The horrible self-dealing of Ken Lewis and the principal-agent problem

I don’t much like Ken Lewis. It should be fairly obvious to everyone that he is a man who has only his own interests at heart. But, his revelation that BofA bought Merrill Lynch for the agreed-upon September price, despite Merrill’s having an additional $7 billion in losses is grounds for legal action. Let’s review

BofA CEO Lewis investigated by SEC

Ken Lewis, the embattled CEO of Bank of America, has recently admitted to being coerced by U.S. Government officials to consummate the Merrill Lynch acquisition. The problem for Lewis is he may have neglected his fiduciary responsibility to shareholders in bowing to this pressure. The SEC is now investigating. See the video below for details

BofA CEO confirms government coerced him into Merrill deal

Bank of America CEO Ken Lewis is fighting to keep his job because earnings at his company have plummeted. BofA’s acquisition of Merrill Lynch has been a large part of the problem.  Now, understanding that he is being made out to be the fall guy, he has fessed up that BofA was coerced into the

Are Citi and BofA gaming the Geithner Plan already?

Here we are just days out from the announcement by Treasury Secretary Tim Geithner that the Obama Administration will be buying up so-called toxic assets as originally planned by Henry Paulson during the Bush Administration. The initial reaction has been one of euphoria as most asset markets responded positively to the news.

Now that the dust has settled somewhat, another reaction is taking place behind the scenes and it looks an awful lot like banks — specifically Citigroup and Bank of America — are gaming the system. Note my highlighting

Where are the perp walks?

Last summer, as a number of sinister revelations were made about the goings-on in the financial services sector, I speculated that we would definitely see the government going after individual executives for illegal activities. I saw Angelo Mozilo, the man with a tan, as the most likely scapegoat – a mortgage industry Ken Lay, if you will (see my August post “Ex-Countrywide CEO is the new Ken Lay“). Yet, none of this came to pass.

BofA carrying loans on books for $44 billion above fair value

This news comes via Reuters: Bank of America Corp is carrying loans on its balance sheet marked at more than $44 billion above their fair value, the company said in its annual report filed with U.S. regulators on Friday. The bank said it ended 2008 with $886.2 billion in loans, but estimated the fair value

Quote of the day: Wells and BofA are choking on acquisitions

Chris Whalen, a well-regarded bank analyst, ran an interview piece with Nouriel Roubini on Barry Ritholtz’s site. The conversation was very illuminating and I highly recommend reading the whole post linked below. However, I wanted to point out a quote from Chris in the piece that I find significant in light of the recent dividend

Banking Committee: Videos of CEOs’ opening statements

We heard testimony before the House Banking Committee in Washington today. The CEOs of eight large financial institutions are being raked over the coals by Congress. It was a scene which reminded me of the Pecora Hearings during the Great Depression. It was also one which is being repeated in London.

The Congressmen are ludicrously indignant — after all, Congress has been complicit in the state of affairs. One member of Congress asked the men (there are no women) to raise their hand to questions on several occassions like schoolboys in a classroom — questions akin to “when did you stop beating your wife.”

I see these proceedings as more show trial to reassure the public than anything substantive. Nevertheless, they are entertaining. Below are videos of the opening statements from each of the CEOs. You might find their comments illuminating regarding their thinking now that the economy has collapsed and they have needed governement assistance.

You should also note that not all of these banks are in a precarious way. Some are better off than others

Mea Culpa: I was too bullish on the BofA-Merrill deal

Merrill Lynch is looking like a real dog these days — much more than I realized back in September. As bearish/cautious as I have been on the economy and the financial sector, obviously I was not cautious enough. When the deal got done I had this to say

The worst M&A deals of all-time

As the financial industry further unraveled yesterday, Mathieu Robbins of the Irish Indendent asked a worthwhile question: Was RBS the idiot company of all-time in buying ABN Amro at the top of the market? Robbins says no and offers up nine other equally monstrous deals that all went seriously pear-shaped to prove it

Bank of America: Bailout hides huge bank subsidy deep in press release text

Marshall Auerback here. I wanted to add a few thoughts to the discussion about recent events in U.S. banking. Below is the Federal Reserve press release on the Bank of America bailout. Here are the most important words from the release:

where the debt is supported by collateral and the issuance supports new consumer lending.

The carrot and stick in the paragraph in red above and below is something brand new and out of the box. It is surprising that it came on Bush’s watch but it has Obama’s fingers all over it. This is a big new push by the government and it has Barney Frank and Shelia Bair’s names all over it

Countrywide is the real problem at Bank of America

Now that the government has bailed out Bank of America, I want to remind you that this Bank is a serial acquirer and that the Merrill acquisition is not the only boneheaded move by Bank of America