Monday, January 19, 2009

The Financial Times slams Ken Lewis

It's about time. It looks like they had the same insight as this blog! At least I beat them with the story.

Published: January 19 2009 19:56

Well, that was fast.

Way back on December 4, although there was a sense no one was deserving of the honour in 2008, American Banker continued its tradition and, for the second time in six years, hailed Ken Lewis, chairman and chief executive of Bank of America, as its “banker of the year”. The magazine lauded Mr Lewis for being “a critical force for stability in tumultuous economic times” and pointed to his two rescue missions during the year: of the mortgage lender, Countrywide Financial, for about $4bn (€3bn, £2.7bn); and, a few months later, the venerable Merrill Lynch, at a price that initially valued Merrill’s equity at about $50bn in Bank of America stock. Even though Mr Lewis came “under fire” for the two deals, the magazine said, he “never backed off his belief that each target had value, not merely as an opportunistic purchase but also as a strategic one”.

The US is now the largest shareholder – at about 6 per cent – in Bank of America. Mr Lewis admitted he did not enjoy his new status of being a “ward of the state” and pledged to get out from under the government yoke “as soon as possible”.

The question hangs in the air like a thick blanket of smog, though, as to how possibly Mr Lewis could not have known what everyone else on the planet already knew. To wit, that both Countrywide and Merrill were virtually bankrupt institutions and to pay even $1 for their equity might well have been too much. For Bank of America to continue doing what it was doing well, neither deal was necessary. But Mr Lewis did them anyway. He now claims to have been blindsided by the rapid deterioration of Merrill’s assets and almost invoked the “material adverse change” clause in the contract to get out of it at the end of last year.

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