Bank of America vs. Taxpayers

Earlier this year, Bank of America (NYSE: BAC  ) received an additional slug of capital from taxpayers to digest its Merrill Lynch acquisition. In addition to $20 billion of TARP funds, the bank received what's called a ring-fenced asset guarantee on 90% of a $118 billion pool of assets.

In layman's terms, B of A took $118 billion of dodgy assets, stuck them in a separate pile, and asked taxpayers to cover 90% of the losses after the first $10 billion. In exchange, it was to issue Uncle Sam $4 billion in preferred stock yielding 8%, plus warrants worth 10% of that amount. A month earlier, Citigroup (NYSE: C  ) did a similar thing on a $306 billion pool of assets.

Now here's where things get weird: The asset guarantee was never used. Consequently, B of A doesn't want to pay the $4 billion-plus it agreed to compensate taxpayers with. Complicating matters, it claims it doesn't have to pay simply because it never signed the papers back in January. How convenient.

There's no question, however, that the deal was struck. B of A's Jan. 16 press release clearly states that the government was providing "insurance for $118 billion in exposure," and would "pay a premium of 3.4 percent of those assets for this program." 

Regulators, feeling used and abused, are fighting for at least a portion of $4 billion as a premium for what's essentially an insurance policy. This makes sense: There's no doubt that B of A benefited handsomely from the guarantee, lowering its cost of capital and allaying fears that it was about to explode.

Even if taxpayers never paid out a penny, there's an argument to make that they accepted a substantial risk, and should be compensated for it. That's how the business of insurance works.

I'm torn about what to think here. On one hand, it's great that B of A can swallow losses on its own and release taxpayers from the liability. No one's complaining about that. If the government can soothe markets and create "bailouts" without paying a penny, all the better.

On the other hand, taxpayers deserve to be compensated for what was, by all accounts, saving the behinds of those who made some atrocious mistakes and were on the verge of death.

Other banks, including Goldman Sachs (NYSE: GS  ) , JPMorgan Chase (NYSE: JPM  ) and Morgan Stanley (NYSE: MS  ) , repaid their TARP capital in full, but left taxpayers with substantial warrants and a chance for profit. As they should. Even if they were merely dragged into a black hole caused by other banks, they owe taxpayers a big, fat, thank you. And so does B of A.

Surprised? Don't be. This is exactly why a group of Motley Fool executives demanded equity from the get-go.

Related Foolishness:                                                    

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.


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  • Report this Comment On July 15, 2009, at 11:58 AM, pcd1000 wrote:

    Since when is an agreement in principle a contract? On how insurance works, on what grounds would an insurance company seek a premium for a policy it never issued? What are the chances it would pay a claim on an agreement in principle?

  • Report this Comment On July 15, 2009, at 12:14 PM, questioner5000 wrote:

    Maybe BAC will provide its big "thank you", as soon as the Federal Government, and the poor taxpayers, (who will get back all of their TARP funds, have received and will receive billions of dollars in preferred stock dividends, and hundreds of millions, if not more, in the form of valuable BAC warrants, provide BAC, and especially its poor shareholders, (who've seen their share price collapse, been substantially diluted, and have gone from 64 cents/share to 1 cent/share in dividends), get their HUGE thank you for taking Countrywide and Merrill Lynch of of the Government's/taxpayer's hands.

  • Report this Comment On July 15, 2009, at 12:31 PM, MKArch wrote:

    Morgan,

    On BAC's Q1 cc they discussed improvements to their tier 1 capital ratio that they could not reflect in that 10Q because they did not have the ring fence completed as the government was still working out the terms. I don't remember anyone from Treasury coming out and disputing this so I assume it is true.

    Also what are your thoughts on BAC raising $40B in preferred shares from the government for the specific purpose of bolstering their *regulatory* required tier 1 capital ratio and then having the government come in after the fact and say we are changing the rules in the middle of the game and the money you raised selling us preferred share doesn't count anymore?

    Mike

  • Report this Comment On July 15, 2009, at 12:33 PM, TMFHousel wrote:

    pcd1000,

    I don't necessarily disagree. There are many things wrong with this situation. The issue isn't whether BofA is breaking the law, but whether it's yanking around taxpayers after they put hundreds of billions of dollars on the line.

    questioner5000,

    I think that's a very dangerous argument to make. Neither Countrywide or Merrill was in "Government's/taxpayer's hands." Both were private companies that BofA willingly paid tens of billions of dollars for. Not a single government regulator so much as asked BofA to buy them in the first place.

