Charlotte's Serial Dilutors Finally Hit a Wall

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 |  Includes: BAC, WFC
by: Vernon Hill

What is it about Charlotte, N.C., that induces banking executives there to relentlessly dilute their poor, suffering shareholders and pulverize their holdings by embarking on one misbegotten acquisition after another?

Something in the water maybe? The weather? Sunspots? Regardless, for decades now, the CEOs of Bank of America (NYSE:BAC) and Wachovia (NASDAQ:WB) have scoured the globe, from New York, to California, to China, to find (and overpay for) deals that make zero strategic sense and do nothing but eviscerate shareholder value.

These serial diluters never seem to learn from their mistakes or those of their predecessors. First came Ed Crutchfield, whose buying binge in the 1980s and 1990s culminated in First Union’s wildly overpriced, disastrous acquisition of CoreStates in 1998. So what does his successor, Ken Thompson, do? He goes out and blows up the company altogether by buying Golden West at the very top of the mortgage cycle.

I don’t have to remind you of the horrors Hugh McColl visited on BofA shareholders. Now we see Ken Lewis potentially outdoing even McColl. Lewis’s blindfolded, hugely risky acquisition of the black hole that is Merrill Lynch's has put BofA on the brink.

Once again, the Charlotte mafia has turned temporary success into ultimate, catastrophic failure.

What are these people thinking? What drives them? Is it hubris? Boredom?

At least now, with the banks being supported by federal TARP money, private jets are out, so deal trips won’t be as much fun.

BofA’s purchase of Merrill is its Golden West: one deal too far. It obliterated shareholder value and will inevitably cause the bank to be gripped by the same malaise that has engulfed—and may destroy—Citigroup (NYSE:C).

Too big to manage means too big to survive.