Conspiracy at Bank of America?

Conspiracy theorists must have been doing a joyous jig today as news broke that Bank of America (NYSE: BAC  ) CEO Ken Lewis was supposedly strong-armed by the government to keep mum on the losses at Merrill Lynch.

This builds on previous speculation that B of A was forced to buy Merrill as Merrill's situation began to look Lehman-esque, and opens a whole new Pandora's box on a situation that is already one big snafu.

But the story's importance spreads beyond the shock-and-awe factor. As investors, we need to be wary of the wide-ranging consequences of this bombshell.

In Ken we ... trust?
Lewis has been in a battle for his job at B of A, and rightly so. The company has been one of the hardest hit in the financial crisis and, unlike fellow folly Citigroup (NYSE: C  ) , the same folks that helped land it in the current pickle remain at the top.

Certainly there can and will be arguments made in support of Lewis. The Merrill acquisition came on the heels of the bankruptcy at Lehman, at a time when the entire world economy seemed to be at risk of falling into an abyss.

Even after the acquisition was completed, the financial system was still very touch and go, so talk of Merrill's troubles could have rattled things further -- which of course would have come full circle to batter B of A.

But if only that were the whole story. In fact, Lewis not only agreed to snatch up Merrill, he did it with relish. Bank of America announced the transaction at a 70% premium to what Merrill's shares were trading at a day earlier, and it didn't secure any government backstops on excessive losses from the broker.

This was in stark contrast to the smoking hot deal that JPMorgan Chase (NYSE: JPM  ) got when it scraped Bear Stearns off the pavement. And that's not to mention the fact that Lewis has talked up the acquisition on quite a few occasions since the original announcement.

The whole ordeal leaves shareholders between a rock and a hard place when it comes to the company's leadership. If you believe one side of the story -- that the government's mob-like tactics kept Lewis quiet -- then B of A is headed up by someone not willing to truly advocate for the company's shareholders. If you take the other side, then you undoubtedly come to the conclusion that Lewis is full of baloney -- and probably some other non-lunchmeat substances -- and not fit to run a major bank.  

All roads seem to lead to the end of the road for Lewis.

But wait! There's more!
You didn't think I'd let the government off scot-free, did you? In terms of blame, the story isn't quite as lose-lose for Ben Bernanke and Hank Paulson on this one, since there is the possibility that Lewis is embellishing the story in an attempt to cling to his job -- a possibility that I don't think is out of the question.

In terms of impact though, it'll likely be pretty troublesome for not only Bernanke and Paulson, but the markets as a whole. The government has been pulling out all the stops to stabilize the financial system, and a big part of that is inspiring confidence in market participants.

Should the current debacle at B of A lead to further inquiries and investigations -- which I think is likely -- trust in the government and its ability to clean up this mess will likely be eroded.

Unfortunately, it probably doesn't even matter in the near term whether the Fed or Treasury really tried to put a gag on B of A. The incident is more than enough to inject uncertainty into the market -- and the market hates uncertainty. This may bring wary eyes to many of the other recipients of huge amounts of aid, such as AIG (NYSE: AIG  ) and Wells Fargo (NYSE: WFC  ) .

More still?
The best-case scenario here is that Lewis really is just a big-shot CEO with a lot of pride who is throwing in the kitchen sink in an effort to keep his job. That would mean that we could attribute this whole shenanigan largely to Bank of America and move on.

But what if it's not just Lewis? What if financial company CEOs at places like PNC Financial, Morgan Stanley (NYSE: MS  ) , or US Bancorp (NYSE: USB  ) have been telling only half the story? Maybe they received a call from the government or maybe they took it upon themselves to withhold information for "the good of the economy."

But maybe the biggest question this raises is what's right and wrong in a situation like this. Warren Buffett has described the current circumstances as fighting an economic war. Could these be justifiable tactics to win the war? Let us know what you think by taking our Motley Poll. And feel free to fire away in the comments section below.

Fool contributor Matt Koppenheffer owns shares of Bank of America (alas), but does not own shares of any of the other companies mentioned. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...


Read/Post Comments (26) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 23, 2009, at 5:27 PM, McCrikey wrote:

    I think Lewis' life insurance premiums just went up.

  • Report this Comment On April 23, 2009, at 5:37 PM, stevemason5 wrote:

    Until we find out if BAC CEO Ken Lewis was "forced" by the government to buy Merrill Lynch, this is all needless speculation.

    There was a article in the Minneapolis media that USB CEO Richard Davis was essentially told to keep mum on certain details about the TARP. He gave a speech followed by comments. Boy, was he fighting mad.

    I would provide a link. Unfortunately it has been subsequently removed by the original source. Here is a sanitized version of the original link.

    http://twincities.bizjournals.com/twincities/stories/2009/02...

