Bank of America - Merrill Lynch Merger

[HopHead]

^In somewhat related news... I saw a news headline today, might have been on CNBC or CNN, but some prominent auditor said that if the Federal Reserve actually had to audited, they would be out of business. I believe a bill is being passed around to try and force this to happen.

[monsoon]

^No doubt. BofA alone owes as much money to the federal government than those 10 other banks above now allowed out of the TARP program and IMO, they will be needing more. You have the former head of Countrywide and his officers being sued by the SEC for fraud. You have the former head of ML calling BofA liars. Boards of Directors being forced out or quitting, and high up's getting the same treatment. In other words it is a train wreck of epic proportions.

Meanwhile across the street we have this NY Times story concerning Wells and sub-prime borrowers. Apparently the city of Baltimore is attempting to file a federal lawsuit against the bank for illegally targeting minorities for these kinds of loans. The complaint is on-line but the consumerist has posted a part of the deposition from former Wells employees: Rest here.

[Charlotte_native]

Ken Lewis is testifying in Washington, D.C. today about the degree to which the U.S. pushed BAC into the MER deal in December. Coverage of his prepared remarks is available here if anyone cares to read the summary:

I heard about some of this today on NPR. It'll be interesting to see what comes out, though doubtful it will change the minds of those upset about this transaction (shareholders).

[Commoner]

^No doubt. BofA alone owes as much money to the federal government than those 10 other banks above now allowed out of the TARP program and IMO, they will be needing more. You have the former head of Countrywide and his officers being sued by the SEC for fraud. You have the former head of ML calling BofA liars. Boards of Directors being forced out or quitting, and high up's getting the same treatment. In other words it is a train wreck of epic proportions.

First, w/r/t TARP repayments - BAC has received $45bn. $68bn was returned by 10 banks. Will you explain how BAC owes "as much money to the federal government than those 10 other banks"?

Second, the Federal Reserve's balance sheet doesn't have anything to do with TARP securities. TALF is the TA[__] program implicated, which has to do with consumer paper being purchased or held as collateral. Those are the assets (rather than BAC stock, for example) that suffered the 1Q deterioration in value. The US Treasury is the Initial Holder of TARP securities. That's separate from the Federal Reserve.

Back to the thread title (the BAC/MER deal) - emails between Bernanke and Treasury officials cited in testimony today substantiate Lewis' claim that management would have been forced out if BAC cited the MAC clause in the acquisition agreement and backed out. Not that I'm saying they shouldn't have (their own jobs be damned) but I have to believe BAC would have faced a similar (Bush administration equivalent) situation as that of GM and Wagoner (Lewis and other non-assenting managers replaced with administration yes-men). If so, the net effect would be the same.

[monsoon]

.... Will you explain how BAC owes "as much money to the federal government than those 10 other banks"?....

Given your recent, and for that matter long term, behavior on this forum I don't intend to respond to any of your demands that I explain myself as if we are somehow here to satisfy your needs. It never leads to a worthy discussion and when your questions are answered beyond any shadow of doubt, you simply follow-up with some nonsense. So I don't care if you post here or anywhere else or not. If you break the rules I will deal with it, but beyond that, don't expect anything in the lines of a discussion from me.

[swh1972]

BAC was able to raise the additional $34 billion in Capital required by the government as part of the stress test results which should cover them in the event of a significant deterioration of the economy, and is on their way towards finalizing terms to pay back the TARP as soon as possible. They have had one negative earnings quarter in the last dozen or so years. I think they will be just fine.

[monsoon]

Though it has been suggested the government can't do this, the Obama administration today announced that Kenneth Feinberg has been named as the czar who will now oversee, set and approve the compensation of top executives at Bank of America.

[WestCoastNC]

BofA isn't far from reaching their required capital levels from the stress tests. My guess is they'll pay back the money before this takes effect. The government is already allowing banks who passed the stress test to do this.

[Neo]

First, w/r/t TARP repayments - BAC has received $45bn. $68bn was returned by 10 banks. Will you explain how BAC owes "as much money to the federal government than those 10 other banks"?

I would also be interested in how Bank of America owes as much as the other banks when in reality the number is lower (not higher)? I don't think anyone is asking anything out of the way here, but obviously someone's facts are either being misinterpreted or are simply false.

[Neo]

Can someone tell me exactly what Ken Lewis did that was so terrible. If the sole reason for witch-hunting him is the Merrill Lynch merger, there's strong evidence that the government forced BofA into that role and hurried the merger through.

Looks as if this can now be proven. Congressional investigators apparently have evidence that proves that the Federal Reserve threatened Bank of America executives if they didn't follow through with the purchase of Merrill Lynch.

[monsoon]

BofA got $25B in the first bailout, $20B for taking on Merrill Lynch, and at least $12B funneled through AIG. That tally so far is $57B. In addition, the government has further guaranteed another $165B in mortgage losses from BofA's bad investments. Is the bank required to pay any of this back? So far the answer is no. Is this money owed to the federal government? Yes. Hence my comment.

