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Bank of Amerllwide
Caught by one of our readers, this month’s version of “juxtapositional comedy” care of the Wall Street Journal:
In Today’s Paper [The Wall Street Journal]
Can you think of anyone less qualified to make assertions on pay, and economic recovery than Kenneth Lewis? Yes, Big Bird is a good answer, it’s true. In some ways we are quite surprised to see that Ken is making waves. The man is quite lucky still to be working so it is hard to imagine why he would rock the boat. And yet:
Bank of America Corp Chief Executive Kenneth Lewis, whose bank sold $13.47 billion of common stock this month, on Wednesday said the worst of the economic downturn has likely passed and that conditions will not worsen as much as feared.
“We are on the cusp of what will turn out to be a slow but sustainable economic recovery,” Lewis said at a conference in London. “There will continue to be a lot of pain … but I think the worst is most likely behind us.” He projected modest U.S. and European economic growth in the second half of 2009.
Lewis, whose bank bought Merrill Lynch & Co on January 1, also said corporate and investment banking pay practices must be “reformed,” with pay being tied to performance and banks being able to “claw back” pay from people who took on too much risk.
Oh, boy.
Economy bottoming, pay reform needed: BofA CEO [Reuters]
From the mail bag:
I have been trying to sell a busted emerging markets loan. I called up Merrill about it, because they have been known to broker trades from time to time. My salesman at Merrill called me back. Of course, he had no leads on the loan in question, but he went on to ask me if we had other emerging markets distressed loans we wanted to sell. Why? Well, he told me, the guy in charge of distressed loans in the region in question (let’s call him “Joe”) is looking for paper. Again, why? Joe, my salesperson proceeded to tell me, has been allocated $500 million to build prop positions in distressed emerging market loans. Now, not 10 minutes earlier, the tapes were snapping with the news that Bank of America is thirty-someodd billion short of capital in the stress-test adverse scenario. Band of America has received generous helpings of capital from the TARP and may wind up with more. What the heck is Merrill Lynch doing giving $500 million to some guy, no doubt with a 10% deal, to punt on distressed loans? And not merely distressed loans, distressed loans to foreign borrowers! How does this fit with the goals of the TARP? Wasn’t the idea to stabilize the banking system, thereby protecting depositors and other creditors, and making sure credit would continue to be available for US households and corporates. How does it possibly serve a public purpose to have taxpayer money gambled on foreign loans by a guy on a deal?
What’s more, the reason the salesperson was asking if we have more loans to sell was because he probably thought we were a forced seller. Now, think of the irony if that were the case. A hedge fund that received no government support and is now facing all sorts of new regulation anyway needs to sell loans to pay redemptions; ML/BAC, having run itself into near insolvency doesn’t have to pay back depositors or other creditors early, because the government has provided a backstop, and moreover has gotten so much capital from the taxpayers (including the managers of said hedge fund!) that it can afford to allocate $500 million to building new speculative positions in distressed loans.
What the fuck?
Not sure we have much to add.
So remember that totally crazy rumor everyone thought was insane to the effect that pretty much all of the banks (16 of 19) failed the stress tests? Or were “technically insolvent,” whatever that means? That rumor seems to have originated with a April 19th weblog entry from Turner Radio Network listing 7 facts about the stress tests and summarizing with “Put bluntly, the entire US Banking System is in complete and total collapse.” Well, that eventually looked like a total hoax- intended to be outlandish for the shockingly poor results turned in by the banks tested. But apparently the real results aren’t particularly fantastic either. Specifically:
About 10 of the 19 largest U.S. banks being stress tested will be instructed by regulators to raise more capital, according to a source familiar with official talks.
The banks have been negotiating with their regulators about the depth of their capital needs, should the recession prove to be deeper and longer than anticipated. Markets have been anxiously anticipating the results, which will differentiate the strongest banks from those still expected to sustain considerable credit losses.
What could be a more perfect opportunity for the DecaSplit 10 unit splitscreen segment on CNBC? Reuters managed only eight (and since the exact list of the failuresbanks needing further assistance from various agencies and the gracious demeanor of the American public hasn’t been released yet, these might not even vaguely resemble the real list. Well except for Ken Lewis. And Count Vikula) so CNBC has a huge opening here.
