In December 2008, Ken Lewis, chairman and chief executive officer of Bank of America was named as American Banker's banker of the year after the acquisition of Countrywide Financial for 4 billion and Merrill Lynch for 50 billion. The deals were applauded but the first week of January 2009 both Countrywide Financial and Merrill Lynch were bankrupt with assets in their balance sheet which set a new standard for toxicity in financial market, and Bank of America was forced to welcoming U.S. taxpayers as the company's largest shareholder. Following this month Bank of America stock was down 65 percent. In April 2009, the shareholders decided to remove Ken Lewis as Chairman and allowing him to remain CEO.
Keywords: Ken Lewis, Countrywide Financial, Merrill Lynch, bankrupt, toxicity, financial market, shareholder, U.S. taxpayers.
Founded in 1998 (previously knew as Bank of Italy,1904) Bank of America is an American multinational banking and financial services corporation, and the second largest bank holding in the United States by assets. The bank acquisition of Merrill Lynch in 2008 made Bank of America the world's largest wealth management Corporation and a major player in the investment banking market.
Kenneth D. "Ken" Lewis (April 9, 1947) is the former CEO, President, and Chairman of Bank of America. While CEO of Bank of America, Lewis was famous for purchasing Countrywide Financial and Merrill Lynch resulting in large losses for the bank and necessitating financial assistance from the Federal Government.
On August 23, 2007, the company announced a $2 billion repurchase agreement for Countrywide Financial. This purchase was arranged to provide a return on investment of 7.25% per annum and provided the option to purchase common stock at a price of $18 per share. On January 11, 2008, Bank of America announced that it would buy Countrywide Financial for $4.1 billion. In March 2008, the Federal Bureau of Investigation (FBI) was investigating Countrywide for possible fraud relating to home loans and mortgages. The news did not stop the acquisition, which was completed in July 2008, giving the bank a substantial market share of the mortgage business, and access to Countrywide's resources for servicing mortgages. The acquisition was seen as preventing a potential bankruptcy for Countrywide. Countrywide, however, denied that it was close to bankruptcy. This purchase made Bank of America Corporation the leading mortgage originator and servicer in the U.S., controlling 20-25% of the home loan market. The deal was structured to merge Countrywide with the Red Oak Merger Corporation, which Bank of America created as an independent subsidiary. It has been suggested that the deal was structured this way to prevent a potential bankruptcy stemming from large losses in Countrywide hurting the parent organization by keeping Countrywide bankruptcy remote. Countrywide Financial has changed its name to Bank of America Home Loans.
On September 14, 2008, Bank of America announced its intention to purchase Merrill Lynch & Co., Inc. in an all-stock deal worth approximately $50 billion. Merrill Lynch was at the time within days of collapse, and the acquisition effectively saved Merrill from bankruptcy. This acquisition made Bank of America the largest financial services company in the world. Temasek Holdings, the largest shareholder of Merrill Lynch & Co., Inc., briefly became one of the largest shareholders of Bank of America, with a 3% stake. Shareholders of both companies approved the acquisition on December 5, 2008, and the deal closed January 1, 2009. Bank of America had planned to retain various members of the then Merrill Lynch's CEO, John Thain's management team after the merger. However, after Thain was removed from his position, most of his allies left.The bank, in its January 16, 2009 earnings release, revealed massive losses at Merrill Lynch in the fourth quarter, which necessitated an infusion of money that had previously been negotiated with the government as part of the government-persuaded deal for the bank to acquire Merrill. Merrill recorded an operating loss of $21.5 billion in the quarter, mainly in its sales and trading operations. The bank also disclosed it tried to abandon the deal in December after the extent of Merrill's trading losses surfaced, but was compelled to complete the merger by the U.S. government. The bank's stock price sank to $7.18, its lowest level in 17 years, after announcing earnings and the Merrill mishap. The market capitalization of Bank of America, including Merrill Lynch, was then $45 billion, less than the $50 billion it offered for Merrill just four months earlier, and down $108 billion from the merger announcement.
Bank of America CEO Kenneth Lewis testified before Congress that he had some misgivings about the acquisition of Merrill Lynch, and that federal officials pressured him to proceed with the deal or face losing his job and endangering the bank's relationship with federal regulators.
Lewis' statement is backed up by internal emails subpoenaed by Republican lawmakers on the House Oversight Committee.[46] In one of the emails, Richmond Federal Reserve President Jeffrey Lacker threatened that if the acquisition did not go through, and later Bank of America were forced to request federal assistance, the management of Bank of America would be "gone". Other emails, read by Congressman Dennis Kucinich during the course of Lewis' testimony, state that Mr. Lewis had foreseen the outrage from his shareholders that the purchase of Merrill would cause, and asked government regulators to issue a letter stating that the government had ordered him to complete the deal to acquire Merrill. Lewis, for his part, states he didn't recall requesting such a letter.
The acquisition made Bank of America the number one underwriter of global high-yield debt, the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisitions. As the credit crisis eased, losses at Merrill Lynch subsided, and the subsidiary generated $3.7 billion of Bank of America's $4.2 billion in profit by the end of quarter one in 2009, and over 25% in quarter 3 2009.
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