Ken Lewis is Fully Responsible for the Merrill Lynch Acquisition

by Brian Johnson on June 14, 2009

ken-lewisRecently, lawmakers have been questioning Bank of America’s motives for its acquisition of Merrill lynch last September.  Some are calling the merger a shotgun wedding directed by Fed chairman Ben Bernanke.  Investigations are now underway to determine whether the federal government threatened Bank of America Chief Executive Kenneth Lewis into acquiring Merrill Lynch under the duress that if he didn’t, Bank of America management would be removed from their positions.

We would like to suggest two possible scenarios related to this investigation and regarding Lewis’s responsibility in the purchase of Merrill Lynch.  Either Lewis truly believed that the Merill Lynch acquisition was a smart move for Bank of America, or Lewis, having his job threatened, abandoned all responsibility he had to his shareholders in order to maintain his position.  In the first case, we have to question Lewis’s judgment.  If his company is in financial trouble, the worst thing he could do would be to acquire another financial institution that was even worse off. Knowing what he knew about his company’s financial health, it was a ridiculous idea to put Bank of America further in danger of financial collapse by buying a company that was already collapsing.

If on the other hand, Lewis buckled under pressure, as lawmakers are now claiming, then this means that Lewis misrepresented his company to shareholders back in December of 2008 so as to save his own career.  If this is the case, then he cost investors the money necessary to cover the bad decisions he made so as to stay in his position as Bank of America’s CEO.

This suggests that Lewis either lacks the judgment or the responsibility to serve at his post.  So, while we agree that lawmakers should look at the role Bernanke and members of the treasury may have played in instituting extralegal policies for dealing with the collapse of some of the nation’s most respected financial institutions, Ken Lewis is fully responsible for destroying Bank of America’s shareholder value thru the Merrill Lynch acquisition.

Discussion

Anonymous
What an ignorant ill-informed post, did you hire out Speidi to write it for you?
June 15 at 18:35 pm
Banker 101
If he used the MAC (which the government would judge if applicable) and it failed. The bank would have been prosecuted by the government, this includes fines & lawsuits. So you tell me, if a government that threatens it's nations banks would it really let the bank win the MAC ?
June 15 at 08:03 am
Rik
I do think there was a lot of strong-arming going on. And it wasn't so much losing jobs, but sanctioning and leveraging that was behind the threats. The interesting thing is, this will ultimately be a good deal. The MER purchase is already earning big dollars and has been a big part of BAC's ability to raise the $39 billion that the Fed required (done by the way). I, for one, trust Ken Lewis. I haven't lost faith yet.
June 14 at 19:25 pm
Maria
Do you have any evidence/sources for what you are saying?
June 15 at 13:14 pm
Maria
Great post! I completely agree. No matter what actually happened Lewis is fully responsible for allowing this stupid acquisition to go thru!

If utilizing the MAC clause would had cost him his job then so be it!!

This is why CEO's get paid the big bucks!
June 14 at 14:00 pm
Don
I think that in the long haul,it will pay good dividends and prove to be a good deal.In the meantime people must be patient.
June 14 at 09:06 am
GirishLaikhra
Thanks for post. It’s really imformative stuff.
I really like to read.Hope to learn a lot and have a nice experience here! my best regards guys!
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October 11 at 14:52 pm
Alex
Brian is wrong.

Sure Ken Lewis wanted Merrill Lynch no doubt about it.

But under the laws, he did have the right to back out of the deal if he found that taking MER would hurt the company. The MAC clause.

As he said, he was pushed into not doing that by the Federal Reserve. Read the emails before you talk.

I'm guessing Brian would rather be on the side of the Government. He must be a Government drone.

Ken lewis was stuck between a rock and a hard place.

I personally think he is doing
June 14 at 08:55 am
HS
Alex did you miss the point that the MAC claused could had been used, no matter what threats Paulson and Bernarke were making??
June 14 at 14:21 pm
John
I guess you missed this point of the article:
"If this is the case, then he cost investors the money necessary to cover the bad decisions he made so as to stay in his position as Bank of America’s CEO."
June 14 at 13:54 pm

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