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HomePrice Fixing on Wall Street?
Posted by Larry Doyle on April 9th, 2010 11:16 AM |
Lessened competition in any industry will lead to wider margins and greater revenue and profit opportunities.
Wall Street circa 2010 is certainly a dramatically changed landscape with significantly lessened competition. Is Wall Street today an honest display of capitalism in which ‘to the victors go the spoils’? Or is Wall Street an oligopoly which is using its increased power and leverage to control, if not outright fix, prices for products and services?
In the midst of all the other issues Washington is facing, I think there is very little focus on this topic, but we overlook it at our peril. Why? Price fixing, or iterations thereof, is nothing more than a vehicle to transfer wealth from consumers to providers. (more…)
Might the Hunter Become the Hunted? Judge Jed Rakoff, Mary Schapiro, and Rule 14a-9
Posted by Larry Doyle on February 18th, 2010 8:51 AM |
Judge Jed Rakoff and SEC Head Mary Schapiro
SEC Chair Mary Schapiro is on the front page of almost every major financial periodical for her ongoing pursuit to fine Bank of America for impropriety in handling its merger with Merrill Lynch.
Recall that the SEC had initially fined Bank of America $33 million last fall for its improper disclosure of Merrill’s financial figures to BofA shareholders prior to the shareholder vote approving the merger of these two financial titans.
Enter Judge Jed Rakoff who threw out the $33 million fine, calling it a ‘contrivance.’
With the ball squarely back in the SEC’s court, Mary Schapiro has now fined Bank of America a tidy sum of $150 million, but still did not pinpoint any single individual at BofA as being culpable for the impropriety. (more…)
Judge Rakoff Throws Out BofA’s Hypocrisy
Posted by Larry Doyle on January 5th, 2010 8:40 AM |
Judge Jed Rakoff
The economic landscape of 2009 remains littered with amazing stories and tales yet to be told. Sense on Cents would hope that all these stories generate a full dose of truth, transparency, and integrity.
To eliminate the hypocrisy presented by the financial industry, America needs more arbiters like Judge Jed Rakoff. Let’s review recent developments in the merger of then failing Merrill Lynch with Bank of America.
Were the multiple billions in bonus payments accelerated to Merrill Lynch executives in late 2008 anything short of a total misappropriation of taxpayer funds at large and Bank of America shareholder funds specifically? Did BofA executives conveniently look the other way as Merrill “robbed the bank?” This point of debate is the central premise of the current court proceeding being heard by Judge Jed Rakoff.
BofA very conveniently did not include details of the Merrill bonus payments in pre-merger disclosure materials. What is BofA’s argument for that oversight? Yesterday, BofA attorneys made the case that its shareholders should have been aware of these bonus payments from media reports. Interesting. The media becomes the punching bag for not properly reporting, and now BofA attorneys use the media as a punching bag for reporting. Is this a joke or what?
How did Judge Jed Rakoff respond to such a ‘reach’ defense? (more…)
What Did Bank of America Know and When Did They Know It?
Posted by Larry Doyle on October 13th, 2009 8:19 AM |
Are the powers that be at Bank of America wilting under political pressure to release the details of its merger with Merrill Lynch? In fact they are and in the process, the executives at Bank of America are agreeing to waive attorney-client privilege. What are the critical points which New York Attorney General Andrew Cuomo, the SEC, those in Congress, and especially Bank of America shareholders want to learn?
1. What did Bank of America know about the ongoing deteriorating financial position at Merrill Lynch?
2. What did Bank of America executives share with their board members about the billions in bonuses to be paid at Merrill?
3. Did Ken Lewis overplay his hand? Please reference my commentary from a few weeks ago, “Documents Indicate Ken Lewis Utilized the MAC To Shake Down Bernanke and Paulson.”
The Wall Street Journal summarizes these topics this morning in writing, BofA to Hand Over Documents Related To Its Merrill Deal:
Mr. Cuomo’s investigators, as well as Judge Rakoff, have said a fuller accounting of the events surrounding the deal is a prerequisite to any resolution of the probes. BofA is hoping releasing the privileged documents will satisfy those demands, according to people familiar with the matter.
