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Nickelless
Administrator
USA
5580 Posts |
 Posted - 01/19/2009 : 02:33:32
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Posted by Aaron Task
How dumb do they think we are?
That was my first reaction on reading The Wall Street Journal's account of how Hank Paulson and Ben Bernanke urged Bank of America CEO Ken Lewis to not abandon Merrill Lynch when faced with mounting losses related to the deal, but instead take $138 billion in bailout funds:
"Bernanke and Paulson also urged Mr. Lewis to finish the deal and not invoke a material-adverse change clause, saying it was in his interest to finish the deal," says The WSJ story. "If they walked away, it would reflect poorly on the bank and suggest it hadn't done its due diligence and wasn't following through on its commitments." (Lewis didn't refuted this account today, saying: "The U.S. government was 'firmly of the view' that canceling or delaying the transaction might result in 'serious systemic harm,'" the Journal subsequently reported.)
It's pretty clear to even the most casual observer that Bank of America didn't have time to do enough "due diligence" on Merrill Lynch when the two firms agreed to a hastily arranged merger in mid-September. Bank of America had been looking at Lehman Brothers at the time, then balked; when it became evident the government was then going to let Lehman Brothers go bankrupt, Merrill CEO John Thain feared his firm could suffer the same fate and scrambled to find a dance partner.
Thain found a willing partner in Lewis, who in a September conference call explaining the deal, said BOA wouldn't need government support: "We actually thought Merrill's capital structure was very good and had a lot more of a base of common equity than some others."
That some BAO shareholders (and Henry Blodget) are calling for Lewis to be fired is not surprising, considering:
* On Dec. 5, Bank of America shareholders approved the Merrill transaction; less than two weeks later, BOA executives were meeting with government officials expressing concern about the size of Merrill-related losses. BOA's official explanation - "beginning in the second week of December, and progressively over the remainder of the month, market conditions deteriorated substantially..." - rings hollow, at best.
* From the end of 2007 until early September 2008, Merrill had taken over $50 billion in subprime-related losses, according to Bloomberg. Did Lewis and BOA's management think that was the end of Merrill's losses?
* Bank of America has now received $45 billion in direct government capital - diluting common shareholders and matching the amount received by industry laggard Citigroup - as well as $118 billion in guarantees for its bad debts.
* Everyone today is focused on the Merrill Lynch deal, but Lewis also acquired Countrywide Financial, the biggest and most aggressive lender of the subprime era. Raise your hand if you think there aren't huge losses coming from that portfolio.
While Lewis and Thain certainly have some 'splaining to do, they are businessmen trying to make a buck. Meanwhile, Paulson and Bernanke continue to throw taxpayer money down a rat hole, even pledging TARP funds that have already been allocated elsewhere; their behavior is the greatest abomination of them all and an affront to all Americans.
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 01/19/2009 : 09:11:38
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well, the info I have heard/read leads me to believe that the U.S. Treasury promised BOA more money if they bought Merrill. Don't forget that weekend that the deal was released.... people were worried that Merrill, Morgan Stanley, and Goldman were going under. They pushed Merrill on BOA and let Morgan and Goldman become bank holding companies.
It is kind of like all these deals are three way trades..... Merril shareholders give ownership of Merrill to BOA for BOA shares and the US Treasury will put $20 B of capital into BOA for prf shares. BOA gets a good deal, Merrill shareholders don't get wiped out, and the U.S. Treasury stop the 3rd largest investment bank from joining Lehman Brothers (and possible makes a little money assuming BOA doesn't die)
-SWUSC |
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BofA shocker: How much more will taxpayers take?
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