BofA to Come Clean

Judge Jed Rakoff and Andrew Cuomo have done what the banking industry’s regulators would not: Force Bank of America (BAC) to come clean on its disastrous acquisition of Merrill Lynch.

The bank’s agreement to disclose additional information about decisions made in the Merrill merger should go a long way toward moving Bank of America beyond the Ken Lewis era.

Rakoff was immediately skeptical of the deal that Bank of America cut with the Securities and Exchange Commission. At an August court hearing, he wondered why, given the “serious questions” raised in its complaint, the SEC wasn’t going after more facts.

If BofA and Merrill conspired to lie to shareholders about bonuses, then why wasn’t the SEC trying to figure out who was responsible? “Was it some sort of ghost? Who made the decision not to disclose” the bonuses? Rakoff asked. To make its complaint, the SEC “must have determined who physically committed these acts.”

Rakoff argued that justice wouldn’t be served by levying a fine on shareholders when they were the ones who had supposedly been lied to.

When Andrew Cuomo, the New York attorney general, stepped up the prosecutorial pressure, Ken Lewis apparently decided it was best to hang it up.

For shareholders, Lewis’s departure was the best news they had received in some time. His disastrous acquisition record, his on-again-off-again-on-again attempts to build the company’s investment banking business, his failure to protect the company balance sheet from the financial crisis are all things they should be glad to be rid of.

But his departure alone isn’t enough to move on. Company directors don’t want to elevate someone who may be tainted by the bonus imbroglio. For instance, Brian Moynihan and Greg Curl are internal candidates in the running, but both were involved in the negotiations with Merrill. If either got the job without a fuller accounting of what happened last fall, they would have a more difficult time leading the company.

And if directors are looking to attract a candidate outside the bank, unsettled inquiries complicate their pitch.

Both Bank of America and the SEC have demanded a jury trial to settle the case. All the better. Now we’ll know exactly what happened.

Comments

[oneiron:]

I am conflicted by Mr Lewis decision to leave BAC. He built the bank to compete with Citi, but now Citi is down sizing. I just hope BAC does not follow Citi's very bad example using the brokerage to over leverage. Then again Citi would have been in the cat birds seat if Mr Obama were not running for president. It is my opinion that we had big money willing to bring down the financial system of the world to get him elected.
I don't think BAC will have that problem any time soon.

Oct 13 04:55 PM

[notsosmart:]

they will never come clean.the wall st system has turned into a ponzi/casino scheme. your chances are better in vegas.made-off should have a lot of company in jail with all the liars in the financial world. the crooked rating cos should be shut down.they sent martha steward to jail for lying but these bums & scoundrels arent even investigated.this century will belong to china & india as the good ole USA slides downhill.of course the dumb-dumber sheeples are busy swilling beer & filling the stadiums to watch their druggy athletes get paid millions while they,their children & grandchildren will be paying on the debt.the romans cheered in their coliseum as their empire collapsed.im sure they thought it could not happen.

Oct 13 05:12 PM