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Ken Lewis: Great American or Mere Corporate Pawn?

Posted by Larry Doyle on April 23, 2009 6:58 AM |

When Ken Lewis, CEO of Bank of America, purchased Merrill Lynch last Fall did he put country first but his shareholders’ interests second? The WSJ Reports Lewis Testifies U.S. Urged Silence on Deal.

The BofA purchase of Merrill did not feel “right” to me from the outset. Why? Recall that at the time of this deal, Lehman had just failed and other investment banks’ stocks (Merrill, Morgan Stanley, Goldman Sachs) were plummeting.  Given that dynamic, why did BofA pay a fairly sizable premium for a firm in distress? Merrill’s stock was trading somewhere in the mid-teens but BofA paid the equivalent of $29 a share. It is said that Lewis paid such a premium in order to retain the renowned Merrill retail brokerage staff, but it struck me as more directed by Uncle Sam than anything else.

In early February I questioned What Really Happened With Merrill and B of A. I summarized then that normal business decisions and strategy do not occur when operating in uncharted waters. Well, in the last two and a half months our economy and financial industry have moved into even deeper waters.

In looking back at the height of the waves swamping the Merrill ship, the WSJ report reminds us:

Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren’t normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill — which eventually totaled $15.84 billion for the fourth quarter — could have given BofA’s shareholders an opportunity to stop the deal and let Merrill collapse instead.

“Isn’t that something that any shareholder at Bank of America…would want to know?” Mr. Lewis was asked by a representative of New York’s attorney general, Andrew Cuomo, according to the transcript.

“It wasn’t up to me,” Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would “impose a big risk to the financial system” of the U.S. as a whole.

Mr. Lewis’s testimony suggests how aggressively federal regulators have been willing to behave in their fight to fix the U.S. financial system. The testimony for the first time spreads some of the blame to Messrs. Paulson and Bernanke for Mr. Lewis’s decision to keep problems at Merrill under wraps.

The immediate question I have is whether the shareholders at Bank of America can bring action against Lewis, Paulson, and Bernanke. Can the shareholders in turn bring action to remove the board at B of A?

These are questions which will likely remain unanswered. However, the mere thought that they are being raised is amazing. If ever there were an individual who held leverage over Uncle Sam it was Ken Lewis. Or did he? When Lewis indicated he wanted to slow the merger process and further review the deal, Paulson pressured him. As the WSJ reports:

Mr. Lewis described a conversation with Mr. Paulson in which the Treasury secretary made it clear that Mr. Lewis’s own job was at stake. Mr. Lewis still was considering invoking his legal right to terminate the Merrill deal. Mr. Paulson was out on a bike ride when Mr. Lewis phoned to discuss the matter, according to the transcript.

“I can’t recall if he said, ‘We would remove the board and management if you called it [off]’ or if he said ‘we would do it if you intended to.’ I don’t remember which one it was,” Mr. Lewis said. “I said, ‘Hank, let’s de-escalate this for a while. Let me talk to our board.’ “

Lewis has experienced enormous pressure from every corner. Where have Paulson, Bernanke, and now Geithner been when he needed support?

Is Ken Lewis a “great American” serving the interests of his country, or a mere pawn in the hands of a government official and central banker?

Check out additional interesting viewpoints on this topic at


  • fiscalliberal

    One might consider the big picture. The real question is, was the financial model to be saved by Paulson and Bernanke is a sustainable entity. Apparently Lewis was torn, and caved.

    As time goes on and more information comes to light, I think the conclusion is evolving that the bubble was not sustainable. I think the market agree’s.

    In that light Lewis and Paulson made the wrong move.

    Auto is going through that now in terms of downsizing. They were hoping for 10 million units. Sales are not good now and they are hoping for 9 million. Some time ago I told my son that they could see 7 to 8 million. He thought that was absurd. He is acknowledging the 9 million now and no longer challenges the 7 to 8 million.

    Right now we do not have a clear idea that Geitner is on top of this in that he is trying to maintain the bubble financial system.

    We keep on looking to the future for hope, but the skies are still pretty cloudy. I think the clarity of the stress test will be a key factor. If they muddle that and try to cover up the real situation, the public will sense that and continue to pull back.