    From WSJ in September (when BofA bought Merrill) "Bank of America Chief Executive Ken Lewis said on Monday that he felt "no pressure" from federal government regulators to sign the deal."

  • Report this Comment On July 15, 2009, at 1:12 PM, questioner5000 wrote:

    TMFHousel;

    You think that BAC is "yanking around taxpayers"? Sorry, but I see the leash being held by other hands, with BAC and its shareholders being yanked around by a leash with a choke collar around BAC's neck. Funny how the "new populist" politicians have vilified the banks, told the masses that they are without blame in the whole situation, told the taxpayers that the money was "given" to the banks, (without highlighting the fact that the money, in almost all cases, will be repaid, with an enormous profit accruing to the taxpayer, at the expense of the banks), and now claim that the banks are "cheating" the country by challenging the Government's attempts to maximize gains from the sale of warrants, that were part and parcel of the Fed's "take it or take it" edict on the initial TARP disbursements. What ever happened to the goal of "stabilizing the nation's financial system"? Now Congress has a new toy that serves as a whipping boy, scapegoat, and ..... profit center!

    Now, BAC is somehow "mythically" bound to fork over $4BN for a guarantee that was never concluded and signed. It just seems like further evidence of the regulators flippant view of contracts and the law, like when they presented TARP to Congress one way, unilaterally changed the program's form and substance, without forewarning insisted that the original 9 TARP recipients sign pre-printed agreements without any changes, and then proceeded to continually change and broaden the rules that were to apply.

    And, now you say infer that there was no involvement, in the form of "encouragement", other "communications", or overt pressure by the government in BAC's rescuing of Countrywide and Merrill, simply because Ken Lewis said he felt no pressure from Federal regulators to sign the deals.

    Yeah, sure. I guess you've never been a senior bank executive, who's had to deal with the OCC, FRB, Treasury etc. You see, during NORMAL times, if you turn down one of their "suggestions", and you often find yourself unable to open a branch in downtown Anytown, with no "explanation" provided.

    Or your bank's Legal Department may tell you that you have the justification to call on a MAC Clause, (whether in order to kill a deal or force a renegotiation), and the Fed suddenly decides that ITS lawyers know your rights better than YOURS do, and threaten you and your Board, in order to force you to proceed with a deal that is damaging to your bank and your shareholders, but seen as beneficial to the country and its financial system.

    Yeah, but when could anything as bizarre as that happen! (Snicker!)

  • Report this Comment On July 15, 2009, at 1:47 PM, BMFPitt wrote:

    questioner5000, remember how all the banks were against the bailouts from the beginning and tried their best to turn them down? Oh, wait...

  • Report this Comment On July 15, 2009, at 2:35 PM, TexasChris wrote:

    Uhh.... yeah they should pay. Verbal contracts are binding, especially such public contracts. Maybe the Feds should have made them sign something, but we were in a national emergency (and still are). I own some BAC, but they need to pay their backer. You know there is a paper trail showing that they were clamming that backing to bolster their financials (especially durring the stress test). That alone is good enough to constitute that they were claiming that backing. It's a common law marriage.

  • Report this Comment On July 15, 2009, at 2:48 PM, MKArch wrote:

    TexasChris you are missing the obvious here it's been 6 months since they announced the ring fence with no signed deal. There is more going on here than BAC forgot to sign the contract. BAC has been cleaning house at the board of directors by most accounts due to pressure from the government. If they are standing up to the government on this one you have to believe they are pretty sure they are right. Listen to the Q1 cc if it's still available they mentioned that there was no ring fence because the government was still working out the terms. A little while later at the Stress Test cc they mentioned that they were no longer going through with the ring fence as they no longer needed it, they had sold much of the dodgy assets or they had improved.

  • Report this Comment On July 15, 2009, at 3:26 PM, questioner5000 wrote:

    BMFPitt;

    Remember how the banks were summoned to the Fed, without being told the reason, and then, when seated, were told to sign the documents set before them, initialling the dollar amounts that were written opposite their bank's name, or else they would not be allowed to leave? (Check the record.)

