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Ken Lewis: the master of acquisition and stimulus PART II

8 March, 2009

NOTE:  This article has been amended to redeit the paragraph about Senator Dodd and Bank of America in which I combined two separate “bailouts.”

At the beginning of 2008, B of A was “the biggest U.S. bank by market value,” (Bloomberg) when it inexplicably decided to spend $4 billion dollars to acquire the failing Countrywide Financial.  The deal didn’t get done for several months, during which time Countrywide value continued to slide, but in the meantime a proposed bailout bill was  working its way through Congress.

As reported on ( FOX Business)  June 27, 2008,  the bill

… would let mortgage lenders off the hook for sour mortgages, as it would let the Federal Housing Administration assume the risk for these bad debts, shifting the burden to taxpayers and bond investors. (emphasis mine)

The bombshell though was not that Bank of America  was once again going to get lucky at the taxpayers expense, but that

…two “discussion documents” about a potential housing bailout bill, both of which are stamped “confidential andproprietary” that Bank of America (BAC) authored and circulated among Congress, shows that the legislation now making its way through the corridors of Washington, DC is almost word for word what Bank of America wanted. (emphasis mine) clip However, the first of Bank of America’s “discussion” documents came within a month of its announcement that it would buy Countrywide (CFC),  the nation’s biggest mortgage lender by volume. (emphasis mine)

Countrywide’s status as the largest” mortgage lender” partially explains why Lewis would want it.  Keep in mind that no bank in the United States is allowed to own more than 10% of U.S. deposits and that the surest way for Bank of America to continue to grow would be to move into the mortgage business.  Of course, I assume that Lewis didn’t realize exactly  how Mozillo and others had led the business to the brink of bankruptcy and how much he would later have to pay to clean up their mess. Still, the blatant running of the U.S. by a business, pac or lobbyist is far more scary than the Lewis’s obsession to rule Main Street.  Chris Dodd proposed the bailout bill and it was generally known by his name.

Is there a connection between Bank of America and Sen. Christopher J. Dodd (D-Conn.)?  There is. Carney: “Bank of America’s political action committee (PAC) has donated $20,000 to Dodd since he became chairman of the banking panel 17 months ago. From January 2007 to March 2008, Bank of America employees have donated at least $50,400 to Dodd’s campaigns, according to the Center for Responsive Politics.”  (Los Angles Times)

By July 2008,   the cost of the acquisition of Countrywide was down to 2.5 billion, and the mortgage business was looking really bad, but CEO Ken Lewis was assuring his stockholders that

“This purchase significantly increases Bank of America’s market share in consumer real estate, and as our companies combine, we believe Bank of America will benefit from excellent systems and a broad distribution network that will offer more ways to meet our customers’ credit needs.” (TheStreet)

Whether or not, Lewis knew about Mozillo is irrelevant here in my opinion.  It is inconceivable that Lewis did not know about Dodd’s bill and how it would help BofA pass along its loses to the American consumer (you know, those consumers that BofA is proud to drive into consumer debt with its fees, high credit rates, and selling of bad debt to the Federal Government; the one bank with the right to suggest that it is the bank for America?)

In any case, the deal goes forward and Dodd’s bailout works its way through the houses of Congress and on to the president’s desk. President Bush signs this bill on 30 July, 2008.  The bills provides a “bailout” of  Countrywide’s bad debt and benefits Bank of America.

On 15 September 2008,  Lewis announces another acquisition in the works, this time for Merrill Lynch in a stock option that will cost $50 billion.

And once again, Kenneth Lewis issues a statement that praises the advantages of another one of his deals.

Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,” Bank of America Chairman and Chief Executive Officer Ken Lewis said. “Together, our companies are more valuable because of the synergies in our businesses.”  (Merrill Lynch press release)  (emphasis mine)

Actually, I believe Lewis means exactly what he says, because nowhere does he say this deal will be good for the citizens of this country, only for its stockholders.  (He didn’t say CEOs, but we know he meant it.)

Four days later, Treasury Secretary Henry Paulson announces that the federal government will have to spend billions of dollars to bailout banks that are “too big to fail” because they have acquired too much “illiquid assets” (CNN Money)

Bank of America received $25 billion.

(illiquid? – If you’d asked me before I read the context, I would have thought someone was talking about a solid object, something not a liquid, you know – ice instead of water, maybe – which could be a bad thing applied to other objects that are supposed to move.  But in this context, it sounds like a financial “”newspeak” word for “not liquid” (assets nobody wants to buy) or “not worth s**t? or “bad debt” – anything that doesn’t make it  sound so bad?   So, if nobody wants to buy them, why are the American people being forced to buy them?

On 20 November, 2008  –  Ken Lewis must have still believed that BofA should expand in order to continue to  “benefit” from creating a “broad distributions network” because it spent $7 billion dollars to increase its stake in China Construction Bank.  The fact that China Construction does not employ anyone in the U.S.  nor contract with any company in the U.S. did not seem to affect Lewis’ decision, despite the expanding crisis in this country.  Despite now owning 19.13 percent of the bank, BofA still had an option to buy more shares. Bank of America Buys Stake in China Construction. (Infowars)

So many acquisitions but still not enough bailout.  At the end of the year, BofA  posted in first loss in 17 years.

(to be continued)

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