Lewis is currently making himself look bad on Capital Hill. In one breath he is saying that Merrill Lynch was a brilliant move on the bank's part as it is resulting in huge amounts of profits yet in the next, he also says the government forced him to take it. It doesn't add up. One other note. For some reason the representative that introduced him to the hearing today was Patrick McHenry of the NC 10th district. I am pretty sure that McHenry was one of the GOPers that bucked president Bush and voted against bailout money going to these banks. It was a curious choice. (the 10th district is western NC, it does not cover Mecklenburg. Think Myrick, Watt and Kissell who are no where to be seen.)

[Commoner]

BofA got $25B in the first bailout, $20B for taking on Merrill Lynch, and at least $12B funneled through AIG. That tally so far is $57B. In addition, the government has further guaranteed another $165B in mortgage losses from BofA's bad investments. Is the bank required to pay any of this back? So far the answer is no. Is this money owed to the federal government? Yes. Hence my comment.

So working with actual TARP securities and AIG payments after the first government infusion, BAC has received $57. The banks repaying TARP (listed in the FT this week) received $68bn, plus an aggregate of $16.1bn for AIG payments, for a total of $74.1bn. By the same rationale w/r/t to the ring-fence guarantees, the government has paid $0 in respect of the guarantees. BAC has ways to go before reaching that aggregate total.

I agree that public speaking (especially when speaking to the lower house) is not exactly Lewis' strength.

[Commoner]

The actual degree to which the federal government (particularly the legislative branch) has power to influence or actually control day-to-day ops at BAC (and TARP receipients in general) has been discussed frequently on this thread.

During Lewis' testimony before the Financial Services Committee of the HOR, in response to a question about the extent of this control, Lewis said that the only actual influence has been from a committee that looks at lending activity (in light of the TARP infusions) and a recent order (from the executive branch (Treasury)) to examine the quality and quantity of its directors. That's it.

[kermit]

The actual degree to which the federal government (particularly the legislative branch) has power to influence or actually control day-to-day ops at BAC (and TARP receipients in general) has been discussed frequently on this thread.

During Lewis' testimony before the Financial Services Committee of the HOR, in response to a question about the extent of this control, Lewis said that the only actual influence has been from a committee that looks at lending activity (in light of the TARP infusions) and a recent order (from the executive branch (Treasury)) to examine the quality and quantity of its directors. That's it.

^Thanks for the update Commoner! This article from the WS Journal has some interesting tidbits about the Fed's role in restructuring the board at BAC

http://online.wsj.com/article/SB1244418438....html#printMode

The money quote: "[the Fed Governor] described his guidance [on the composition of the BAC board] as "best advice," rather than orders, according to a person familiar with the matter."

I am not sure I buy that, the speed and magnitude of the recent board turnover strikes me as something that has been ordered rather than suggested -- but I am just an observer.

[monsoon]

Well it appears that Lewis was essentially lying when he said the government forced him into this deal. Two key points.

Dennis Kunich produced a letter written by Ben Bernanke. Mr Bernanke in late December, referring to Mr Lewis and saying,

[The Voice of Reason]

Just thought I would drop 2 pennies in here.

I doubt the AIG payments mean anything. that is money that AIG owes as I understand it.

you can say that BOA and GS etc are the ones that directly benefited by the Govt giving AIG that money, and its true that the govt did so to help out the companies that AIG owed, but the liability lies with AIG on that one.

Also I might have missed it, but what about the TALF bonds?

we bought and sold oodles of those things. dont recall if they were BAC, but the TALF bonds mere extremely popular there for a few weeks.

how much did BAC issue?

just thought I would drop that so you guys could chew on it a bit.

now a long speach about Fleet Bank

Even though Fleet was a great company I would not worry about losing your HQ to Boston. Up here in New England it was made abundantly clear that when the Fleet name left the area, the jobs left with it. Its been so long(in the business world) that Fleet is a distant memory at this point.

Also, do you guys think that when BAC bought Fleet that it bought a New England institution and that the leaders of Fleet were some kind of close knit family?

I do not think this was the case.

Sure the bank was a New England banking powerhouse, but if you look at how it got that way you will realize that it is a short history.

Fleet became a decent sized bank when it jumped the Long Island sound and bought Norstar bank in 1987. I think most of the bank was in New York and not even Rhode Island, and gained size in New England by acquiring the assets of bank of Nerw England from the FDIC in 1991. This was what created the core of the Fleet empire, even still

in 1994 just 10 years before the BAC merger

Fleet was smaller than Shawmut, and just a little bigger than Bay bank, and First bank of Boston

Fleet and Shawmut merged in 1995. this was pretty much a merger of equals, so if you think about it, 9 or so years before Fleet was bought, Fleet was truely created as a New England power bank. I do not know at all, but I bet some of those Fleet guys you worry about now are actually Shawmut guys. Also in 1996 the other two big banks in the area, merged to compete against Fleet. First Bank of Boston and Bay bank became the 397 branch Bank Boston, while Fleet had 490 branches. (First Union had 111 branches in the area)

Even still the leaders of Fleet at this time were made up of Rhode Island guys, NY guys, CT guys and Boston guys. The real Boston happened in 1999 when Fleet bought Bank Boston.