    Frankly, I DO remember a number of the banks, including BAC, indicating that they didn't want the TARP funds in the manner that was forced on the banks. (Remember, the program, according to the Bush Administration's testimony to Congress, was to buy troubled assets from the banks' portfolios, and to restructure them over a longer period and at more lenient terms than the banks were willing/able to extend. ("TARP" stands for "TROUBLED ASSET RELIEF PROGRAM".) Paulsen unilaterally changed the program into an investment in preferred shares, at an interest rate of 5% p.a., with warrants at a price to be determined. THERE WAS NO "NEGOTIATION" - - just a surrender. And subsequently, the "agreement" was repeatedly changed and expanded, using the participation in TARP, (even though, in most cases, it was initially mandatory), as justification for forcing new regulations and restrictions down the throats of the banks' managements.

    TexasChris;

    Excuse me, but there was no "verbal contract". There were ongoing discussions that weren't concluded. Frankly, the need for the guarantee became moot, after the government FORCED BAC to raise additional capital, after the infamous Stress Test".

    Yes, the poor Feds were overwhelmed with work, because they were involved in a national emergency. Whew! I thought that they might have had a break somewhere in there, once WFC swallowed Wachovia, (saving the Fed from that bargain sale to Citi, with Wachovia's huge portfolio of bad assets remaining on the taxpayers' agenda), and BAC took that Merrill Lynch thing off their plate. Maybe BAC agreed to talk further about the potential guarantee facility because THEY, themselves, were in a complete meltdown, dropping from a high of around $55/share to $2.53.

    Maybe BAC should have gotten something in writing from Paulsen and Bernanke in December 2008 that outlined what support the Fed was willing to provide BAC if they followed through on the Merrill acquisition, rather than waiting until Paulsen was gone and the new Administration could dictate to BAC the very same terms that C had, (even though C wasn't in the precarious position they were, needing funds to accomodate a market-saving acquisition of a failed company, at the Fed's insistence)!

    Oh, wait! Lewis DID ask for something in writing, and was told that wasn't going to happen, because the Fed and Treasury did not want to create a "reportable event"! Clever!

    Finally, there may have been a paper trail where BAC may have pointed to the potential guarantee as part of their ability to meet the Stress Test. However, the Fed told them that they COULDN'T use that route, and told them that they needed to raise $34Bn in equity, or else swallow even more Government "help". Note that BAC did as they were told - - much to the Feds surprise - - and now the Fed still wants to have their cake and eat it too.

    The regulators know that their claim is specious - - note that they are willing to "settle" for a lesser amount than the $4BN reflected in the preliminary discussions - - however they fear futher Congressional attacks at a time when they're still trying to negotiate the price for warrants of those banks that have paid of their TARP funding.

    Watch - - If BAC stands firm, insisting that there was no legally binding agreement on the guarantee, or protesting the price that the Government wants BAC to pre-agree to on the BAC warrants, (even if there positions on both points are legally valid), BAC will be "punished", and won't be ALLOWED to repay TARP for a long, long time ...

    ..... oh, and you can forget that branch opening in downtown Anytown!

  • Report this Comment On July 15, 2009, at 4:09 PM, BMFPitt wrote:

    "Remember how the banks were summoned to the Fed, without being told the reason, and then, when seated, were told to sign the documents set before them, initialling the dollar amounts that were written opposite their bank's name, or else they would not be allowed to leave? (Check the record.)"

    Please provide a reputable source if you expect me to believe this.

  • Report this Comment On July 15, 2009, at 4:50 PM, questioner5000 wrote:

    It's a bit difficult, (do to all the articles that have been written over the past few months), to find the best articles, but I think that these should do. The first artcle is the latest, with actual copies of Paulsen's talking points, (acquired under a FOIA request). The 60 Minute interview with Ken Lewis is also "interesting".

    Regards

    http://www.powerlineblog.com/archives/2009/05/023557.php

    http://www.independent.ie/national-news/financial-crisis/us-...

    http://www.cbsnews.com/stories/2008/10/19/60minutes/main4531...

    http://www.foxnews.com/story/0,2933,437324,00.html

  • Report this Comment On July 15, 2009, at 4:59 PM, memoandstitch wrote:

    This is the first time I see Lewis made a smart move... or it's just the guy on the other side of the table was dumber?

  • Report this Comment On July 15, 2009, at 5:03 PM, TexasChris wrote:

    "BAC has been cleaning house at the board of directors by most accounts due to pressure from the government. If they are standing up to the government on this one you have to believe they are pretty sure they are right."

    Good point MArch. I may stand corrected.

    The fear I have is that BAC is truly 'welching', and when they find themselves in a similar bind in the future, they will be left high and dry.

