Farewell Ken Lewis

Finally, Ken Lewis is let go. It's probably cleaner and easier for him to resign (or retire) now than wait for the prosecutions to finish or the collapse of the bank to happen.

His stupid acquisition of Merrill Lynch (shotgun wedding organized by Ben Bernanke and Hank Paulson) is the reason of his leaving. But let's not forget that he also acquired one of the most corrupt companies in the US, and one of those making the biggest losses: Countrywide Financial.

His epitaph at BofA should probably be what he said on the 15th of September 2008:

When asked why he didn't wait until Monday to get Merrill at a lower price, Bank of America CEO Ken Lewis stated "the strategic opportunity was so compelling it couldn't wait."

Here's a quote from the Bloomberg report:

Lewis, 62, said yesterday he will resign as chief executive officer at the end of the year, leaving his successor to capitalize on, or salvage, the acquisitions that led to his downfall. The bank didn’t name a replacement.

The CEO has become a distraction, pilloried by regulators and lawmakers since he engineered the $29 billion takeover of Merrill Lynch & Co. in January and bought subprime home lender Countrywide Financial Corp. in 2008, said CreditSights Inc. analyst David Hendler.

You can also read my previous posts about Ken Lewis.

Bank of America Urged to Pay U.S. for Merrill Accord

Following up on yesterday's post:

July 15 (Bloomberg) -- Bank of America Corp. benefited from implied federal backing on about $118 billion of Merrill Lynch & Co. assets and owes the government compensation, the chairman of a House of Representatives committee studying the purchase of Merrill said.

“If you or anyone at Bank of America made a commitment, verbal or otherwise, to enter into this deal with the United States government, I urge you to honor that commitment,” Edolphus Towns, a New York Democrat, said in a letter yesterday to Chief Executive Officer Kenneth Lewis that was obtained by Bloomberg News. “It is the right thing to do.”

Regulators say Bank of America owes at least part of a $4 billion fee it agreed to pay in January because the company benefited from U.S. backing on Merrill assets such as mortgage- backed bonds, Bloomberg News reported on July 13, citing people familiar with the matter. The Charlotte, North Carolina-based bank says it owes the Treasury nothing because the plan was never put into effect, according to the people, who declined to be identified because the negotiations are confidential.
[...]
Bank of America disclosed the guarantees Jan. 16, along with its first quarterly loss in 17 years. Its news release headlined the guarantee and called the program an “agreement.”
[...]
The plan called for the Federal Reserve, the Treasury, and Federal Deposit Insurance Corp. to participate in a loss-sharing agreement for loans, mortgage-backed securities and financial instruments that could last 10 years, according to company and Treasury documents. Most of the holdings came from Merrill Lynch, acquired Jan. 1.

The bank would pay a $4 billion fee in preferred stock and warrants, plus an annual fee of 20 basis points for undrawn amounts of the $118 billion, or $236 million, according to Treasury’s summary of terms, with more fees if the bank used the program. A basis point is 0.01 percentage point.
[...]

Repeating myself:

In any case, this shows one more time that government intervention leads to unintended consequences.

These consequences are going to be major because, irrelevant of whether BofA is right or wrong:

• BofA will not be able to get any backing when the markets collapse.
• The public image of BofA is going to get hurt.
• BofA has put itself in a position where the government can now do anything they want. They are owned...

Bank of America is trying to avoid paying billions of dollars in fees to U.S. taxpayers

Isn't that rich? It is obvious that BofA indeed benefited from the US Gov backing. Legally, contracts do not need to be signed to be binding. It's just the proof that is more difficult to make when there's no written/signed agreement. But in the case of a public agreement like this one, I don't think it's going to be difficult to make a case against BofA...

In any case, this shows one more time that government intervention leads to unintended consequences.

These consequences are going to be major because, irrelevant of whether BofA is right or wrong:

• BofA will not be able to get any backing when the markets collapse.
• The public image of BofA is going to get hurt.
• BofA has put itself in a position where the government can now do anything they want. They are owned...

July 13 (Bloomberg) -- Bank of America Corp. is trying to avoid paying billions of dollars in fees to U.S. taxpayers for guarantees against losses at Merrill Lynch & Co., saying the rescue agreement was never signed and the funding never used.

Regulators contend Bank of America owes at least part of a $4 billion fee it agreed to pay in January -- even without a completed legal document -- because the company benefited from implied U.S. backing on about $118 billion of Merrill Lynch assets, such as mortgage-backed bonds, people familiar with the matter said. The Charlotte, North Carolina-based bank says it owes the Treasury nothing, according to the people, who declined to be identified because the negotiations are confidential.

Bank of America [...] “got a moral commitment for insurance without tendering a check, so it appears they got something for nothing,” said Representative Brad Sherman, a California Democrat on the House Financial Services Committee. “If the government takes the risk, the government needs to be paid.”

