Now We Know Why Thain Was Smiling

Ken Lewis, the CEO of Bank of America, was named Banker of the Year by the American Banker in December. Today it was announced that the federal government was going to inject billions more into Bank of America to keep it alive. The ostensible reason for this bailout is that Bank of America was blindsided in its acquisition of Merrill Lynch.

Here is a brief compendium of statements from Ken Lewis, the CEO of BofA.

From Portfolio.com:

On the Merrill Lynch asset assumptions when the deal was struck:

Lewis: “The numbers that we presented today, we had considered marks on the assets as well as planned actions that Merrill Lynch has either executed or had in the works during the quarter as they continued to make progress in risk reduction. So those have been done…So again back to the earlier point, we’re pretty familiar with the types of assets and feel pretty good about the progress that Merrill Lynch had made itself.”

“Many strong companies have fallen victim to this environment while others have capitalized on opportunities as they have presented themselves. Merrill has been a strong respected competitor in the market place that we know well, but the market continues to question the viability of the stand-alone investment bank. This transaction helps ensure Merrill Lynch can continue to operate effectively for the clients on enhancing the long-term value we can create for Bank of America shareholders.”

Thain: “I just want to add to Ken’s comments about what a tremendous strategic fit our businesses are here and what great opportunities we see for the future of this combined franchise.”

From the Wall Street Journal:

Bank of America shareholders who voted for the Merrill Lynch purchase must be feeling a mix of emotions right now. Among them: anger.

On Dec. 5, holders voted for the deal, which was initially announced during September’s Lehman Brothers crisis. On the day of the vote, Chief Executive Kenneth Lewis said BofA would have “the premier financial-services franchise.”

When the deal closed Jan. 1, Mr. Lewis was still positive, saying: “We are now uniquely positioned to win market share and expand our leadership position in markets around the world.”

What shareholders weren’t told: From mid-December, BofA executives were discussing with the Treasury possible extra aid to support the Merrill deal.

Since Merrill was going to be a big part of BofA, and since government aid often hurts the interests of common shareholders, investors can feel aggrieved that they weren’t told what was going on behind the scenes.

The Treasury also has some explaining to do. Its bank rescues have been criticized for lacking transparency. Dealings with BofA over Merrill look downright opaque.

Can anyone offer a compelling reason why Ken Lewis and his management team shoud not be summarily replaced and why a wide ranging investigation of their actions with regard to this merger and other actions should not be undertaken by the SEC and other relevant authorities?

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