Bank of America's
Among other issues B of A investors must grapple with at the meeting is the fate of CEO Ken Lewis. Lewis has been tarred and feathered after the multibillion-dollar Merrill Lynch acquisition -- which was completed with just a few hours of due diligence -- blew up, nearly taking B of A shareholders all the way down with it.
Lewis defends the disastrous acquisition with a combination of "Hey, it really isn't that bad," and a craftier defense of claiming that he wanted out, but was forced to complete the deal at political gunpoint by then-Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke.
The latter argument has been a hot topic lately, and one that some think might vindicate Lewis. We may never know for sure what happened last December, but I have a few thoughts:
1. No reports claims Bernanke and Paulson "forced" Lewis to complete the deal; just that he and the board of directors would be fired if it wasn't.
As The Wall Street Journal continues, "Mr. Lewis agreed to proceed with the Merrill merger only after Messrs. Paulson and Bernanke said that he and his board would lose their jobs if Bank of America backed out of the deal."
Forbes notes: "Paulson told Lewis that Bernanke had instructed him to fire Lewis and dismantle his entire board if he refused to go through with the merger ... Paulson told [Attorney General Andrew] Cuomo's office that the government 'either could or would remove the board and management.'"
Now, it's frightening -- perhaps borderline illegal -- that regulators bullied the deal shut. That, however, doesn't exonerate Lewis. There's a tremendous difference between "They forced me to do it," and "I did it because I didn't want to be unemployed."
2. Could he have backed out in the first place?
Most reports say Lewis planned on backing out of the deal by claiming a "material adverse effect" -- legal talk for "I don't even recognize you anymore." Merrill's losses had become so great in such a short period of time, story goes, that a merger was no longer valid.
Some, however, think this is hooey, and it's not hard to see why. Buried deep in the 107-page merger agreement is a list of things that can not spark a material adverse effect. Along with terrorism and war, you'll find this:
general business, economic or market conditions, including changes generally in prevailing interest rates, currency exchange rates, credit markets and price levels or trading volumes in the United States or foreign securities markets, in each case generally affecting the industries in which such party or its Subsidiaries operate and including changes to any previously correctly applied asset marks resulting therefrom
Lawyers can be crafty people, but it seems that claiming Merrill was a warzone of losses wouldn't have been a legitimate reason for B of A to back out.
Where to now?
The New York Post recently reported that Citigroup
And why not? When a company's health is exclusively tied to taxpayer injections subsidizing a CEOs colossal failures, why on earth should that executive be allowed to stay? Some CEOs -- like those of Goldman Sachs
For the rest, let's not forget step one in the road to recovery: Fire all the bad bankers.
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