    This takes me to Goldman Sacks, who is going to screw up again, because they have learned nothing and will implode again. This time the public will demand that they be disolved.

    I fear that BAC will do the same and botch any possible considerations in the future by possibly screwing the Feds now.

    Thanks again for the comment MArch!

  • Report this Comment On July 15, 2009, at 5:20 PM, clintspicks wrote:

    It was pure greed and ego that led to BAC's purchase of Countrywide. Merrill might be a different story.

  • Report this Comment On July 15, 2009, at 5:27 PM, questioner5000 wrote:

    Merrill IS a different story. And, it is Merrill that led to the more onerous (and more expensive) terms under BAC's second TARP tranche. It is also Merrill that, at least for the short term, that has been most damaging to BAC's reputation and to the well-being of its shareholders.

    It was also BAC's acquisition of Merrill, more than their purchase of Countrywide, that, at BAC shareholder expense, did the most to help stabilize the U.S. financial system. (Think of this - - would GS and MS have had the time and the market's patience to "restructure" themselves, if Merrill went BK?)

    I just wish that it hadn't cost me, personally, so much.

  • Report this Comment On July 15, 2009, at 5:31 PM, LookThinkJump wrote:

    Come on now, this kind of behavior is exactly why they got into trouble in the first place: no sense of right and wrong, no sense of common decency, only me - me - me and lots more greed. Good thing their buddy Hank Paulson cut the deal - I guess he's hoping for a big fat lobbying contract or board seat down the road. When will they learn?

  • Report this Comment On July 15, 2009, at 5:34 PM, regulatethem wrote:

    both the banks and the government screwed up and me, the lowly taxpayer, has to pay for their mistakes!

  • Report this Comment On July 15, 2009, at 5:34 PM, questioner5000 wrote:

    Who's your comment addressed to? Whose behavior are you saying reflects "no sense of right and wrong, no sense of common decency, only me - me - me and lots more greed."?

  • Report this Comment On July 15, 2009, at 5:44 PM, 60srad wrote:

    We the people are a monopoly just like the banking and loan-sharking racket, so if we decide to stick it to them the way they stick it to their customers through usury and late and overdraft fees, they can just STFU and get what's good for the gander. Unlike a lot of people, I have no awe or respect for the voodoo of crapitalism.

  • Report this Comment On July 15, 2009, at 5:52 PM, questioner5000 wrote:

    regulatethem;

    You're paying for whose mistakes?

    The banks' mistakes in lending to eligible borrowers, (not0 "sub-slimers"), who now can't pay back due to job loss, medical emergencies, a collapsing housing market, etc? Or, the banks' mistakes in lending to people who CAN pay back, but are scamming the system, in order to get their contractual mortgage principal cut or their contractual interest rate reduced? Or the banks' mistakes in lending to people who respond to these ads on TV and radio that promise to wipe out debts by "negotiating" with the banks, even though the debtors CAN pay their contractual debts over time?

    Or do you mean the banks' mistakes in working with the government to take over Bear Stearns, Washington Mutual, Wachovia, Countrywide, Merrill Lynch, National City, etc - - acts that are now biting them in the a** - - when they could have simply said, it's the government's role or the taxpayers' burden?

    Just wondering WHOSE mistakes are simply the banks' fault.

    And whose debts are you "paying"? The banks'?

    Do you mean that you now want the government to return the billions in preferred dividends already paid to the Fed? (P.S. What's the government's "cost of funds", and is it more or less than the 5% to 10% trhat they are earning on their short-term TARP loans?)

    Or do you mean that you don't want the banks to repay TARP?

    Or do you mean that you don't really want the Government to get any value for the warrants they mandated?

    (P.S. I'm trying to see where, as a taxpayer, you're "paying" for the banks' mistakes. Other industries - - yeah, I can see a few losses there. But the banks?

    Not really!

  • Report this Comment On July 15, 2009, at 5:56 PM, TexasChris wrote:

    I think Whatdatfisthat was addressing BAC. If he's on my line of concern, it has to do with BAC's possible lack of business ethics.

    Thanks for the correction on the Stess Test earlier. I still believe that they used the Fed's unsigned agreement to boslter their books though. If I'm right they don't have a leg to stand on if they profitted from it.

    MArch still makes the best argument that BAC may be in the right. They have no footing to make a dodge. If MArch is right and BAC carries the day, I look forward to my stock going up.

