Soap of America

Ever since Bank of America’s acquistion of investment bank Merrill Lynch in January, there has been a string of events, which by the day made the deal of paying a 70% premium on ML’s September 19 price look not as good as Ken Lewis claimed it was.  He went as far as boasting that amidst the crisis, he managed to spot opportunities.  Fast forward to three weeks later and John Thain, the former Merrill CEO bade farewell to the firm, for whom he served as a CEO beginning in November 2007.  He was fired resigned amidst the extravagant renovation Thain had in his office.  Amounting to as much as $1.22 million, the tab included $800,000 paid to designer Michael Smith, $130,000 for a few rugs, $35,000 for a commode, and the rest to be divided among curtains, chairs and coffee table. Thain agreed to pay back the amount he spent on the renovation.  That was just the beginning of this heavy BofA-Merrill drama.

In February, Merrill unveiled a loss of $15bn in the 4th quarter of 2008 and a total of $27.6bn for the whole year. The BofA CEO came under fire for the deal, which no longer seemed as sweet as it was back in September.  The Merrill loss only compunded the bank’s need for capital leading them to tap the TARP funds for another $20 billion just to complete the acquisition.  In a testimony to the Congress, the CEO defended himself by saying that he did not know about the loss when the deal was being put together.  How’s that for a hasty due diligence? Then just like every other firm who’s received bailout, Lewis was back again in the limelight for the huge bonuses that were paid to Merrill executives before the consummation of the deal between the two banks in early 2009.  Days after, more details emerged about these payments.  The top 11 highest paid in Merrill were paid an aggregate amount of $200m while there were another 140 who each received more than a million.  To make this even more ridiculous, some of the top earners have not even spent longer than a year on their post.

And then today.  In the attempt by New York Attorney General Andrew Cuomo to investigate these bonuses, it was John Thain who first received the subpoena as early as January 27.  Then followed the other executives who received millions.  Included are Andrea Orcel, the firm’s top investment banker, global sales and trading chief Thomas Montag and Peter Kraus, Merrill’s former head of strategy who now works at Alliance Bernstein Holding LP.  Gregory Fleming, ML’s former president, was next on the line.  Called for deposition, they’re now wrangling over his testimony.  BofA says Fleming needs to be silent and the confidentiality maintained while the Attorney General’s office says it is the public’s right to know the details of these payments, particularly if it is the taxpayers’ money on the line.  Fleming revealed to the office that BofA threatened so sue him for giving out information about the bonuses.  In a letter to be sent to Bank of America, more data will be demanded.  In response, a spokesman for Bank of America said in a statement: “Bank of America has continually offered to provide the information the attorney general is seeking if he would agree to an appropriate confidentiality agreement. He has continually declined. Bank of America does not believe the attorney general needs the freedom to place private, personal information in the news media in order to conduct his investigation and determine if laws were possibly broken.”

David Markowitz from Cuomo’s office sent this letter to the NY Supreme Court Justice: HERE.

I don’t know what to make of this whole fiasco with Bank of America and their desire that things be kept confident.  Do they fear that revealing more information will result in a more intense public anger? Is there more about Ken Lewis and his “good deal” to know? Does he fear that he would actually be scrutinised even further and perhaps even be found out that in fact he knew about these things all along? Does he fear further demolition of the BofA stock? This issue has now become a tad like soap opera. I’d be very much interested to see how all this unfolds.

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