After this Fleet had no real competition in New England. in 2000, it had 30% of the market and began buying banks in Jersey and elsewhere.

so the bank that has 6 members on the board was only together for about 4 years. the merger was 5 years ago, so I am thinking that the board members are not trying to bring back Boston for nostalgia purposes.

Bank of America is the biggest bank with the bes bank name and I am sure the board members are more interested in keeping it that way than bringing jobs to Boston or whatever moving a HQ would do.

yes I am a bank nerd.

[monsoon]

.... but the liability lies with AIG on that one.......

The federal government is the owner of AIG now. There is outrage the taxpayers are funneling huge sums of money into AIG and it is being funneled right back out to the banks that are also getting TARP money. In other words it is a US taxpayer liability caused the the gross mismanagement of risk at places like BofA.

[swh1972]

...and was most likely the result of gross mismanagement of personal finances by the U.S. Taxpayer.

[The Voice of Reason]

Well look at like that if you want, but AIG made the mistakes that made it owe GS 12B and BAC some silly ammount of money.

You can say the government made mistakes in giving AIG money. but when we give a company money to keep them from going bankrupt, you can be sure the money will be used to pay outstanding debt.

if debt is not paid, the company is forced into bankruptcy by the debt holders.

the whole too big to fail thing

I am just pointing out that whatever ammount AIG paid Bank of America is not relevent to how much bank of America owes the US tax payer. you can say Bank of America would be in much worse shape if AIG were not bailed out, but the entire financial system would have been in much worse shape. Heck, if you want you could seek out the lease holders for any AIG offices, and say that they owe the US tax payers because we paid their rent for the last 10 months, or list any creditor as a beneficiary of tax handouts. and in the end each of those creditors, and the employees of AIG and its creditors etc all benefited by this bailout.

again this was the whole point of the bail out. literally hundereds of thousands of people are better off because of "saving AIG" those people earned money and paid taxes on those earnings.

Clearly a great deal of that money went to Charlotte either directly or indirectly through this process. it sucks all around, but stacking that 12 billion or whatever on BAC is inaccurate. that is all.

But the TALF debt can be stacked on BAC. anyone know how much?

[monsoon]

...and was most likely the result of gross mismanagement of personal finances by the U.S. Taxpayer.

Actually the collapse at AIG was started by their London Office.

[Commoner]

Actually the collapse at AIG was started by their London Office.

... that marketed and sold CDS products that needed underlying mortgages (held by taxpayers) to be paid according to the individual loan agreements to sustain a stream of payments in order to avoid triggering payment events on the CDS product.

They're hand-in-hand on the highway to hell.

[monsoon]

Lewis was asked that if the bank was making such huge profits now, are they still contemplating massive layoffs of their employees. Lewis refused to answer that one and walked off. This reporting was coming from the rent a reporter that WSOC has engaged in DC. The politics around this is rather interesting. There are some that are out to get BofA & Lewis, others that are out to get officials of the former Bush administration and even others that are using this debacle to take down the not very transparent authority of the Federal Reserve. i.e. as in it should be abolished. It's absolutely fascinating to watch. This is why so many reporters are getting the story so very wrong.

It is unfortunate however that everyone reading this, their off-spring, distant relatives, inlaws outlaws, everyone for the forseeable future, will be working to pay taxes to cover these huge outlays.

(DC is full of rent a reporters that farm themselves out to the local TV stations who don't want keep their on employee there. My sister in-law used to do this. You can get one to report on any point of view. Like a Chinese buffet.)

[monsoon]

Doesn't look good to me.

[JayGee]

Doesn't look good to me.

Ouch.

[Commoner]

In this and maybe the GMAC thread, there were comments regarding the election of some companies to become Bank Holding Companies (or Financial Holding Companies) so as to avail themselves of the stabilization programs of late-2008 (TARP and TALF come to mind).

Immediately following the bankruptcy of Lehman Brothers and the agreement between MER and BAC, Goldman Sachs, Morgan Stanley, American Express and GMAC LLC became BHCs.

Apparently, Goldman feels its outlook today is much better than that of October 2008. It's exploring the possibility of exiting BHC status and converting to a non-BHC investment bank (for obvious reasons). Morgan Stanley hasn't (at least not that I'm aware) hinted at a similar strategy, but if it does, to whatever extent their deposit-taking franchise is built in Charlotte (or at least built with former-Wachovia talent) will not be nearly as robust.

Unlike Goldman, Morgan Stanley actually did invest in retail bank management, though.