  • Report this Comment On July 15, 2009, at 5:56 PM, kpinvest wrote:

    I just want to throw in my two cents real fast, then I'll get out of the way.

    I remember the banks were totally excited to get the TARP money. Until the administration said that the CEOs would have to take a pay-cut. THEN after that, all of the sudden (the next day) BoA said it was fine and it didn't need the money.

    That, in my eyes, is just true greed. The timing was too perfect for it to be coincidental.

    Feb 4th: http://www.cnbc.com/id/29003965/

    Feb 6th: http://dealbook.blogs.nytimes.com/2009/02/06/bofa-chief-says...

    Just too close for me, seriously.

  • Report this Comment On July 15, 2009, at 6:13 PM, BrianBristow wrote:

    I'm with questioner5000 on this one. They obviously never completed a deal with the government.

    Imagine I tell you I'll sell you my truck for $6000. You might tell people (or make a press release) Brian says he'll sell me his truck. Now imagine I keep the truck, or sell it to someone else. Will you pay me? Even if I'm willing to "settle" for less than the original amount? Maybe you'll pay me half, just $3000?

    Not likely, and that is because we never completed the deal. We discussed it, you even told people about it, but it didn't happen.

  • Report this Comment On July 15, 2009, at 6:15 PM, noblepaladin wrote:

    No contract, no pay. There is no legal argument otherwise. If BAC paid the government for no reason, the shareholders will sue them and win.

  • Report this Comment On July 15, 2009, at 6:21 PM, stockjock43 wrote:

    Only BAC shareholders are here siding with BAC...everybody else ( including the those who have shares, buf if they DIDN'T would certainly be on the side of taxpayers....right noblepaladin?) is thinking our economy is screwed, our debt is huge and getting deeper, we DEMAND that money go to the Government. THAT being said...why in the hell didn't those morons get anything signed? If that is not incompetence I do not know what is.

  • Report this Comment On July 15, 2009, at 6:40 PM, MKArch wrote:

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M...

    Read the footnote on page 32. In the cc they noted that tier 1 would have been ~10.5 if they were able to include the ring fence and some other items. If I remember right the ring fence would add about 3/10-4/10 of a point to tier 1. They stated the reason why the ring fence was not completed was due to the government still working out the terms. Nobody from Treasury came out and disputed this after the cc so I assume it's true.

  • Report this Comment On July 15, 2009, at 8:50 PM, Melaschasm wrote:

    And people wonder why I opposed TARP last fall.

  • Report this Comment On July 15, 2009, at 9:05 PM, ronacord wrote:

    BAC is a thief! They over charge customers then don't pay their own debts!

  • Report this Comment On July 15, 2009, at 9:27 PM, Dannysea wrote:

    Hey Stockjock43,

    not a shareholder, and I see no reason for them to pay.

    Questioner5000,

    obviously well thought out, and brought quite a bit of random info together for me. Thanks.

  • Report this Comment On July 15, 2009, at 10:19 PM, LatifK wrote:

    Some excellent debate going on and so far Questioner5000 has been dead on with the facts. MER was a toxic company that on its own would be LEH all over again. It needed solid capital backing to absorb its losses and BAC was the chosen target for that mandate.

    The BAC board itself is stuck in between its fiduciary duty to its stock holders and what the FED wants on any given day. If the FED dropped the ball on this, so be it.

    They have extracted their pound of flesh from BAC already with the onerous terms of the TARP money and its time for the FED to stop being greedy because some accounting group in congress says there is more money on the table if you harp louder.

    BAC through out all this was nothing more then a tool of the FED, used to help stabilize what would have been an impending catastrophe, all at the expense of BAC shareholders.

    And yes a lot of these issues stem from FED policies. To this point I wonder who bailed the FED out from its failed policies... thats right we the credit worthy taxpayers did.

    Nuff is enough.

  • Report this Comment On July 15, 2009, at 10:43 PM, JustMee01 wrote:

    "Remember how the banks were summoned to the Fed, without being told the reason, and then, when seated, were told to sign the documents set before them, initialling the dollar amounts that were written opposite their bank's name, or else they would not be allowed to leave? (Check the record.)"

    Please provide a reputable source if you expect me to believe this

    This story was disclosed in the senate hearings.

  • Report this Comment On July 15, 2009, at 11:20 PM, heavy888 wrote:

    I take sides with BofA. Remember, BofA was bullied into taking the deal! And seriously, who would you really want to have the money? An anchor of the US economy or bureaucrats!

