Recently, 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.