Ken Lewis Learns There’s a New Sheriff in Town

Fascinating front page WSJ article on the tactics used by Fed Chair Ben Bernanke, Treasury Secy Hank Paulson to “persuade” Bank of America CEO Ken Lewis who the new sheriff in town was:

“Kenneth Lewis is getting a hard lesson in the new balance of power between Washington and Wall Street.

The Bank of America Corp. chairman and chief executive had agreed to buy brokerage giant Merrill Lynch & Co. in September, possibly saving it from collapse. But by early December, Merrill’s losses were spiraling out of control. Internal calculations showed Merrill had a horrifying pretax loss of $13.3 billion for the previous two months, and December was looking even worse.

Mr. Lewis had had enough. On Wednesday, Dec. 17, he flew to Washington, ready to declare that he was through with Merrill, people close to the executive say.

“I need you to know how bad the picture looks,” Mr. Lewis told then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, according to accounts of the conversation by people inside the government. Mr. Lewis said Bank of America had a legal basis to abandon the deal.

Messrs. Paulson and Bernanke forcefully urged Mr. Lewis not to walk away, praising the bank’s earlier cooperation — but warning that abandoning the deal would be a death sentence for Merrill. They said the move also could undercut confidence in Bank of America, both in the markets and among government officials. Despite the blunt talk, Bank of America executives interpreted the comments as a signal that the government was willing to work out a compromise.

Two days later, in a follow-up conference call, federal officials struck a harder tone. Mr. Bernanke said Bank of America had no justification for ditching Merrill, according to people who heard the remarks. A Federal Reserve official warned that if Mr. Lewis did so and needed more government money down the road, Bank of America could expect regulators to think hard about their confidence in management. Mr. Lewis was told that the government would consider ousting executives and directors, people close to the bank say.

The threats left no doubt: The federal government saw itself as firmly in charge of U.S. financial institutions propped up since October by infusions of taxpayer-funded capital.

The entire piece makes for entertaining reading.

Source: In Merrill Deal, U.S. Played Hardball DAN FITZPATRICK, SUSANNE CRAIG and DEBORAH SOLOMON WSJ, FEBRUARY 5, 2009

See also: Bank of America’s Lewis Has to Pay for Blunders David Reilly Bloomberg, Jan. 16 2008

Originally published at The Big Picture blog and reproduced here with the author’s permission.

2 Responses to "Ken Lewis Learns There’s a New Sheriff in Town"

  1. James Hainen   February 6, 2009 at 11:46 am

    Bank of America lead by the current king of common stock holder crooks. He doesn’t give a damn about the common stock holder. He could care less that thousands of people like me watched their common stock in Bank of America drop by hundreds of percent in the last year. Little people who in good faith bought Bank of America common stock for their retirement funds and hoping for modest growth and the five and a half percent dividends they depend on for their daily needs. I bought my Bank of America stock on advise from Edward Jones (another company that must be in on the fix) because they said it was a great buy at $36.00 and paying five and a half percent dividend. I watched it divide and sub divide by hundreds of percent in just a couple of months and the dividend disappear. Even as recently as last week Edward Jones was touting it as a buy. They certainly have the heads in where it is warm, cozy, and very dark. Bank of America will never come back to where it was a year ago, not even close to it, not even in ten years. I simply in my old age and retirement must just eat their dirt and take it. Ken Lewis, your no better than Madoff, maybe even worse.

  2. The Analyst   February 13, 2009 at 1:49 pm

    Ken should have been gone, long ago. But you have to phase out the board room first and foremost.They are quitely trying to shut-down Michigan OPS, all they want in that state are the branches. They will rely on backwards Chicago to operate this region from afar.Chicago should have been were OPS are phased out because they are extremely in-efficient. Some adjustments are needed in Michigan (Human Resources) after you eliminate the whorish bosses who keep their mistresses protected from lay-offs, in-lieu of bank profits generated by other had working employees who they sacrifice (lay-off) just to keep their brains below their belts. Performance is not a priority, especially come bonus time, everything is a popularity and skin contest. Some bosses even go as far as to dump their wives and marry their mistress(subordinates), which seems to be accepted company practices.If you are 50+ years of age look out, you have a target on your back and don’t even think you will get the State Mandated notice of termination, you will get an hour or two to clean out your desk and vacate the primises under security escort.Performance does not rule, only popularity and sex contests.