About 10 U.S. stress test banks to need more capital [Reuters]
The key issue: Splitting the Chairman and CEO role (effectively stripping Lewis of the Chairman title) has moved from “still being tabulated” to “deadlocked” as the proxy vote is carefully counted behind closed doors.
The situation is, of course, fluid.
And, accordingly, has voted against all 18 of Bank of Amerrilwide’s Directors and Ken “Strawberry Hill” Lewis.
Suck it Kenny.
Update: Reuters has it now: CalPERS opposes entire Bank of America board
CalPERS said it opposes the directors “for their role in allowing billions of dollars in bonuses to be paid to Merrill Lynch employees and for their role in failing to disclose to shareholders the true financial condition of Merrill Lynch prior to the consummation of the merger.”
Granted, they only own one third of one percent, but still.
Sure, Cuomo may have given him an alibi, but the SEC is still pissed off, and plans to remain so for some time:
Cuomo revealed in a letter yesterday to Congress and federal regulators that Lewis testified in December that then- Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors if the lender tried to back out of buying Merrill. Lewis said he was instructed by federal officials not to disclose Merrill’s losses, his desire to back out of the merger or the intervention of regulators, according to Cuomo.
If you needed a more direct example of why it is simply a bad idea in every single instance to permit government ownership of banking firms except for the limited purposes of facilitating liquidation, this is it.
Consider what can only be a devastating long-term message to markets: You can never again believe the disclosures from any firm in distress when the government is involved.
Bank of America’s Lewis May Face SEC Probe on Merrill [Bloomberg]
Attorney General Andrew Cuomo is shocked, shocked he tells you, to find that regulatory bullying is going on here.
A slew of documents sent by New York Attorney General Andrew Cuomo to Washington officials on Thursday detail negotiations between BofA CEO Kenneth Lewis and federal officials and demonstrate the extent to which senior officials were influencing the decisions of a public company.
Being the efficiency fans that we are here at Dealbreaker, we thought we’d save everyone a bunch of time and provide the answer to this question: Senior officials were (and are) significantly influencing “the decisions of a public company” on a daily, indeed almost continual, basis. Apparently, the irony of pointing fingers at anyone and accusing the state of wielding too much power in the present environment is lost on some of our more brusque-minded state officials.
Officials… causing firms… to act… against the interest of investors? The horror. The horror.
Cuomo Urges Probe of BofA Deal Pressure [The Wall Street Journal]
Earlier: Cuomo Corroborates Lewis’s Story
Blending two stories from our Opening Bell this morning, we cannot think it coincidence that the administration has picked this time to begin discussing nationalizing (really nationalizing- not just conducting an FDIC raid and dropping firms into receivership) the banks in its TARP clutches by converting its holdings into common stock, putting conditions on TARP repayment like another inventive “test,” (giving PR and spin cover to banks that don’t pay it back because they can’t without rupturing their own spleens) and angsting over the timing of stress test releases.
Why, we might ask, is the administration so worried about tests that, in their own words, the banks cannot fail? Why, we might ask, is it only now that we are hearing about the much more aggressive nationalization possibility- and why is it mentioned only in the same breath with the notion that it will provide new capital? Just when Bank of Amerillwide and Chris Marinac are talking about the end of this nationalization-speak (B of A one-time gains in the period saving the bacon- if you buy that sort of “saving the bacon”) the administration fires up the nationalization-speak. Hmmm.
Something is rotten in the state(s) of Denmark.
US to put conditions on Tarp repayment [The Financial Times]
U.S. May Convert Banks’ Bailouts to Equity Share [The New York Times]
Personally, We Are Outraged That Recipients Of Public Money Would Be Unwittingly Supplying Nuclear Material To Iran, Aren’t You?
By Bess LevinBy using aliases, LIMMT fooled U.S. banks into processing dozens of illegal transactions, Morgenthau said. “Our banks have high standards and sophisticated systems to stop these transactions, but this conduct was specifically designed to defeat their systems,” he said.
Some of the U.S. banks involved were Bank of New York Mellon Corp., Bank of America Corp. and JPMorgan Chase & Co., Morgenthau said.
The U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned LIMMT in 2006 for its role in the proliferation of weapons of mass destruction to Iran, Morgenthau said.
Chinese Firm Indicted for Misusing Banks, Aiding Iran [Bloomberg]
