Whew, that was fast.
First up, Ken Lewis via another internal memo nabbed by Bloomberg all but telling the feds to shoot Citi, not Bank of America. C’mon, who else but C is Lewis talking about when he says “our consumer and commercial customer base, and earnings power give us a great advantage over banks that have been more badly damaged in the current crisis.”
And, uh, what do you know, here’s Hugh McColl and Thomas Storrs making the same forward-looking “earnings power” argument on the op-ed pages of the Uptown paper. Can you say concerted strategic communication effort?
Actually, the op-ed is even more interesting because it is a direct rapid-response to Monday’s jilted lover editorial which for the first time saw the Uptown paper’s editorial board explore the possibility that BofA’s situation is of its own making. And look what happened. Crack upside the head:
We found it disheartening and disappointing in the extreme to read the Observer’s screed against Ken Lewis and Bank of America. At this moment of great economic uncertainty and tremendous pressure on the bank, the Charlotte Observer decided to pile on. The decision was both mystifying and unhelpful.
Then we get this spin on the ML, which I’m telling you, is part of a bid to prevail upon the feds to undo the deal, or at least backstop Merrill’s future losses:
The Observer criticized Lewis for taking a risk in acquiring Merrill Lynch. CEOs get paid to make big decisions, and public criticism comes with the territory. But Lewis also tried to kill the deal in December as Merrill’s losses ballooned. Our sense is that the government pressured management to close the deal and take billions in additional public assistance, leaving Lewis no acceptable alternative.
Next, we get the same dubious spin on Countrywide we got the other day — all forward looking opportunity with no regard to the legacy obligations. In other words, BofA will grow its way out of this problem. But Hugh is not buying up a podunk bank, jacking up fees, and moving on this time. The revenue model will have to be something different.
This is a dangerous step for BofA and Lewis to take. By pinning so much on future earnings the bank is building up expectations that it might not be able to reach. Then again, clearly differentiating itself from Citi may be worth it, especially among overseas traders who do not understand what is going on.
One final wrinkle comes in John Thain’s testimony to Andrew Cuomo on the $3.6b. in bonus payouts made as BofA absorbed the brokerage. We are pointing to resolution that has Lewis and other BofA execs admitting that they thought they had to pay out the money or risk losing the talent they intended to buy.
“Bonuses were determined based upon the performance and the retention of people,” Thain testified to Cuomo. “There is nothing that happened in the world or the economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing.”
The ball is now in Lewis’ court to deny that account.
Bonus Observation: It is beyond interesting that this op-ed was placed so very quickly after submission and runs in an edition utterly devoid of the usual Bank of America display ads. If you see Rick Thames, you might want to give him a hug or buy him a beer.
Update: Want to point back to the first days of BofA’s deal with Countrywide to make clear it certainly looked suspect to anyone with a passing interest in the numbers.
