Friday, October 2, 2009

Bank of America CEO Ken Lewis, Government Whipping Boy

This from the Wall Street Journal editorial page:

"The political class has finally got its man, which is to say that Bank of America CEO Ken Lewis has announced he will retire at the end of the year. Don't you feel better already? Someone had to be sacrificed as expiation for the financial panic and bailout, and the politicians are determined to convince voters that the bankers did it all. So heave-ho, Mr. Lewis had to go.

"His alleged offense—investigated by the SEC, a House oversight committee and New York Attorney General Andrew Cuomo—is that his bank failed to adequately disclose to shareholders potential losses and employee bonuses at Merrill Lynch prior to their December vote to approve the BofA takeover of Merrill.

"Thus the same government that told Mr. Lewis to keep his mouth shut and close the Merrill transaction now says he should have been more candid with shareholders. The same government that also threatened his job if Mr. Lewis didn't accept Merrill's mounting losses along with new federal money—while refusing to provide an agreement in writing because it didn't want to inform taxpayers—now questions the disclosures he made to investors. Too bad the same investigative resources will never be used to find out how financial "systemic risk" was supposed to be reduced by forcing Mr. Lewis to merge the country's largest deposit-taking bank with a failing Wall Street trading firm. 

"On the weekend that Lehman Brothers failed in September 2008, could Mr. Lewis have bought a teetering Merrill Lynch for less than he agreed to pay? Probably. Could he have killed the deal or negotiated a better price before the January closing if Treasury Secretary Hank Paulson hadn't pressured him not to make an issue of Merrill's rising trading losses? Perhaps. 

"But his real, and ultimately fatal, mistake was to believe the feds when they urged him to buy Merrill—and, before that, Countrywide Financial—in the name of saving the financial system. He forgot the oldest lesson about the second oldest profession: Never trust a politician."


My take is that during his tenure as CEO of BofA Ken Lewis has arguably overpaid for every acquisition he has made to the detriment of BofA shareholders.  The two most egregious examples of overpayment are the purchases of Countrywide and Merrill Lynch during the financial which both could have been had for pennies on the dollar if he'd been a little more patient.  What I find morally reprehensible is his treatment by the Federal Government and the State of New York after being bullied into buying Merrill Lynch when he knew better by Paulson. Both he and BofA shareholders took one for Team USA by going through with that purchase. Now to have the Feds and pols pressure him out of BofA is nothing short of hypocritical. But what's new.

I'm not defending Ken Lewis here. I think the Board of Directors should have shown him the door a while ago when it became clear his buying sprees and dreams of acquisition grandeur was not adding value to the company. He should be exiting his post based on job performance, not a political witch hunt and as punish for those Merrill Lynch bonus before the acquisition was completed (though that was a dumb move also).

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