    It does not provide the additional comment that he was TOLD to keep mum that the TARP was a forced choice. If USB was told to keep mum on that, it stands to reason that the government could easily have told BAC to keep mum on Merill's deficits or an arm twisting sale of Merrill to BAC.

    I think Paulson and Bernanke likely felt the financial system was/is so precarious, it justified the arm twisting. Much of this will come out is due course.

    Still, it all stinks of politics. If the sale was a forced "do-your-duty-for-your-country" choice, then Ken Lewis should not lose his job. The BAC board still supports Lewis despite the stock massacre. Maybe they know something we don't know.

  • Report this Comment On April 23, 2009, at 5:38 PM, Seano67 wrote:

    I don't know what the true story is, but as a BofA shareholder I'm very glad that Andrew Cuomo is on the case, as he's got exactly the type of dogged, relentless, pit-bullish tenacity required for this type of thing.

    What you've got right now is a classic 'he said-she said' scenario going on, with the Fed claiming today that in fact they did *not* pressure Lewis in any way while Lewis claims otherwise, so who knows, but I can damn well guarantee you that Cuomo's not just going to drop this. He'll continue on and keep digging until the real truth is brought to light (or as much as he's able to do so), so massive kudos to Cuomo on that.

    All I want is the truth, and either way the final truth seems that it can only be sketchier than hell.

  • Report this Comment On April 23, 2009, at 5:41 PM, McCrikey wrote:

    Is waterboarding an option? I hear it's a great way to get at the truth.

  • Report this Comment On April 23, 2009, at 6:11 PM, beatnik11 wrote:

    "Is waterboarding an option? I hear it's a great way to get at the truth."

    I heard its a great way to get people to tell you what you want to hear

  • Report this Comment On April 23, 2009, at 6:39 PM, Netteligent09 wrote:

    Government needs to investigate, clean house, and prosecute these crooks at all levels. They are getting us into this crisis.

    We will not have a chance of recovery until we clean up our mess. Pumping billion of dollars into BoA is wrong.

    Where are SEC, Dept. of Justices, FBI, and Congress when we need them the most?

  • Report this Comment On April 23, 2009, at 7:00 PM, whereaminow wrote:

    The words "Banana Republic" come to mind, and I don't mean the high-end GAP affiliate.

    David in Qatar

  • Report this Comment On April 23, 2009, at 8:25 PM, Othello4U wrote:

    Nothing will be done about this crime. Also, the American people will not demand that any thing be done about this crime. So, shut-up and sit down!

  • Report this Comment On April 23, 2009, at 8:45 PM, steffania wrote:

    I don't understand why the American government is giving aid to institutions that are headed up by groups of individuals who are no longer on the same page as the economy. Guess money is the answer to all the woes of the world huh. Throw it out and maybe things will get better.

  • Report this Comment On April 23, 2009, at 10:19 PM, skypilot2005 wrote:

    I own shares of B of A. If Lewis couldn't look out for his shareholders, he should have resigned.

    What ever happened to doing what's right ?

    Cuomo is going to look out for Cuomo. Not what's best for B of A.

  • Report this Comment On April 24, 2009, at 1:18 AM, panning4gold wrote:

    Looking out for the interest of the shareholders?

    Hahahahaha, I don't think that has happened in the last 30 years. All they want to do is to keep their fat check and if it takes a lie or two or three, so be it.

    Let me assure you, they are NOT looking out for your interest, just in case there were any uncertainties in your mind.

  • Report this Comment On April 24, 2009, at 1:56 AM, jesterboomer wrote:

    In many instances and in many companies in this credit crisis shareholders have been royally screwed - even more so than taxpayers - by company managements and sometimes the government.

    It's clear that for company execs their shareholders are often the last thing on their mind. Note how many pages in annual reports are devoted to executive compensation.

    Mutual fund managers rarely seem to take any responsibility for ensuring responsible management of companies they invest in. Boards appear to be totally in bed with the management or puppets.

    We badly need a universal watchdog organization to watch out for and coordinate voting for investors in order for shareholders to have some control over what we supposedly own.

  • Report this Comment On April 24, 2009, at 8:43 AM, spindor wrote:

    Speaking as a _former_ customer of BoA, I cannot describe how negatively I regard the actions of this organization of vultures. Customer care and customer service went out the window at BoA several years ago. Since that time I have watched as Ken Lewis and his cronies have taken all necessary steps to enrich themselves. Shareholder concerns, like customer concerns are secondary to keeping power and 'keeping score' via the total compensation metric. I thought about buying some BAC when it was down around $5.50/share, but couldn't bring myself to do that even though I knew it would go up from there. I want nothing to do with BoA.

