BofA's Merrill Purchase: Good for America, Bad for Them 34 comments
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You have to hand it to Merrill Lynch. Their “merger” with Bank of America (BAC) perfectly symbolizes everything the public ought to and does hate about Wall Street, especially Merrill’s cleverly-gotten gains at the expense of Bank of America and its shareholders.
And it's that last term - "at the expense of Bank of America" - that leads me to discussing the greed heads at Merrill Lynch. In September their former CEO, John Thain, craftily made the bum's rush on B of A's Ken Lewis the weekend Thain realized his firm could be worth a nickel by the following Friday. Ken took the bait (BTW... what was all the "rush" for?) and by the following Friday Merrill Lynch was well below the purchase price. It would have been down 90% if B of A hadn't rescued them.
Then Thain brought his cohort with him to B of A, blithely going his way, planning a ski vacation in the midst of a $15 billion meltdown in Merrill's books that miraculously "appeared" during the last 3 weeks of the December quarter, while arranging extravagant exit bonuses for his execs just before the door would close on him too (this move by Thain was almost biblical in its sagacity).
And so what do the vaunted execs at Merrill do after their butts have been spared the axe and their worthless stock options vested? They jump ship, leaving Ken Lewis and B of A shareholders holding the bag for saving their sorry tails.
Mr. Lewis should have told the Bush government in mid-December "thanks but no thanks" to the merger and let Merrill be devoured by the market forces it helped set in motion. He had every right to do so - the financial landscape had changed so completely in the subsequent two months after the deal that it was perfectly consistent with the "material adverse event" clause in the contract with Merrill. It would have been "justice" in the ultimate sense of the word too, because MER was now insolvent without a leg to stand on. The company could have been wiped out once the shorts got to them and their equity drained to zero. Bankruptcy was probably a sure bet. And B of A shares would have rallied rather than tanked - leaving Merrill's toxic barge to float on its own.
Instead the folks at Merrill walked away with $15 billion (plus their $5 billion in bonuses) and now their "best people" are quitting the new employer in droves. Loyalty anyone? Merrill might chime-in with Mr. Plunkett, the 19th century Tammany Hall politico who opined, "I seen my chances and I took em."
Why did Mr. Lewis put his shareholders in this position - down 66% in capitalization in just three short weeks, the company now a plaything for the short sellers? Because he was patriotic (in the true sense of the word). Because the government urged him not to abandon the deal because in doing so it might imperil the economic system. So the government backstopped the deal and Mr. Lewis is now falling on the sword laid out for him, with the dividend tossed in the dumpster along the way.
If there is any justice in the world (I know - maybe there isn't any Santa Claus, Virginia), the Obama government might remember what B of A did for them (Mr O's economic team inherited a Dow at 8,000, not 6,000). 
And maybe one day B of A shareholders will look back at $5.00/share with a sense of pride and good fortune - rather than disgust and dismay at how badly they were screwed by the worst Federal administration in a hundred years and some of the greediest creeps Wall Street has ever produced.
So far doing the "right thing" for the country was the worst thing B of A could have done for itself. Before Countrywide and Merrill came along, they had a pristine balance sheet. Let's hope that Leo Durocher's oft quoted phrase doesn't apply to B of A, "Nice guys finish last." At least not last and hopefully, not dead too.
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This article has 34 comments:
I would like to see the Merrill bonuses get clawed back - the Feds should pursue all means possible to recover what is, in effect, stolen money. What a disgusting outrage.
I'm sure that the threat of lengthy, expensive prosecutions and maybe some serious prison time will get people talking, eh?
Let's empower the Grand Jury ASAP to go after these MER parasites!
Take a lesson from Warren Buffet. Ask, "And then what?" after each of John Gilluly's "suggestions".
This situation sucks, folks. If there were criminal acts, the system will get their day in court with the culprits. If laws and rules need to be altered to ensure it won't happen again, they will be enacted and modified.
Put your pitchforks and torches down and get back to some real work (or finding work) - or move to a socialist country. Either way, just stop typing this crap and stop the madness.
The shareholders were the owners of a good bank.
Our CEO was right to try to buy Merril with the numbers he knew. Once those numbers were proven wrong, he decided to abandon the deal. He was defending the shareholders.
If the government came to him and asked foro help, at the expense of the shareholders, I can not believe that he was not given guarantees that the shareholders would be treaten fairly. I don´t know what was the deal, but looking at the current share price, I guess something is wrong.
I cannot believe that in the long term the shareholders will be penalized for helping the US.
And the government should also stop treating BAC like a bank that was responsible for the problems. BAC shareholders are being unfairly treated and penalized for helping. That must stop.
Lewis should have made the decision not to abort the Merrill Lynch purchase with full disclosure to his shareholders in December of 2008. Shareholder have not only been insulted in the process but have been expensively damaged. Great for Ken Lewis to be patriotic but he is paid to be responsible to the owners of the company who employ him.
