In the NY Times on Sunday, the saga of Bank of America (BAC) CEO Ken Lewis is documented. All we can say about BAC and Ken Lewis is that this bank has gone from arguably the most stable large money center to one of the most unstable, just behind Citigroup (C). We attribute this remarkable transformation to the ill-advised Countrywide and Merrill Lynch transactions, both of which were done without a receivership to restructure the target companies.
As one banker told The IRA Friday: "We can still save Bank of America if we just put Merrill into bankruptcy. But the Fed does not want to see the last significant primary dealer fail. For many people, Merrill really is the only dealer left. Morgan Stanley (MS) does not seem committed to the markets and Goldman Sachs (GS) does not seem to care either."
Note: Our friend David Kotok said similar regarding the Washington obsession with saving the NY Sell Side banks as a driver for the Merrill transaction in a roundtable with Josh Rosner last week (“'The Big Banks vs. America: A Roundtable with David Kotok and Josh Rosner', January 26, 2009”).
Shame nobody at the Fed or Treasury thought to ask BAC shareholders if they wanted to sacrifice the most thoroughly domestic of the large banks. And the sad thing is that almost immediately after the close of the Merrill deal, BAC has to start selling assets.
Forgive our broken record, but just compare the Countrywide and Merrill transactions to the way in which Jamie Dimon, CEO of JPMorganChase (JPM) bought WaMu, cleansed through an FDIC receivership. As we describe in further detail for our advisory clients this week, we don't think JPM will outrun the economic tsunami, but hats off to Dimon and his operating team for buying his organization valuable time to restructure and change their risk profile. That may be the difference in terms of outcome for creditors of JPM and BAC.
Frankly, the more we look at the mess at BAC, the more we wonder if BAC should not be ahead of Robert Rubin and the directors of C on the bank director incompetence index. We'll be coming back to our view of the failure of Lewis and the BAC board to exercise sufficient oversight of the bank's M&A activity in a future comment focusing on the duties and responsibilities of the directors of bank holding companies.
Stock position: None.