BofA’s move will likely reveal exactly what advice was provided by outside firms, according to people familiar with the matter. Those firms include Wachtell, Lipton Rosen & Katz, which represented BofA during the Merrill transaction and is a long and trusted adviser to the bank, as well as Merrill’s counsel, Shearman & Sterling LLP.
It may also show conversations with ex-general counsels Timothy Mayopoulos and Brian Moynihan. Bank of America recently hired law firm Paul Weiss Rifkind Wharton & Garrison LLP to join Cleary Gottlieb Steen & Hamilton LLP in representing the bank in the various federal and state investigations surrounding the Merrill acquisition.
“This is going to get to the down-and-dirty question of what counsel did say and did not say, what counsel meant and did not mean,” said James Cox, a law professor at Duke University.
(Associated Press) In a photo from Sept. 2008, Merrill Lynch Chairman and CEO John Thain, left, and Bank of America Chairman and CEO Ken Lewis shake hands following a news conference.
Down and dirty? I love it. Get the extra large popcorn. This should be good.
LD
Documents Indicate Ken Lewis Utilized the MAC to Shake Down Bernanke and Paulson
Posted by Larry Doyle on September 29th, 2009 2:33 PM |
10.01.09 UPDATE FROM LD: I wrote this commentary this past Tuesday afternoon. Mr. Lewis tendered his resignation last evening. In regard to my concluding remarks in this post, I only wish all my calls on the market were equally as prescient.
***************
The intrigue embedded in the Bank of America takeover of Merrill Lynch is never ending. While the book and movie of this high stakes Wall Street thriller will be voluminous, the story most certainly has many chapters yet to be written. To this point, the following questions remain outstanding:
1. Why, at the time, did Bank of America pay such a premium for Merrill Lynch?
2. Did Bank of America know all the details surrounding the $3.5 billion in accelerated bonus payments made to Merrill employees in December 2008?
3. What did Merrill CEO John Thain share with Bank of America CEO Ken Lewis in regard to the growing losses at Merrill?
4. Did Ben Bernanke and Hank Paulson pressure Lewis to complete the merger against his will?
5. Did Ken Lewis consider invoking the MAC (material adverse condition) clause and negate the deal? Did Lewis consider invoking the MAC to negotiate a cheaper price?
6. Did Ken Lewis use the leverage embedded in the potential implementation of the MAC clause to generate significant government support?
Recall that a recent SEC fine of $33 million imposed by the SEC on Bank of America was thrown out by Judge Jed Rakoff as nothing more than a contrivance in which taxpayer funds were used to effectively repay other taxpayers, those being Bank of America shareholders.
Judge Rakoff will hear this case between the SEC and Bank of America in early February. Perhaps at that time answers to the questions asked above will be fully uncovered and released. Perhaps stories will leak beforehand to shed light on this drama. To that end, welcome to Sense on Cents.
I read a story to which I will link, but can not promise the link will not be broken at some future point. As such, I will provide a brief synopsis which provides riveting insights into Question 6.
Law.com reports today How Bank of America Used Merrill’s Losses to Bully the Government. In this report, the reporter offers that Corporate Counsel magazine has pored over hundreds of documents, e-mails, and transcripts pertaining to the Bank of America merger with Merrill Lynch.
In regard to the use of the MAC clause or renegotiating the deal, Law.com very clearly lays out how events unfolded last December:
The record shows that Bank of America decided not to disclose to shareholders its consideration of a MAC before the Dec. 5 vote. It also apparently decided not to use the MAC as leverage against Merrill to lower its price before the vote, even though the bank had agreed to pay a premium — $29 per share for Merrill stock that was selling at $17. It might have, but didn’t, use the MAC to force Merrill to drop its multibillion-dollar bonus pool.
Instead, the bank waited until after the shareholders approved the merger — but before the deal closed on Jan. 1 — and used the MAC to muscle the federal government and U.S. taxpayers into ponying up more bailout funds. At the time, the bank did not disclose the role of federal regulators in not invoking the MAC, and in promising the bank another $20 billion of taxpayer money in 2009 to complete the deal. (The bank had already received $25 billion in bailout funds in 2008.)
