Founded in 1998 (previously known 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. Kenneth D. "Ken" Lewis (April 9, 1947) was the former CEO, President, and Chair of Bank of America. While CEO of Bank of America, he was appointed as American Banker's "banker of the year "after purchasing Countrywide Financial and Merrill Lynch. 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. 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, resulting in forfeiture for the bank and requiring financial assistance from the Federal Government. 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 Chair and allowing him to remain CEO for a limited time he was replaced in 2010 by Brian Thomas Moynihan.
Keywords: Ken Lewis, Countrywide Financial, Merrill Lynch, bankrupt, toxicity, financial market, shareholder, U.S. taxpayers.
The decision by the Obama administration to introduce a $500,000 salary cap for all executives of banks receiving bailout dollars could prompt personnel to leave for other banks which did not receive bailout dollars. The alternative option for CEOs affected by the salary cap would be foreign banks not affected by the 2008 US financial meltdown and willing to pay CEOs more than $500,000 which were not affected by the 2008 US financial meltdown. The motive behind these CEOs company switch would be the fear to lose their highly styled life.
In April 2009, the decision from the shareholders to remove Mr. Lewis from his Chairman duty is not a significant move, since he was remains as CEO. Mr. Lewis make financial ethic mistake when purchasing the both company. He failed to set an accurate financial statements that present Merrill Lynch and Countrywide Financial as financially stable, operationally efficient, and positioned for strong future growth because few month after this acquisition both companies were bankrupt. A significant gesture of shareholders would have been to dismiss Mr. Lewis from all his duties within the company.
The fact that Mr. Thain spending $1.2 million on his office when Merrill Lynch was on the verge of bankruptcy he can't justify it. This is an unethical behavior, as Merrill Lynch manager, he has an obligation to manage his enterprise in good faith, guarding against decision and behavior that advance his own narrow ambitions. He made this expense for his own narrow.
Kenneth Lewis testified before Congress that he had apprehensions about the purchase of Merrill Lynch, and was pressured by federal officials to proceed with the deal or face losing his job and endangering the bank's relationship with federal regulators. His statement was backed up by internal emails. I think we don't have all information about what really happened with the acquisition of Countrywide Financial and Merrill Lynch. Shareholders were well aware of the company's looming bankruptcy and consequently approved the purchase. I think Mr. Lewis by claiming it was pressured maybe just say the truth about what was really happen or looking for the public sympathy.
Of all the decisions made by Ken Lewis in this case study, I think the most damage for his reputation was his statement about federal official's pressure on him. As Manager, I believe he broke all the 8 MBA oaths on the purchase of Countrywide Financial and Merrill Lynch. His statement is a proof of his inability to perform the manager's duty. With this statement he fails to take responsibility for his action.
Before making these purchases, it would have been more responsible from Mr. Lewis to conduct a good study about the both company, which directly involved in future growth. This will prevent him from money losses for Bank of America and this case protected the shareholders investments. His failure to provide a good and accurate financial statements harmed both his job position and his career. When the scandal arrived, he should have resign from his position and avoid make a statement accusing other people. It was his responsibility as Manager to do the right thing to protect the shareholders and the company.
Summary
On August 23, 2007, the Bank of America announced a buying back agreement for Countrywide Financial. The purchase was arranged to provide a return on investment of 7.25% per year and provided the option to purchase common stock at $18 per share. On January 11, 2008, Bank of America reported that it would buy Countrywide Financial for $4.1 billion. The acquisition was seen as preventing a potential bankruptcy for Countrywide. In the same time the purchase made Bank of America Corporation the leading mortgage originator and servicer in the U.S., controlling 20-25% of the home loan market. 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 to collapse, and the acquisition effectively saved Merrill from bankruptcy. This acquisition made Bank of America the largest financial services company in the world. Shareholders of both companies approved the acquisition on December 5, 2008, and the deal sealed January 1, 2009. In January 16, 2009 when reporting its earnings release, Bank of America revealed massive losses at Merrill Lynch , thus requiring an infusion of money previously negotiated with the government as part of the government-persuaded deal for the bank to acquire Merrill Lynch. The company recorded an operating loss of $21.5 billion in the quarter, mainly in its sales and trading operations. The bank also revealed it tried to drop 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 lowered 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 offered for Merrill just four months earlier, and down $108 billion from the merger announcement. The acquisition put Bank of America at the first place of 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 relieved, losses at Merrill Lynch settle down, 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.
