Villanizing Ken Lewis: Why Blame Bank of America for This?

I'm a little confused as to why Bank of America and specifically BAC's embattled CEO Ken Lewis have taken so much slack throughout the financial crisis; certainly it's not because of the questions surrounding the Merrill Lynch deal, right? Surely there are more suspicious tracks leading out of JP Morgan and WaMu, Wells Fargo and Wachovia (sorry, Citigroup, but Wachovia thinks you're a douche as does Jr Deputy Accountant), the Fed and the Treasury, Hank Paulson and Goldman Sachs - come on now, I can pop off at least 10 or 15 more "suspicious" pairings that rival the scandalous drama of Bank of America and Merrill Lynch.

What sets them apart, of course, is that the deal was fronted off.

As I have already declared, I'm gunning for Bank of America to make it out of this mess alive. This is not intended to discount BAC's mistakes, as they are plentiful and deplorable in their own right. BAC has it own sins to confess in due time and unless it is prepared to do so, perhaps Ken Lewis does deserve all the slack. Be that as it may, I'd much rather see Bank of America shake off the government yoke than, say, Citi. Fuck them.

I digress!

Thankfully, I am not the only one who feels like BAC might be unfairly villanized in all of this.

Via NYT:

[O]ne analyst is coming to Mr. Lewis’s defense: Richard X. Bove of Rochdale Securities.

Mr. Lewis was stripped of his chairman title earlier this year, though shareholders kept him on as Bank of America’s chief executive. Still, Mr. Bove said that even if the bank knew of huge losses at Merrill before the deal was sealed, the decision to go forward and merge was still a good one for Bank of America shareholders.

“The politicians and the press are trying to get Ken Lewis fired for adding value to shareholders’ investment,” Mr. Bove wrote in an e-mail message to his clients Thursday. “In this new world where success should be punished this may be a new low point.”

Mr. Bove notes that on Dec. 29 — when the new information concerning Merrill Lynch’s losses were disclosed to Bank of America’s management -– that the bank’s stock was selling at $12.94 a share, whereas today the combined banks’ stock is trading close to $17 a share.

“Thus, one cannot argue that shareholders have been harmed by the bank’s decision that this was not a material reason to put off the merger,” he said in the note to clients.

Still, critics may take issue with that analysis, given that Bank of America’s stock was trading at $33.74 a share before it announced the deal to buy Merrill last September. Expected future losses connected with buying Merrill may have already been priced into the stock even if it hadn’t been publicly announced.

Mr. Bove went further, adding that Bank of America’s shareholders have recently benefited from a large influx of profit that may not have been possible had it not acquired Merrill last year.
Bank of America shareholders have never been at the forefront of anyone's concerns, not least of all the Fed and Treasury PTB that dumped Countrywide and Merrill Lynch at the shrine of BAC in the first place. Is that Ken Lewis' fault?

Or is he entirely full of shit? WSJ seems to imply as much:

In a complaint filed in federal court in Manhattan, the SEC alleges that BofA told investors in proxy documents related to the Merrill acquisition that Merrill agreed it wouldn’t pay discretionary bonuses without BofA’s consent. In reality, though, the SEC said BofA had already “contractually authorized” Merrill to pay $5.8 billion in bonuses.

That would seem to contradict Lewis’ testimony in Congress in February 2009, shortly after the deal was finalized:

“They were a public company until the first of the year,’” he said, speaking of Merrill. “They had a separate board, separate compensation committee, and we had no authority to tell them what to do just urged them what to do.”

The implication is that Lewis was powerless to control Merrill’s bonuses payouts.

More recently, Lewis told Congress that he felt pressure from Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to complete the deal last winter, despite his concerns that Merrill’s fourth-quarter losses were much greater than he had first anticipated. Again, Lewis spread the blame for a deal that cost BofA shareholders billions in losses and led to $20 billion taxpayer bailout.

But Congress wasn’t buying it, and some representatives questioned Lewis’ veracity. It might be easy to dismiss those comments as political posturing. And up until now, the record of the events leading up to the Merrill deal have been confusing. The months long parade of executives and federal officials who have testified before Congress on the BofA-Merrill deal have produced a somewhat contradictory record of “he said/she said” about how the deal went down. But the SEC’s ruling on the matter is clear: BofA’s own proxy statement said Lewis would control Merrill’s bonus payout before the takeover. In fact, he had already agreed to those payouts and didn’t disclose that to BofA shareholders before they were to vote on the deal.
As I said, Bank of America has its own sins to confess. But there should be a line around the church, with Jamie Dimon, Dick Fuld, Lord Blankfein, Ben Bernanke, Hank Paulson, and the rest of the Doom Crew leading the march to purge themselves from the shackles of guilty conscience.

Oh wait... they'd have to have a conscience for that to work, eh?

My bad.

Oh and I still want to see Ken Lewis grow a pair and take on Obama for stealing his bank's catch phrase. I'm not trying to start shit or anything (me? Shit disturbing? Oh please) but...

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


I'm with Lewis and the BofA on the Bernanke-Paulson fiasco. Citigroup, Goldman, Morgan Stanley and AIG have much bigger sins to atone for. Why all the pressure directed at Lewis? Why did the BofA do so poorly in the stress tests? What are the real "powers" trying to divert our attention away from?


Thanks, Pop, glad you agree! And I forgot Morgan Stanley. I have a few loyal MS readers, perhaps one of them would like to confess their sins?

I believe you are 100% correct. Like I said, Bank of America screwed up just as badly as everyone else but there's no reason for them to be getting singled out for punishment like they are. Their derivative holdings aren't nearly as bad as JPM/GS/C, and who gives a crap if they aren't loan modding? JP Morgan only behaves according to the powers that be because it IS the powers that be. Duh.

All of this is so obvious, why don't *we* work for the DoJ?

As you say: "bah!"


p.s. love your use of quotations around "powers". nice touch, IA :)