Some observers and politicians have accused federal banking officials of forcing Bank of America CEO Kenneth Lewis into completing the merger. But the documents suggest it was Lewis doing the bullying, relying on a highly vulnerable marketplace to win his way.
Wow. Did Ken Lewis overplay his hand? In light of this information, is there any doubt that Lewis is a short timer?
We will learn more in the days and weeks ahead as this drama plays out. You can’t make this stuff up . . .
Thoughts, comments, questions always appreciated.
LD
Related Sense on Cents Commentary:
Did Big Ben Bernanke and Heavy Hank Paulson Break the Law in Buying Ken Lewis’ Silence (April 28, 2009)
Rep Edolphus Towns on Bernanke’s Testimony: ‘Something Rotten in the Cotton’ (June 26, 2009)
Judge Jed Rakoff Indicts the Wall Street-SEC Incest
Posted by Larry Doyle on September 15th, 2009 9:24 AM |
Will the American public ever truly know what happened in December 2008 when Bank of America shareholders’ interests were neglected by BofA’s management in completing its takeover of Merrill Lynch? Capitalism took a back seat to the supposed needs of financial expediency as defined by then Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke.
How could the SEC pretend to uphold its mission and protect the BofA shareholders’ interests which were clearly violated last December? The SEC imposed a $33 million fine against BofA in hopes that the courts and American public could once again be duped in the process. The $33 million fine is chicken feed for an institution such as BofA that had received $40 billion in taxpayer bailout money.
Against this backdrop, I wholeheartedly commend and endorse U.S. District Judge Jed Rakoff for throwing out this contrived agreement between the SEC and BofA. The Wall Street Journal provides further details this morning in writing, Judge Tosses Out Bonus Deal:
A federal judge threw out the Securities and Exchange Commission’s proposed settlement with Bank of America over its disclosure of controversial bonuses paid to Merrill Lynch employees, in an unusual ruling that casts doubts about how the agency handles probes of major U.S. companies.
The order, by U.S. District Judge Jed Rakoff, came as the New York State attorney general was weighing civil-fraud charges against Bank of America Corp. executives. Charges could be brought against the bank’s chief executive, Kenneth Lewis, and Chief Financial Officer Joseph Price, according to a person familiar with the investigation.
The Rakoff ruling undermines one of the most high-profile cases against alleged corporate wrongdoing conducted under SEC chief Mary Schapiro, who took the job in January. It puts new pressure on the agency to show it is fighting for investors in the wake of the controversies over its policing of the financial industry during the Wall Street boom and its failure to catch Bernard Madoff’s massive fraud despite several red flags.
In a rare scuttling of an SEC settlement, Judge Rakoff said the $33 million fine levied on Bank of America “does not comport with the most elementary notions of justice and morality” (LD’s highlight) because the company’s shareholders — the victims of the alleged misconduct — are the same people being asked to pay the fine. He set a trial date for Feb. 1.
While Wall Street professionals, government regulators, and even media analysts would define this particular case as a ‘one off’ or ‘dealing with exceptional circumstances,’ I beg to differ. I strongly believe this case is a perfect example of the incestuous relationship between Wall Street and those charged with protecting investors, namely the SEC and FINRA. How often are investors’ interests neglected at the expense of the financial industry? More often than investors could possibly imagine.
The Wall Street Journal’s editorial, Rakoff Rakes the SEC, strikes a similar chord in writing:
The judge had other complaints, but broadly the deal “suggests a rather cynical relationship between the parties: the SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all of this is done at the expense, not only of the shareholders, but also of the truth.” The parties will go to trial in February.
We look forward to it, especially in light of the recent news that Fed and Treasury knew all about these bonuses and stayed mum. Judge Rakoff has done a public service by exposing the political point-scoring that drives far too many regulatory actions. (LD’s highlight)
America needs more judges with the courage and integrity of Jed Rakoff. I salute him.
LD
Uncle Sam:Geppetto as Citi and BofA:Pinocchio
Posted by Larry Doyle on July 16th, 2009 1:32 PM |
If you did not think we are entering into a Brave New World of an Uncle Sam economy, then today is a day which should help change your mind.