Obama & team should step down if he allows BofA to be nationalized after doing such a good deed to save ML. In Asia, we have high hope on him, hopefully he will not let us down. BofA can stand up and recover over time to its past glory if Obama do the right thing. I hope he reads this...
As for both sets of stockholders, Merrill and BAC, they were getting screwed before, during, and after the merging of the two companies.
So what is new?????
As it looks from your (Narrow?) point of view BOFA did a favor to someone which it never gets paid back, but remember (or check by yourself again) that BOFA portion in all the (pathetic) stimulation plans bush gov had was the biggest, based on the fact that BOFA carry Merrill. I don't think you're totally mistake but the facts you showed (except for Thain greed) are not correct and need a lineup.
Erez A.
Lewis is an idiot. He should have known that he works for the stock-holders. He is not a federal employee. I mean these CEO's get paid millions to run a big enerprise, when someone with a half a brain (thats me) can run it better than them. When the risk is high, you need to take defensive measures, not gamble with more risk.
Add this, though, to the list of whines: I have been investing in BAC for d*mn near 20 years through the dividend reinvestment plan, at $50 or $100 per month. A year or so ago, I had $50K; now I have less than $5K, and I fully expect it to go to zero. I counted on that "investment."
BAC wasn't my play money. I resent the hell out of turning BAC shares into toilet paper.
Unfortunately, its not much fun watching this controlled experiment if you are participating in it.
Which undercuts the author's patriotic homage to Ken Lewis. Bear and WaMu probably sucked every bit as much as Merrill and Countrywide did. Yet Dimon was somehow able to take them on without destroying the company (at least they haven't yet).
Perhaps Lewis simply overestimated BAC's strength? Or perhaps he was just envious of Jamie Dimon?
For the record, I am/was neither long nor short on any these stocks.
On Feb 04 11:43 AM In Agreement wrote:
> This is the first time anyone has had the guts to speak up. Yes Lewis
> has saved the America Banking system. Recall that JPM could only
> buy Bear Stearns when the Government holding their hands. ML was
> the same deal but with no such guarantee. Keep up the good work Mr.
> Lewis, you will be rewarded in the long run.. President Obama owes
> you a debt of gratitude
I don't buy for a minute the argument that either Lewis or BofA was an innocent victim in this transaction. Lewis thought he could snap up the largest stock broker at a bargain price and went for it. When the deal started to smell sour, he still closed on it.
That is like putting in a purchase offer on a house, then finding out it's about to fall down, buying it anyway, and then blaming the seller.
I don't for a second excuse John Thain, Henry Paulson or Ben Bernanke (or George Bush) for their roles in this debacle.
I do resent being asked to use my tax money to make up losses to owners and creditors of a failed private enterprise.
Investing involves undertaking risk, and one of those risks is that you've bought a company run by an idiot. Another is that your investment will go bust.
Besides, how is wrecking a good American company patriotic?
Short sellers are taking advantage of wide spread fear and uncertainty and creating even more problems by crushing stocks. If you're going to write something as damaging about BofA as this at least use some facts about the financial condition of the company.
That's all I have to say here.
By the way...I'm EXTRAORDINARILY sick of hearing things being justified by "the terrorists!!"...honest... this society needs to GROW SOME BRAINS.
Ken Lewis didn't buy ML to "Save America" he bought it b/c he was scared of getting left in the dust by WFC and JPM when the storm clears, plain and simple. The difference is both WFC and JPM were smart enough to wait until AFTER their "partners/victims" were seizied by the Feds to pony up the $$$ to make the deal.
Perhaps there is some rationael behind this argument, whether or not you agree, but making this a political argument Mr Giully, makes you a very small man.
I have lost over $100,000 of BAC value, and as well, have incurred other profound losses which equates with my future, becasue of blatant and exacerbating American Greed and rampant corruption and all I can do is hope and pray and may I comment: "We haven't seen anything yet in our new emerging third world nation"
It is not B&A job and/or responsibility to save Merrill Lynch. This responsibility exclusively lies with Merrill Lynch management and US Fed government.
Unfortunately, US government and US Congress do not represent American national interests. Instead, they represent interests of corrupt and criminal financial gangsters from the Wall-Street.
The only good news is that regardless how hard Obama and US Congress are trying to save their ass, they are doomed. The Wall-Street malignant cancer is too advance and bandages will not do any good.
The Internet allows us American people to have open conversations about events that so profoundly influence our lives. America mass media using their spin-artists feeds us with lies and half-truth.
Instead of one company going under, now two companies are going down. Instead of Merrill bankers eating crow, they handed themselves a very nice payday and sunk a company which was otherwise stable.
