Ken Lewis and the Regulators

The WSJ has an interesting Ken Lewis profile today:

If there was a bank executive who seemed to have the mettle to withstand today’s regulatory and market pressures, it was Ken Lewis. The Mississippi native clawed to the top of Bank of America. After succeeding his mentor, Hugh McColl Jr., as chairman and CEO in 2001, Mr. Lewis kept up a blistering pace of acquisitions and tight control of operations at the bank, which expanded to $2.3 trillion in assets from some $620 billion.

But I think this misses a crucial point. Ken Lewis was always a momentum play, as most acquisitive CEOs are. So long as things are going well, they’re going great. But the minute their stock starts dropping and they lose that sense of inevitable global domination, things can fall apart very quickly indeed.

This is partly a function of scales dropping from the board’s eyes, as Carrick Mollenkamp and Dan Fitzpatrick explain. But it’s also a question of character: some CEOs are emboldened when their companies go through a rocky patch, while others are weakened — and Lewis is clearly one of the latter. (John Mack, who famously told Tim Geithner to “get fucked” at the height of the crisis, would be one of the former.)

In other words, Lewis never had the mettle to withstand regulatory pressure, should it ever arise. Other acquisitive CEOs like Sandy Weill are the same way. They’re like central banks intervening in currency markets: they can push regulators to move further in the direction they’re already moving, but they can’t push back once regulators become aggressive. That’s why Weill stepped down, and that’s why Lewis stepped down too.

Comments

[Graham and ...:]

Good insight onto CEOs.

Nov 09 11:51 AM

[Mark Bern:]

Thanks, Felix. Your article contains a good description of CEO traits. If can, therefore, also be argued that if done solely for the sake of growth, with no apparent understanding or preparation for a worst case economic downturn, growth through acquisition can be a very risky proposition. Too much leverage. Too much reliance on fees. Too little resemblance to a traditional bank operation. Too big to fail. It all leads back to the taxpayer and bailouts. It did back in the late 1980s and early 1990s. And, if we don't fix the real problems of separating the banking operations from the investment banking operations (remember Glass-Stegall?), we'll be back to the bailouts again at the end of the next permutation.

Nov 09 12:34 PM

[john s. gordon:]

momentum player.
sounds like the emperor napoleon I.
while his stock (conquests) are going up he's hard to stop or even slow down.
when crunch time arrives he gets banished to elba and/or st.helena.
m. buonaparte (a corsican) is revered in france to this day, go to les invalides in paris.
will mr. lewis be revered on wall st.?
> jack

Nov 09 04:36 PM

[User 445568:]

richardmaxson@sbcgloba...

Felix:
I find that the easiest thing one can do is sit back and play Monday morning quarterback. All things considered, could you imagine the stress Mr. Lewis was under as the banking system was coming down around our collective ears. Even with all that was happening, Lewis managed to acquire two major companies that will prove to be major assets to the bank. Perhaps, when you choose something to write about in the future, do so with respect to something with which you might have had some first hand experience.

Nov 10 10:35 PM

[lazzybum:]

Felix may be a Monday morning quarterback, and he may not have the first hand experience. Are you saying all movie critics must be an actor or a director before he writes anything.

On Nov 10 10:35 PM User 445568 wrote:

> richardmaxson@sbcgloba...
>
> Felix:
> I find that the easiest thing one can do is sit back and play Monday
> morning quarterback. All things considered, could you imagine the
> stress Mr. Lewis was under as the banking system was coming down
> around our collective ears. Even with all that was happening, Lewis
> managed to acquire two major companies that will prove to be major
> assets to the bank. Perhaps, when you choose something to write about
> in the future, do so with respect to something with which you might
> have had some first hand experience.

Nov 11 01:16 AM