Independent Wall Street firms, such as Goldman Sachs and JP Morgan, would like a return to business as usual. Their outsized profits are nothing more than “to the victors go the spoils.” They will fight and lobby to make sure they get to take home these 
profits in the form of compensation.
Meanwhile back in the toy shop, Geppetto (in the form of Uncle Sam) is pulling the strings and watching Pinocchio (in the form of Citigroup and Bank of America) dance along. While Geppetto has been exceptionally busy, the taxpaying public has been kept very much in the dark. We see evidence of Geppetto’s ‘dark workroom‘ on three fronts today.
1. The Wall Street Journal offers Lawmakers Spread Blame on Merrill Deal:
House lawmakers lambasted former Treasury Secretary Henry Paulson and Bank of America Corp. Chief Executive Kenneth Lewis on Thursday, suggesting officials looked the other way as major mistakes at the bank required a $20 billion bailout of the firm at the expense of taxpayers.
“While all of this was going on, the American people, investors and the Congress were kept in the dark,”(LD’s highlight) said Rep. Edolphus Towns (D., N.Y.), suggesting negotiations over the bank completing its deal for Merrill Lynch & Co. was a “good, old-fashioned Brooklyn shakedown.”
Rep. Dennis Kucinich (D., Ohio), citing internal Federal Reserve documents obtained by the committee, said Mr. Paulson and Fed Chairman Ben Bernanke ignored evidence that bank management had withheld material information from shareholders, as well as indications that Mr. Lewis’s management of Bank of America “was seriously deficient.”
While Paulson is being grilled, there is little doubt that he believes he did what was in the best interest of the country and the economy – - if not necessarily the interests of Bank of America shareholders. Paulson offered that he was not qualified to provide a legal opinion on his engagement with Lewis.
2. If there were ever any doubt about Geppetto’s lack of confidence in Ken Lewis (aka Pinocchio), it is brought to bear today by news of a ’secret regulatory sanction’ imposed upon him and the BofA board. The WSJ highlights U.S. Regulators to BofA: Obey or Else:
Bank of America Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familiar with the situation.
Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention. Financial institutions that fail to address deficiencies can be slapped with harsher penalties that include a publicly announced cease-and-desist order.
The order was imposed in early May, shortly after shareholders of the Charlotte, N.C., bank stripped Chief Executive Kenneth Lewis of his duties as chairman. Bank of America faces a series of deadlines, some at the end of July and others in August, these people said.
3. In the final act of today’s puppet show, we also learn from the Financial Times Citi Close to Secret Deal with Regulator:
Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.
The proposed agreement requires, among other things, that Citi strengthens its board and governance, improves asset quality, better manages expenses and provides more information to regulators on its capital and liquidity, these people added.
The regulator’s action highlights concern over Citi’s financial health, governance and the strength of its management team, led by Vikram Pandit, chief executive. The FDIC is known to be frustrated with the slow pace of Citi’s “toxic” assets sales, its losses and the lack of commercial banking experience at the top.
What are we to learn from all of these developments? Very simply, do not accept anything at face value at this stage in our new economy. There is a reason why Geppetto is working in the dark. That is, the embedded losses in these institutions would sink these firms if not the entire economy.
Historical measures of value and economic behavior need to be looked at in the context of how Geppetto is pulling the strings!!
Enjoy the show!!
LD
Bank of America Credit Cards Less Than Prime
Posted by Larry Doyle on August 24th, 2009 3:20 PM |
Why are banks tightening credit to the extent that they are extending credit at all? The mere fact that so many of their current loans and credit lines are increasingly delinquent and defaulting. Of the largest credit card outfits, one bank stands out as holding the worst performing credit card portfolio. Who might that be? Bank of America.
In fact, by banking standards Bank of America’s credit card portfolio would be considered sub-prime. Bloomberg highlights this development in writing, Bank of America Shuns Sales of Card Debt, Ducks Subprime Label:
Why is BofA’s credit card portfolio so much worse off than its major competitors and what are the implications of this reality? (more…)
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Posted in Bank of America, Credit Card companies, General | 4 Comments »