  • Report this Comment On July 16, 2009, at 12:10 AM, xysmith wrote:

    The only reason BoA has any value at all is because the government pressured the FASB to relax standards on mark-to-market. This allows banks to more or less make up a number to assign to their assets. Additionally, BoA benefits substantially from government intervention in other banks. If Citi was allowed to collapse and they had to liquidate their various assets, you would certainly find that BoA's similarly placed assets would drop in value.

    Finally, BoA made the statement indicating that the government is backing them up, now they want to claim that that isn't the case. Sounds like the SEC needs to investigate and lock up the people lying about the state of affairs at BoA in the January time-frame when the press release was put out.

  • Report this Comment On July 16, 2009, at 8:26 AM, jscott27 wrote:

    Paulson now takes the blame for the BofA - Merrill deal saying he threatened to have Lewis removed if he didn't do it:

    http://www.washingtontimes.com/news/2009/jul/16/paulson-take...

  • Report this Comment On July 16, 2009, at 9:48 AM, MKArch wrote:

    xysmith,

    You are incorrect that FASB changed M2M rules if you listened to the congressional hearings when they were pressuring for some sort of change the FASB rep clearly stated that FAS 157 already allows banks to use means other than the last trade when there is an illiquid market in fact it is their intention that the banks do so. He also acknowledged at the time that in many cases markets for banks assets were illiquid and under FAS 157 the banks should not be using the last trade to value those assets. He mentioned that anecdotally the reason why banks were not taking advantage of this was because their auditors were refusing to sign off on any valuation other than the last trade even when it was clearly the intent of FAS 157 that other valuations be used (law of unintended consequences?). He concluded his testimony be telling the congressional panel that there was no need for a rule change the only thing he could do was provide more guidance on what constituted an illiquid market. He mentioned providing specific examples as something they would probably do. There was no change to M2M and by all reputable accounts the improvement to the banks recently has been due to more liquid markets for their assets. BTW the FASB rep also mentioned it was never their intent that banks capital requirements be tied to M2M (spot prices). I found that very interesting and probably could have saved the banks and country a lot of headaches if the government took his advice.

  • Report this Comment On July 16, 2009, at 10:06 AM, mikecart1 wrote:

    If taxpayers want their money back, buy BofA stock. In about 2 years, you will crying and start smiling. It is that simple.

  • Report this Comment On July 16, 2009, at 11:12 AM, pondee619 wrote:

    On July 15, 2009, at 12:33 PM, TMFHousel wrote

    "I think that's a very dangerous argument to make. Neither Countrywide or Merrill was in "Government's/taxpayer's hands." Both were private companies that BofA willingly paid tens of billions of dollars for. Not a single government regulator so much as asked BofA to buy them in the first place"

    Former Treasury secretary Paulson says he was justified in threatening bank CEO's job

    By Anne Flaherty, Associated Press Writer

    On Thursday July 16, 2009, 10:48 am EDT

    Buzz up! 0 Print

    Companies:Bank of america corporation

    WASHINGTON (AP) -- Former Treasury Secretary Henry Paulson says he pressured Bank of America last year to go through with its plans to buy Merrill Lynch but didn't tell the bank's chief to hide losses from shareholders.

    Paulson said he told Bank of America Corp. CEO Kenneth Lewis that the Federal Reserve could fire him if he backed out on the deal.

    HEY HOUSEL:

    NO ONE IN THE GOVERNMENT ASKED BAC TO TAKE OVER MERRILL? PAULSON PRESSURED THEM TO GO THROUGH WITH THE DEAL. GO THROUGH WITH THE DEAL OR YOU ARE FIRED! Care to revise your statement?

  • Report this Comment On July 16, 2009, at 11:22 AM, TMFHousel wrote:

    Pondee619,

    As a rule of thumb, I don't respond to people who write in all caps, but I'll make an exception.

    No, I don't care to revise my statement, because you're ignoring what I wrote: no one pressured BAC to buy MER *in the first place.* It was 100% Ken Lewis's idea to pay $55 billion with <24 hours of due diligence. After he realized that was dumb, regulators told him that if he bailed, he'd lose his job.

    Did they force him to buy Merrill? No. Did they put his job on the line if planned on walking from a deal he already agreed to? Yes. There's a tremendous difference.

