keep quiet about Merrill's losses and not to back out of the merger.

They should have disclosed it, said Ed Morais, a financial adviser and shareholder from Charlotte attending his first annual meeting. It seems like he chose to put Merrill Lynch shareholders ahead of Bank of America shareholders.

Charlotte, North Carolina-based Bank of America has already taken $45 billion of federal bailout money but may need more after results of government stress tests are released, probably next week. The tests gauge banks' ability to weather a deep recession.

Raising capital could dilute shareholders' positions if the bank is forced to issue more common stock.

Several of the 18 candidates for the bank's board also face opposition from a variety of shareholders and governance critics.

Critics say Lewis often appears interested in making Bank of America bigger rather than better.

In his prepared remarks, Lewis said the board's decision to buy Merrill was not about a selfish desire to keep our jobs.

I can state without reservation that these acquisitions are not mistakes to be regretted, he said.

He also said, We see no imperative in any market for this company to consider further acquisitions for the foreseeable future.

While the bank had a first-quarter profit of $4.25 billion, credit quality deteriorated, with losses soaring on credit cards and mortgages, and much of the profit came from one-time items and an accounting change. The results failed to quell criticism.

You've got a company that was adding loans for the sake of growth, said Jonathan Finger, whose father Jerry in 1996 sold his Charter Bancshares Inc of Houston to a Bank of America predecessor.

Jonathan Finger has campaigned against Lewis' re-election. You've got to question whether this management team that grew this portfolio is the right group to clean up the mess, he said in an interview on Wednesday.

The proposal to name an independent chairman is one of eight shareholder proposals on the ballot. A similar proposal won 36 percent support last year, the bank said.

Many corporate governance experts favor splitting the posts of chairman and CEO; Citigroup Inc and Wells Fargo & Co are among banks that have divided the roles.

Last year, however, such a split was a precursor to the ouster of the chief executives of two large, troubled banks -- Ken Thompson at Wachovia Corp and Kerry Killinger at Washington Mutual Inc . Wachovia was later bought by Wells Fargo, while Washington Mutual failed.


Among Lewis' opponents are several big pension funds, including the California Public Employees' Retirement System, which has said it will vote its 22.7 million shares against the bank's entire board, and the TIAA-CREF pension fund manager.

Three major shareholder advisory services oppose the re-election of Lewis and lead director O. Temple Sloan to the board. Among the other shareholder critics is CtW Investment Group, which represents union pension funds.

But Lewis was expected to win support elsewhere, including from brokerages, which typically side with management.

Regardless of Wednesday's outcome, Lewis still faces a heap of problems.

Bank of America is the target of a slew of lawsuits over the Merrill merger, and members of the U.S. Congress and regulators, including the U.S. Securities and Exchange Commission and New York Attorney General Andrew Cuomo, are examining the Merrill deal.

Many legal experts say that even if Lewis thought he was acting for the good of the country in bowing to regulators on Merrill, he should have put his shareholders first.

It doesn't make him look strong, said Charles Geisst, the author of Wall Street: A History. It runs counter to his shareholders' interests, so it's a black mark.

Other proposals on the ballot at the annual meeting would give shareholders a say on executive pay, and would require the bank to disclose more about its credit card practices.

(Reporting by Jonathan Stempel; editing by John Wallace)