So It's Shareholders First, Then Country?

This article appears in the May issue of American Banker Magazine.

My daughter is at that hilarious stage where she's applying grownup vocabulary words to her world as a first-grader. Want some chicken fingers for lunch? Mom, technically ("teck-nick-ully," she says it) these are not actually chicken fingers.

I guess her language has rubbed off on me, because I find myself using similar qualifiers to describe how I feel about the recent news from the New York attorney general's office regarding former Bank of America CEO Ken Lewis. You may have heard, Lewis was docked $10 million in March for failing to tell shareholders about the losses that were piling up at Merrill Lynch in late 2008 as BofA prepared to buy the business. BofA, which is covering Lewis' settlement payment, is kicking in an additional $15 million in fines on its own behalf.

As a law-abiding citizen and fervent fan of transparency and free markets, I agree that technically, Lewis neglected to disclose material information about his company. Obviously if he was concerned enough about the Merrill losses to be getting cold feet, then his investors would have wanted to know about the losses as well. And clearly, turning a blind eye to his handling of the situation would have set a bad precedent.

But I find myself feeling sorry for Lewis. (I know, I never thought I would say that about a retired gazillionaire either.) The truth is, I'd been feeling a certain amount of sympathy toward him since mid-2009, when I first read his testimony in the case. The information he gave under oath strongly suggests that he was pressured by powerful federal officials, during a very confusing time, to swallow his buyer's remorse and get the deal done at all costs, at the terms his firm already had agreed to.

Did then-Treasury Secretary Hank Paulson and the Federal Reserve's then-Chairman Ben Bernanke actually instruct Lewis to violate securities laws for the sake of getting the merger to go through? Unlikely. But let's not forget, these were men who, in what was a scary period for the country, would say things like, "[W]e may not have an economy on Monday." The stakes were apparent. If the Merrill deal unraveled, the firm might go the way of Lehman Brothers and the dominoes would begin falling over once again.

What to do, then, about the CEO who, grudgingly or not, ensured there would be no repeat of September 2008's chaos? I'm not suggesting a ticker-tape parade. But it feels a little ridiculous to be treating him like a criminal.

The ambivalence that the attorney general's office has shown in the settlement only raises my suspicions about it. New York Attorney General Eric Schneiderman, who inherited the investigation from his predecessor, Andrew Cuomo, crows in the news release announcing the settlement that since taking office, he's "acted on the belief that no one, no matter how rich or powerful, should escape accountability for their actions." But if you're really seeking accountability, and conflating the Merrill disclosure affair with "frauds that occurred in and around the financial crisis," shouldn't the penalties you extract actually mean something?

Instead, we get a fine that doesn't even have to be paid by Lewis himself, and a three-year ban on public company board service for a 67-year-old guy who quit work four and a half years ago and was so checked out by then that he'd grown a beard. Given the apparent difficulty in prosecuting the rampant unscrupulousness that actually caused the financial crisis, perhaps this is the best the government can come up with to feed the public's appetite for a hanging.

Heather Landy
Editor in Chief
heather.landy@sourcemedia.com