  • Report this Comment On April 24, 2009, at 8:46 AM, Hardyravi wrote:

    Here are a few things to be looked at, before we decide whether Ken Lewis is the one to blame. When Lehman brothers went down.... which companies were in a position to gobble up a giant like Merryll... NONE except for Bank Of America. Now The question is whether the acquisition was made right... I believe it was rightly so... and i totally believe in Ken for looking at long term prospects of the bank... and the share holders...

    Now the short term backlash of the stock going down was not expected, but if the merger wouldn't take place, we would not be looking at the financial industry as we are looking today... if BOA and FED allowed ML to go down... it would have opened a pandora's box and the whole fincial stocks would be perished... It is for Ken, Ben and paulson that the financial industry is still standing up...

    Also by doing this merger Ken has created a behemoth... which cannot be rivalled in the coming years... Biggest Deposits base... biggest Investment bank... and Biggest Mortgage Lender... When this credit cycle turn... who do you think will be on the top of earnings list...

    This is a debate between honesty (whether Ken should have told the share holders) and the right thing to do (save the financial industry)... Neither the Fed, nor Ken has to blamed, but I believe this was the right thing to do and has saved the financial industry from throwing this economy into a Great Depression....

  • Report this Comment On April 24, 2009, at 10:40 AM, 1k1a wrote:

    And to top it off, six months down the road this may well be the best thing that could possibly have happened to BoA. Their stock would have been just as bad off or worse if Merrill would have went under. Who knows, but you think all this democrap bull is doing anything for this economy your quite out of your mind.

  • Report this Comment On April 24, 2009, at 12:34 PM, Clint35 wrote:

    How is any of this democrap bull? The people to blame are either Lewis or the Bush administration. Bush was a Republican. How quickly you forget.

  • Report this Comment On April 24, 2009, at 1:44 PM, 1k1a wrote:

    How soon you don't know, pushed these liberal lending bills. The same democraps that are there now and were there when Bush was the president. frank, Geithner, Kennedy and Obama. They were the majority and still are. 240 billion to Fannie Mae & Freddie Mac, one Frank's boyfriends runs one of them. I wonder what laws are in the constitution about trying to creat a communist state while being an elected official? Get your stories straight before you get on the typewriter.

  • Report this Comment On April 24, 2009, at 2:27 PM, spindor wrote:

    Is now and always has been: the president proposes but congress disposes. None of this would have come about if the democrap congress, in power since 2006, had been tending the shop. Thank you Dodd, Pelosi, Geithner, Kennedy, Reid, Waters, Frank, etc, etc.

    You can stop helping now!

  • Report this Comment On April 24, 2009, at 5:23 PM, mcubed101 wrote:

    This article seems more appropriate for the National Enquirer than for a serious financial website. At least an effort to correct some glaring misstatements would have been welcome, to wit:

    1. "[BofA] didn't secure any government backstops on excessive losses from the broker." Quite the contrary. BofA did not simply gulp and swallow when the USG insisted it go ahead with the ML acquisition last December. BofA insisted on and received a US Government guarantee in January covering $118B of ML assets in exchange for $4B in BofA preferred plus warrants. Look it up. The WSJ covered it fully.

    2. Wells Fargo and AIG are hardly comparable as "recipients of huge amounts of aid." Wells only accepted $25B in government capital because it was forced to. It did the Wachovia deal with

    zero government aid--a clear benefit for the financial system. AIG, by contrast, stands as the stupidest derivatives player in history; its folly and irresponsibility have been nothing but a negative for the financial system.

  • Report this Comment On April 26, 2009, at 3:24 PM, ddouge wrote:

    what amazes me is that all this has happened without anyone going to jail, breaking a law or losing a job.

    Does anybody really believe anything these people say?

    hundreds of millions just go poof! -- just cause...

    in the end ...nobodies fault.. no harm done.. no laws broken.

    If this makes sense then you need to put all your money in the likes of citi and Bank of American

    I for one do not believe in Santa, the tooth fairy or anything these people say anymore,

    There is no justice when this can happen to compnaies this size and nobody does serious jail time. The elite are above the law and bulletproof from prosecution...

    TIll that changes,. it will be business a usual with the same people profiting from fixing the mess who made it in the 1st place.

    I will not invest in companies that would and should be bankrupt without tarp money. I cannot believe anything i hear from these people after seeing the way all point fingers blaming something or someone else,

  • Report this Comment On April 28, 2009, at 12:56 PM, HungOut2Dry wrote:

    Seriously all, do we really believe that our US government is mobsterish and forcing deals down greater corporate America throats? Do we really seriously believe that Lewis is in cahoots and staking his reputation on the "historical" line? My sense is that you cannot touch these stocks right now, because they are too volatile with all the rampant fear in the market. If BOA and C cannot get their sea legs back underneath them, they will soon go down with their already sinking ships and forced to join another powerhouse.

