There are some interesting headlines in the news today as I scroll through Bloomberg online:
- Jobless claims hit 640,000
- Fannie, Freddie defaults rise significantly
- GM will close factories for nine months and cancel debt payments
But there was one that jumped out at me before I even made it to my computer. On the front page of the Wall Street Journal this morning we see a huge picture of Bank of America's CEO Ken Lewis, Henry Paulson, and Ben Bernanke.
Lewis' testimony to Attorney General Andrew Cuomo regarding the acquisition of Merrill Lynch a few months ago was leaked to the press.
If you can't remember, Bank of America bought Merrill in one of those chaotic weekends last fall as the financial system was collapsing. They bought the company without doing any due diligence on their balance sheet, and they paid about 60 times the share price they would have if they let the company get closer to bankruptcy.
Bank of America has stated all along that the purchase was intended to help the company build for the future. They have continued to persist that they got a great deal for the brand and it was the best option for their shareholders.
This from the front page of the Wall Street Journal:
Question: Were you instructed not to tell your shareholders what the transaction was going to be?
Ken Lewis (BofA CEO): I was instructed that "we do not want a public disclosure."
Question: "Who said that to you?"
Ken Lewis: Paulson....... (Henry Paulson the Treasury Secretary at the time)
Question: Had it been up to you would you (have) made the disclosure?
Ken Lewis: It wasn't up to me.
Question: Had it been up to you?
Ken Lewis: It wasn't.
Another part of the article:
"During the testimony, Mr. Lewis described a conversation with Mr. Paulson in which the Treasury secretary made it clear Mr. Lewis' own job was at stake.
When the news of the Merrill Lynch acquisition broke last fall, I said the day after it happened that Bank of America did it to become one of the banks that was too big to fail. They wanted to be part of the inner circle. They chose Merrill because their losses were going to be so great, and they now had a government promise to bail the company out no matter what.
This has caused Bank of America shares to plummet to close to nothing, wiping out the life savings of many people I know that live here in Charlotte and work for the company. These shareholders bought the stock believing their CEO would do what is best for the company.
The CEO did what was best for himself, as the acquisition allowed him to keep his job and receive unlimited government protection.