Both sides are under pressure from lawmakers who questioned whether taxpayers are being adequately rewarded for propping up lenders, and why Bank of America’s January acquisition of New York-based Merrill Lynch required a publicly funded bailout. The U.S. provided the bank $20 billion in capital plus the asset guarantees to keep Chief Executive Officer Kenneth Lewis from abandoning the takeover of money-losing Merrill, once the world’s biggest brokerage.
[...]
Both sides agree the accord was never signed and the funding went untapped, the people said. Bank spokesman Scott Silvestri and Treasury’s Andrew Williams declined to comment.
[...]
Bank of America disclosed the guarantees Jan. 16 along with its first quarterly loss in 17 years. The bank’s news release headlined the guarantee and called the program an “agreement.”
[...]
Bank of America would absorb the first $10 billion of losses, with U.S. agencies covering 90 percent of subsequent deficits, said the bank’s Jan. 16 statement. The bank “would pay a premium of 3.4 percent of those assets,” the lender said. Similar commercial accords impose fees of as much as 6 percent, said Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California, research firm.

The bank would pay a $4 billion fee in the form of preferred stock and warrants, plus an annual fee of 20 basis points for undrawn amounts of the $118 billion, or $236 million, according to Treasury’s summary of terms, with more fees if the bank tapped the program. A basis point is one-hundredth of a percent. Bank of America could end the guarantee any time if the U.S. consented, with an “appropriate fee” to be negotiated, the document said.

The term sheet said it was “accepted and agreed by and among the following as of Jan. 15, 2009” and listed the bank, Treasury, Fed and Federal Deposit Insurance Corp. Each specific instrument in the pool of covered assets “must be identified on signing of the guarantee agreement,” the sheet said.
[...]
“It’s the fault of the government for never getting it signed,” said Townsend, who said his firm has purchased shares of the bank. “But part of the inherent unfairness in dealing with government is that they can manipulate all kinds of things to make your life hellish.”
[...]
“Treasury has to appear tough,” said Kevin Jacques, a former economist for the agency, referring to the Merrill Lynch guarantees. “Otherwise this will be politicized and people will say that the bank and Treasury were in this together and they just ripped off the American taxpayer,” said Jacques, now a finance professor at Baldwin Wallace College in Berea, Ohio. “There is a political cost here if they just let Bank of America walk.”

BofA CEO Ken Lewis says "Pigs can fly"

After Citi CEO Vikram Pandit, BofA CEO Ken Lewis now says that "Pigs can fly". The real question, is who can believe anything coming from Ken Lewis, once you know that when asked why he didn't wait until Monday to get Merrill at a lower price, Bank of America CEO Ken Lewis stated "the strategic opportunity was so compelling it couldn't wait." This was last year the day Lehman Brothers collapsed.

At that time, I wrote that Ken Lewis was lying and it got confirmed months later by his testimony to NY Attorney General.

(Bloomberg) -- [...] Lewis also disputed the stress-testers’ estimate of a potential 5.7 percent loss rate for Bank of America’s home-loan business. The rate during the first quarter of 2009 “would have to more than double and then be sustained at that stratospheric level for seven more consecutive quarters,” Lewis said.
[My comment: can anybody believe that? Remember that BofA also baught the subprime and alt-A and CDO kings: Countrywide and Merrill Lynch!]

Lewis said he expects a “slow but sustainable economic recovery” with growth in the U.S. and Europe in the second half of this year. “The worst is most likely behind us,” he said.
[My comment: of course, he saw the crisis come and now he sees it end...]

BofA's Lewis Threatened Over Merrill By Bernanke And Paulson

What was already obvious back in October 2008 when I wrote in BofA Merrill Lynch - The creature of Bernankenstein is now being confirmed true by the WSJ (Thank you Mr Denninger):

Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.
[...]
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead.
"Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript.
"It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.

Obviously, hoping that these criminals will ever be brought to justice is just wishful thinking...

John Thain fired by Ken Lewis

Just a few hours after my previous post about the robbery orchestrated by Thain and the massive losses hidden in Merrill, Bloomberg reports that John Thain is leaving BofA where he was supposed to be the head of investment banking. The final sentence shows also the extend of the debacle and pillage of Merrill's shareholders:

Jan. 22 (Bloomberg) -- John Thain, who engineered the sale of 95-year-old Merrill Lynch & Co. to Bank of America Corp. in September, was ousted after Merrill’s $15.4 billion loss forced the bank to seek more money from the U.S. rescue fund.

Thain, 53, “agreed his situation was not working out and that he should resign,” said Robert Stickler, a Bank of America spokesman, in an e-mail. The resignation ends Thain’s tenure with the Charlotte, North Carolina-based bank less than a month after Merrill’s takeover was completed.

[...]

Thain this year spent $1.2 million to redecorate his office at New York-based Merrill, CNBC reported today.

BofA in deep trouble, Ken Lewis humiliated

I already mentioned in Creature of Bernankenstein that the BofA acquisition of Merrill Lynch was highly overpaid and that it would anyway lead to a disaster. Remember how crazy Ken Lewis got about his acquisition? Like a kid with a new toy? He had already acquired Countrywide, which was a major mistake, but he couldn't prevent from doing a bigger one.