    Thank god for the blogs to keep on top of this as the main stream media is not. The stress test will be reverse engineered to get the real picture. The real question is if Geitner and Obama can figure this out.

    • ChooChooMagoo

      I pretty much agree with you fl.

      Great Post LD. There are so many questions that must be answered for us to move out of this financial mess. And still we keep getting smoke and mirrors from this administration.

      • Larry Doyle

        Certainly no lack of material to address.

        The real price of this turmoil will nto be known for years. The moral hazards that have been violated are so substantial and will make for an unknown but very substantial cost down the road.

  • Ben Simeone

    Hi Larry,This is really interesting,just like a Soprano’s episode where Tony and the boys put the “heat” on Mr. Lewis to”do the right thing”. I don’t think any legal action by Bofa shareholders would really help anyone financially except the lawyers and Mr Cuomo,so why even bother? I can’t answer the question is Mr. Lewis either a “great American” or a mere pawn in the hands of a government official and central banker but I do think this would make one hell of a book!

  • Mountainaires

    I think Ken Lewis was terrorized by Paulson into silence because Lewis wanted to keep his own job. And, now, when shareholders hear about this, they’ll probably fire him for it.

    Also, I’m sure that Lewis was told the same thing we were all told by Paulson, who if you’ll remember, was telling people there would be “martial law!” if we don’t rescue the banks with taxpayer money, just before he changed the program right after Congress appropriated the money. Paulson thuggishly warned: If we don’t save these banks with taxpayer money, the whold world will collapse.

    Lewis, caught between a rock and hard place, didn’t want to the the one who caused that! Who could blame him if he took the coward’s way out to keep his job, and avoid being the pebble who caused the landslide.

  • Petricone456

    Ken Lewis is neither a “Great American” nor just a pawn of the government. Ken Lewis is and has been a serial acquirer (Fleet, MBNA, Countrywide) and his role in this current crisis should not be understated.

    Taking one on the chin for America by closing the Merrill deal is commendable but should not abscond Lewis from his clear misjudgements. Both the mortgage and credit card businesses are suffering terribly and Lewis executed two massive deals in the past five years that have built Bank of America into a powerhouse in each arena. In early 2008 Ken Lewis was asked if the economy was in the third inning of a tough game, specifically in the context of his timing of the Countrywide acquisition. Lewis noted that “I would say sixth or seventh, not the third. And if I’m wrong, then there’s more pain than I originally thought. But it doesn’t mean [Countrywide] can’t still be a good deal.” Clearly he was wrong. Bank of America’s 2005 acquisition of MBNA transformed it into one of the largest credit card issuers in the country. BAC’s credit card net charge-off rate in 1Q09 is approaching double digits. Does Ken Lewis deserve a hall pass just for closing the Merrill deal or should we realize he too has made some severe blunders that have impacted the broader economy?

    Don’t get me wrong, I see merit in Ken Lewis’ vision of creating a full service financial institution. However, we’ve seen that movie already and its called Citigroup. Countless analysts and investors have been calling for a breakup of Citigroup for years. Why was Ken Lewis building empires at a time when informed market participants were calling for them to be torn down?

    If we’re going to be truthful let’s admit that Ken Lewis has made some mistakes and that he should step aside. We should all be thankful the Merrill deal was closed as I believe it helped to preserve what little confidence was left in the financial system in the wake of Lehman’s demise. However, there are clearly more qualified leaders and visionaries that could run Bank of America. Shouldn’t we be looking to people like John Thain who’s foresight saved Merrill shareholders from the ultimate wipe out? Thain’s vision created the first trans-Atlantic equity and derivative exchange and his days as COO at Goldman Sachs helped to create the risk management systems that are still in place at arguably the most respected investment bank in the world. Thain is the type of innovative leader that will deliver us out of this crisis, not Ken Lewis.

  • bonddadddy

    have a read of this boys ….. says it all ( )

    i always did wonder why every picture i see of Ken Lewis , his head always looks like its about to explode … now i know why 🙂

    • Larry Doyle

      Ken Lewis would not return Dick Fuld’s numerous calls. You think he wish he had done the same to John Thain.

      Great read….very entertaining. Ken and the Charlotte Mafia probably wish they had stuck to regional banking.

      Welcome to New York, Ken…come on in, the water’s fine!!

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