B of A clearly failed in its fiduciary duty to shareholders. When the wheels fell off Merrill -- which clearly happened before the shareholder vote--- the B of A directors failed to tell their shareholders, to whom they had a duty, what was what.
And this didn't "help America" either. Instead of ring fencing the poisonous crap on Wall Street, Treasury & Fed metastasized the disease. The whole point of the "bad bank" strategy is to keep bad assets in one place, so people don't "suspect everything"
Now they do . . .
Shorts are beating BAC into the ground with the plan of covering low, then going the other direction.
If there's anything to blame here, it's that Lewis underestimated the market reaction to this deal.
BAC is being sufficiently backstopped by the feds, it will not fail - but will instead, at some point, recover.
In the meantime, smart traders are making gains at the expense of other's emotional panic.
Rather than gripe, why don't you look to trade this volatility?
On Feb 06 12:19 AM sr9web wrote:
> Don't blame this on Bush you numbnuts!
I thought people were blaming Lewis, not Bush. I certainly don't blame Bush for the fact that Lewis made a terrible call.
>
> Shorts are beating BAC into the ground with the plan of covering
> low, then going the other direction.
Huh? BAC has collapsed because they bought a sinkhole for far too much money. Compare BofA's purchase of Merrill with PNC's purchase of Nat City (occurred at the same time). PNC payed zero, and Ken Lewis, negotiating genius, paid $29 a share.
That's what's cratered the stock.
>
> If there's anything to blame here, it's that Lewis underestimated
> the market reaction to this deal.
No, its that Lewis failed to do due diligence on the Merril disaster area. Its not "market reaction" -- the market is simply reacting to the disastrous fundamentals of Merrill. Losing $15 billion is a big thing, actually.
>
> BAC is being sufficiently backstopped by the feds, it will not fail
> - but will instead, at some point, recover.
Um, and what will the common be worth?
>
> In the meantime, smart traders are making gains at the expense of
> other's emotional panic.
So far, the only gains have been on the short side. . . no one's lost a dime betting against Ken Lewis.
>
> Rather than gripe, why don't you look to trade this volatility?
This isn't "volatility" -- its a fundamental disaster in the company's finances. They've taken an extremely successful retail banking concept, and at the worst possible time, they've transformed themselves into Citibank, with their Merrill acquisition.
Leave aside Merrill's disastrous finances, their fleeing executives and just consider: In a perfect world, how exactly does a retail bank run out of Charlotte manage overpaid brokers and investment bankers who're part of a Wall Street culture?
When Thain pounced, he basically ensure the demise of Lehman, who had been in talks with B of A up until then.
B-He and his Merrill cronies had a guaranteed golden parachute that if they decided they did not want to stay on, or vice versa, they would get millions anyway. So the King Rat for $15 million for jumping from the sinking ship, causing it to sink even faster.
Trace Thain's career from the time he left Goldman (why would he do that when he had so many stock options etc???) to NYSE, to Merrill, and his involvement with Lehman, and then try to tell me this was all accidental. No, he has manipulated every step of the way and we're ALL the ones suffering for it. He thought he could bring Goldman to an unassailable position at the top of the heap. He didn't realize how interdependent we all are on Wall Street, and globally too.
On Feb 04 09:41 AM Midas1 wrote:
> Bank of America royally put the screws to its shareholders. I'm
> not surprised. What is not as highly published about BOA is its
> rotten customer service (demonstrating its true core values or lack
> thereof). Every time there is a significant up or down day and people
> are trading in vast numbers, BOA's server crashes. Why? Because
> this idiot-run organization took on hundreds of thousands of "customers"
> and never updated their blasted IT to handle the load. BOA, Merrill
> Lynch, Madoff, Lehman, AIG--what a sea of fools and greed. They
> are all ALIKE. When BOA swallowed Quick & Reilly, QR customers
> without their knowledge, consent or approval found their accounts
> designated full-service, equating to BOA gobbling multiple fees.
> Since QR was a discount brokerage firm, obvious COMMON sense would
> have dictated its customers didn't want "advice" from BOA, just the
> usual SELF-DIRECTED accounts. Indeed and in fact, in this day and
> age, hell will thaw out before I would ever trust any so-called broker.
> No one is more interested in tracking their money than the people
> who stood on their feet, up to 16 hours per day in my case, to know
> exactly what it took to earn (yes EARN, not like Wall Street) the
> money. BOA is no better than Merrill or the rest of them. Don't
> portend that BOA did anybody any favors other than for its own greedy
> goals. BOA remains in the top five spots in the customer hall of
> shame. By this article, one might think BOA saved the day, so to
> say. It did not. BOA bought Merrill out of greed, just like the
> rest of the scum in the financial services industry. Reputation
> takes years to build, minutes to ruin. American financial firms
> will never recover from this expose of greed and corruption.