Sense on Cents

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: (more…)