  • Report this Comment On July 16, 2009, at 12:50 PM, Jimtin wrote:

    Bank of America sucks canal water! I'm 62 years old and have never missed a payment nor been late on a payment in my life. I had three accounts with Bank of America and the first thing they did after taking all the TARP funds was to send me notices that my interest rate on all of my accounts was going up to something like 24%. I opted out and took out a personal loan with Discover Bank (the only major credit card issuer that did not raise my interest rate) to pay off all 3 Bank of America accounts. Neither I nor my family will ever do business with Bank of America as long as we live, regardless of the circumstances. We wish Bank of America nothing but bad luck in any endeavor they undertake.

  • Report this Comment On July 16, 2009, at 2:52 PM, MKArch wrote:

    Morgan,

    You are correct that the government didn't force BAC to buy MER originally but I remember reports coming out when the deal was announced that the government was encouraging the deal and you know they were trying to coax BAC to take LEH off of their hands so it stands to reason they probably weren't horrified that BAC took the next domino to fall off the table.

    Was Ken Lewis secretly hoping the government would help them out when he told them they were thinking about bailing on MER? Yeah I'm pretty sure he was. Except for timing what's the difference between the government helping BAC swallow MER and helping JPM swallow BS & WAMU or WFC swallow WB?

    Did BAC have a case for a MAC bailout? Bernanke and Paulson say no but isn't that the job of the court system to determine? Wasn't it kind of in their interest to find no cause for a MAC bailout? Aren't these the same guys who say they didn't tell Lewis not to report the agreement to shareholders but refused to put anything in writing because it would create a reportable event? At a minimum BAC probably could have renegotiated the price way below what they originally agreed to.

    I don't think Ken Lewis is an angel here by any stretch of the imagination but I think it's a mistake to assume MER was all his doing and that the government wasn't behind it from the beginning and at least implied they would help BAC. In fact I remember some reports at the time that Paulson discussed the formation of TARP and suggested they would use it to help BAC absorb MER.

  • Report this Comment On July 16, 2009, at 5:34 PM, LatifK wrote:

    This was the only play H. Paulson could make at the time with the cards he had to play with, while I understand and do believe it was ultimately for the good of the country and economy as a whole, it turned out to be a poison pill for BAC at the time.

    Will the FED get its money back? Yes along and with all the onerous interest and warrants on top of it.

    Who absorbed the ultimate cost of this effort? BAC shareholders.

    So excuse me as I refuse to shed a tear for the FED as it complains that it was shafted in this shot gun wedding to end all shot gun weddings.

  • Report this Comment On July 16, 2009, at 6:17 PM, MKArch wrote:

    Morgan,

    I forgot to address your assertion that BAC did 24 hours of DD before pulling the trigger on MER. BAC was in negotiations to buy MER a couple of years ago and had already done extensive DD on them and there was some investment firm I think it might have been the Flowers Group that had just completed extensive research on MER that BAC had access to so they didn't just do 24 hours of DD.

    In fact they stated the reason why they declined to make an offer on LEH and went with MER instead was due to the fact they didn't know what they were getting into with LEH but had enough background on MER to feel comfortable going ahead with that acquisition.

    Yes MER blew up in December but that was a crazy time in the markets, they rebounded in Q1 and the lack of any pre-announcements suggests they will be fine in tomorrows earnings release. Maybe the problems in December were just a matter of "stuff happens" and it's done and over with now.

  • Report this Comment On July 17, 2009, at 11:40 AM, pondee619 wrote:

    Morgan:

    "Did they force him to buy Merrill? No. Did they put his job on the line if planned on walking from a deal he already agreed to? Yes. There's a tremendous difference."

    You are kidding, right? The Treasury Secretary forced BoA to complete a deal that they would have aborted.

    The govenrment may not have told BoA to stand on the edge of the cliff, they just pushed as BoA was backing away. I don't see much of a, if any, difference.

    p.s. i wrote in all caps to keep my comments apart from the extensive quotes in my prior post. sorry if you were offended.

  • Report this Comment On July 17, 2009, at 5:54 PM, GrizzlyAK wrote:

    Questioner5000:

    Sorry, but you sound a little rabid, perhaps you are just upset that your BAC stock is on the rocks because the bank made a bunch of bad decisions, and continues to make them. I'm tired of seeing headlines of these "troubled" banks making record profits the last quarter.

    American's typically have a short memory, but I think that has changed. I believe the pain has been sufficient this time that people will remember. I, for one, am right there with Jimtin in thinking the banks went over the line this time. After receiving billions from the taxpayer, with a principal purpose of increasing credit flow, what did the banks do? They started canceling credit cards and raising interest rates to ludicrous levels.

