Yesterday on CNBC, Maria Bartiromo asked Bank of America (NYSE: BAC) CEO Ken Lewis how he would prove to an upcoming shareholder meeting that Merrill Lynch will become something that, you know, doesn't require a 12-figure bailout by the federal government. With shares down 80% in the past year, that seems like a reasonable question. Here's how Lewis responded:
"We think we have a great story to tell. Yes, it's going to be a tough year on credit, but these two strategic acquisitions we've made [Merrill Lynch and Countrywide], we're already seeing the benefit of them."
Already seeing the benefit? Oh Ken, Ken, Ken. You're being extremely discourteous to the word "benefit." Shareholders (and taxpayers) have a great story to tell, too. It's a story about a banker who bought something he didn't really understand. When reality caught up, taxpayers were forced to backstop his mistakes to the tune of more than $100 billion, nearly annihilating shareholders in the process. This banker, amazingly, is still gainfully employed, and he insists Merrill was a great deal because it has operating profits before writedowns. Now that's a heckuva story.
I'm not trying to belabor the obvious failure that was Merrill Lynch. But it's important to note Lewis's continued insistence that buying Merrill wasn't a bad idea. Shares were down more than 90% at one point, yet every time someone inquires about the Merrill acquisition, Lewis dives into something along the lines of, "I don't know what you're talking about. That was a great deal. We're doing just fine. Merrill is the king of all kings."
This kind of reminds me of Baghdad Bob, the former Iraqi Information Minster who, in the early days of the second Gulf War, insisted American troops were nowhere to be seen -- all while American tanks patrolled outside his building.
If Lewis simply came out and said, "Look, we really screwed up here. Mea culpa. We made a major miscalculation, and we'll do everything in our power to fix it as soon as possible. In the meantime, we'll keep you informed every step of the way," he'd still hold a fair amount of respect and credibility. Instead, investors have been left largely devoid of information. When they do get the opportunity to hear Lewis speak, it's a slap in the face. Meanwhile, competitors like JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS) are running circles around B of A.
Rather than clinging to the Peter Pan philosophy of imagining things into existence, Lewis might behoove himself -- and shareholders -- to simply acknowledge mistakes that are already well known. Perception trumps reality these days, and when a CEO denies a reality that's already clear as day, investors can't help but wonder what's really lurking behind the scenes.
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