When asked why he didn't wait until Monday to get Merrill at a lower price, Bank of America CEO Ken Lewis stated "the strategic opportunity was so compelling it couldn't wait."

Oh, and of course, both the government and the Fed are massively pouring money into BofA to keep it afloat and the bill is going to be sent the USD holders (and not just the US tax-payer as I see written just EVERYWHERE). Government intervention is destructive of value, not creative.

The nightmare scenario is now unfolding:

Jan. 15 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, may get more aid from the government to help absorb losses tied to this month's acquisition of Merrill Lynch & Co., three people familiar with the matter said.

Details are likely to be disclosed on Jan. 20, the people said. That's when Bank of America may post its first quarterly loss in 17 years as it digests the purchases of Merrill Lynch and Countrywide Financial Corp. The combined company has already received $25 billion from the U.S.

Bank of America told regulators in December the takeover might be abandoned because of Merrill's worse-than-expected results, said the people, who declined to be identified because the talks are private. The government insisted the transaction proceed because its collapse would create new turmoil in the financial system, they said.
[...]
The Merrill purchase followed Bank of America's July acquisition of Countrywide, the largest U.S. home lender. That transaction is probably causing losses at Bank of America because of the declining value of U.S. home prices, Townsend said. Losses from Countrywide's loans to delinquent borrowers may top $29 billion through 2011, Horowitz wrote in his report.

Jan. 16 (Bloomberg) -- [...]

The fourth-quarter loss of $1.79 billion, or 48 cents a share, compared with net income of $268 million, or 5 cents, a year earlier, the Charlotte, North Carolina-based company said in a statement today. Results didn't include a $15.3 billion loss at Merrill, acquired this month.

The losses, coupled with the government lifeline of $138 billion, raise doubts about the future of Chief Executive Officer Kenneth D. Lewis, who engineered takeovers of unprofitable New York-based brokerage Merrill and ailing mortgage lender Countrywide Financial Corp. [...]

“This thing is unraveling so fast Lewis may know his job is lost,” said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc. in Arlington, Virginia, who has an “underperform” rating on Bank of America. The management team has “lost credibility,” he said before results were announced.

BofA Merrill Lynch - The creature of Bernankenstein

I have already mentioned that I didn't understand why Ken Lewis decided to buy Merrill Lynch before it went bust and was willing to pay a 70% premium in order to get it. And of course, I am not the only one wondering why on earth he would do that. Also remember that, on the 15th of September 2008

When asked why he didn't wait until Monday to get Merrill at a lower price, Bank of America CEO Ken Lewis stated "the strategic opportunity was so compelling it couldn't wait."

Well, today after market, BofA reported its quarterly results were worse than expected. Profits fell 80% and BofA will cut its dividend by 50%. Also, the very well capitalized bank (remember, the US Banking system is safe and sound and well capitalized that's the reason why Paulson will buy back for 700 billion of toxic waste and that the Fed is injecting trillions of USD in the system) said that they will dilute their shareholders in order to raise 10 billion USD. That's about a 7% dillution at the current stock price. Expect a lot lower price for the new shares and hence a bigger dilution. According to the press release:

``These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,'' Chief Executive Officer Kenneth Lewis said in the statement. ``It is prudent to raise capital to very substantial levels in this uncertain environment.'' (only 3 weeks after the biggest strategic opportunity Ken Lewis ever saw, that is, even better than the CountryWide deal)

So when these are the most difficult times in 39 years, why would you go and pay a 70% premium to buy a collapsing company? More and more, Ken Lewis doesn't make any sense, unless there's something going on that we don't know about, most likely involving Paulson and Bernanke.

Speaking of CountryWide, they (BofA) will pay $8.4 billion to settle the fraud case.

Now, here's a very interesting quote in found in the Gold Wars and dates back from 2000:

"Of particular note are the strange sequence of events leading to the merger of Chase Manhattan and J.P.Morgan & Co. [...] On Thursday, September the 7th, JPM's CFO and guiding light of the bank's derivatives strategy, Peter Hancock, suddenly resigned 'to pursue entrepreneurial interests'. On Monday, September 11th, the Chairman of CMB and JPM met for five minutes to agree to a merger. Five minutes??? Was someone present at this meeting holding a shotgun? There is a certain urgency about this whole affair, which leads me to wonder whether the Fed arranged this union. When something has to be done in such haste, there must be a problem. [...] The Fed might want to get the huge derivatives positions of thes two banks lodged together under one roof in the event that a rescue operation become necessary. Both from a practical and a political standpoint, it would be easier to achieve and justify a bail-out of one Wall Street 'fat cat' rather than two". (US Stockbroker Joseph J. Cacciotti of Ingalls & Snyder)

Hum... Sound familiar? It looks like BofA+Merrill is the twin sister of JPMChase, created in the same conditions and with the same original goal.