    It wasn't only BofA, but Capital One, and just about every other bank (except my local credit union) I held credit cards with. I had some pretty big balances on many of them when the interest rates went from 0% (on some) to 24-25%. But I was able to pay them all off and cancel the cards. I've made a list, and I will never (ever) do business with those particular banks again.

    These banks were all to eager to get the "handouts" going around UNTIL they found out that there were strings attached. Once they discovered that the taxpayer wasn't just going to hand over the money for them to use however they wanted (like paying huge bonuses to a bunch of boneheads), then the handout didn't look so attractive. Now they want to weasel out of the intent of the deal (it doesn't matter if anything was signed or not; if it was publicly released by BAC that the transaction had occurred, then it had occurred, and BAC benefited greatly from that admission).

    So, suck up your losses, wait for things to return, and go get a rabies shot.

  • Report this Comment On July 18, 2009, at 12:12 AM, buywater wrote:

    Jimtin and GrizzlyAK only hint at the abominal loss of business ethics by BoA and even Citi over the months since receiving TARP funds and meeting demands to raise their capital balances. It seems little publized that these two banks in particular have flouted the intent of TARP and Fed. actions intended to encourage consumer spending and return confidence in the financial system.

    Increditablly, at irretrievable loss in PR and future customer relations, they have commited harikari by arbitrarily, without notice, reducing the credit lines of their best accounts. In my case, one $24,000 account less than half used suddenly became a $12,800 line. Another, unrequested, $7,500 account with $30 in activity became $1,000 ! No lateness, no overlimits, no delinquencies... for many years...no notice, no quarter given.

    Ergo, no more trade from me and any others to whom I can publicize this arrogant, self-serving and ungentlemanlike behavior by the formerly striped tie Establishment. Now the stripes will run down the sides of their pants, and they'll learn what it's like to do business amidst the complete contempt of their customer base. If, that is, they survive at all.

    Really, who needs them? They won't lend, they don't keep their word, and we can put cash under the mattress just as well as trusting the untrustworthy any longer.

    Bank stockholders who have lost migthtilly: weigh doing business further with managements you, as we the customers, can not trust. Your first housecleaning at annual meeting may be your least expense. Our loss of cherished and nutured credit lines certainly reflect your odds of ever seeing real dividends.

  • Report this Comment On July 19, 2009, at 3:28 PM, plange01 wrote:

    citi and bac did fair for the quarter and if nothing else bought themselves more time to improve.as for their stocks bac has had a nice run and should move up to $15 range.citi at this point is worth about $6-8.at least it looks like both will survive

  • Report this Comment On July 19, 2009, at 5:26 PM, dedirections wrote:

    Don't hold Goldman Sachs up as a great example of a well run company. Paulson was from Goldman Sachs and he made sure AIG didn't go under and kept adding money to their tills to cover swaps.

    So who held a ton of Swaps, none other than Goldman

    Sachs, who saw an opportunity to drain a bunch of cash from the Insurance company. You could just watch the change of hands of the money as it went from us to the government, to AIG, to Goldman.

    So Goldman paid off their TARP money with our own money.

  • Report this Comment On July 19, 2009, at 5:30 PM, dedirections wrote:

    BofA isn't the only one to adjust customer's accounts to hurt consumers.

    I had some fixed interest debt with Chase from the checks they sent me last year. They got their 3% transaction charge, but wasn't happy I was enjoying a low interest loan on the money.

    So they notified me that instead of paying 2% on that debt each month, starting in August you can start paying 5% on that debt. 150% increase in the money I have to pay them.

  • Report this Comment On July 20, 2009, at 3:17 AM, SailorThor wrote:

    So, after proving that as a culture we cannot handle our massive consumer debts responsibly, the companies financing those debts decide not to finance them with the same sweet terms... and you complain about this? Wow. Getting into 24000+$ of credit card debt should be HARD not EASY. If you can't afford the purchases at 5% interest you certainly couldn't afford them at 2% interest.

  • Report this Comment On July 20, 2009, at 12:43 PM, leeplumber wrote:

    it would cost the gov. more money if they needed the money to backup those assets.

    what would it of costed the feds if bofa didn't by merrel and countrywide.

    try collecting a insurance claim on anything without a signed contract.

    what is the goverment thinking?

    oh ... thats right they don't.

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