  • Report this Comment On April 29, 2009, at 11:24 AM, McCrikey wrote:

    Not mobsterish but close. Mussolini-ish.

    Businessmen can't be trusted to run businesses in the public interest, so the government will.

  • Report this Comment On April 29, 2009, at 6:32 PM, EdMcswindle wrote:

    BofA gobbled up Countrywide before Merrill- paid a premium to steal it out of bankruptcy and potentially endless mortgage fraud litigation. Seems as if there was a pattern of behavior here where they were anticipating some synergies, either short-term (if they didn't expect the implosion) or long-term if they did, assuming they'd ride it out and in 5-10 they'd be an even bigger kid on an even smaller block. Either that, or there's massive collusion with the previous administration and this was a 'managed' implosion?

    I know it's easier when there's someone else to blame, but shouldn't we just blame BofA for BofA's decisions and present situation? Crazy talk?

  • Report this Comment On April 30, 2009, at 12:52 PM, wasmick wrote:

    "I don't know what the true story is, but as a BofA shareholder I'm very glad that Andrew Cuomo is on the case, as he's got exactly the type of dogged, relentless, pit-bullish tenacity required for this type of thing."

    Andrew Cuomo is a politician. He helped create this financial crisis when he ran the HUD. Now he's a muckraker? Please.

    He's simply using the crisis he helped create to help his political career; nothing more. The idea that he's involved now because he is looking out for your interests is laughable.

  • Report this Comment On April 14, 2010, at 3:41 AM, wright4ulg wrote:

    Please help me send a message to BofA which states, that we will no longer tolerate their potentially irregular, fraudulent and abusive business practices. In the end, the American tax payer did not fail to deliver the BofA bail out in record time, but BofA failed to deliver the American Tax Payer’s bail out in the form of a loan modification. BofA reminds me of that song by John Lennon and George Harrison titled "Piggies" I invite you to listen to this song on youtube and see if it appropriately fits.

    http://www.youtube.com/watch?v=MIopI2isIKc&feature=r...

    Have you seen the little piggies

    Crawling in the dirt

    And for all the little piggies

    Life is getting worse

    Always having dirt to play around in.

    Have you seen the bigger piggies

    In their starched white shirts

    You will find the bigger piggies

    Stirring up the dirt

    Always have clean shirts to play around in.

    In their ties with all their backing

    They don't care what goes on around

    In their eyes there's something lacking

    What they need's a damn good whacking.

    Everywhere there's lots of piggies

    Living piggy lives

    You can see them out for dinner

    With their piggy wives

    Clutching forks and knives to eat their bacon.

    Bank of America Lawsuit At: http://news.yahoo.com/s/prweb/20100323/bs_prweb/prweb3766544...

    When I filed my lawsuit against Bank of America, myself and United Law Group thought of the many others out there in the same situation. It was then that we decided to educate the public on what these piggy banks are doing, as well as unite us all together as one voice. Please help me turn this David vs. Goliath modification process, into a Goliath vs. Goliath.

    Please stand with me and United Law Group and send an email to Bank of America that states that we will no longer tolerate their potentially illegal, fraudulent, irregular and abusive business methods.

    Divided we might have fell America, but united we must stand!

    Please send your email directly to Bank of America and include the following:

    1. Your name

    2. Your complaint concerning your experience with Bank of America.

    3. Please end your email “I support John Wright vs. BofA Lawsuit!”

    4. Please send a copy of your email to johns-wright@hotmail.com

    I will view your comments and see if there is anything that would add to the class action suit United Law Group might be filing.

    Please send your email today to Bank of America at:

    https://www3.bankofamerica.com/contact/?lob=general&cont...

  • Report this Comment On May 09, 2010, at 9:20 PM, wright4ulg wrote:

    Please stand with me and United Law Group and send an email to Bank of America that states that we will no longer tolerate their potentially illegal, fraudulent, irregular and abusive business methods.

    One blogger named Terri sent me an email stating: “You won't believe it but while I was at work today I had a voicemail from an advocate from BofA. What do you think about that? No calls all this time, I respond to your email and I get a cal!. How do you like that one?

    So please send your email directly to Bank of America and include the following:

    1. Your name

    2. Your complaint concerning your experience with Bank of America.

    3. Please end your email “I support John Wright vs. BofA Lawsuit!”

    4. Please send a copy of your email to johns-wright@hotmail.com

    5. Please send your email to BofA CEO email below:

    CEO Brian Moynihan:

    brian.t.moynihan@bankofamerica.com

    WELL I HAVE HAD ENOUGH AND I AM FIGHTING BACK!

    John Wright Vs. Bank of America

    Please join my fight or show your support through your comments at www.unitedlawgroup.com

    Divided we might have fell America. UNITED WE MUST STAND!

    Sincerely,

    johns-wright@hotmail.com

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