It is legitimate to debate whether Bank of America did its shareholders any favors by agreeing to purchase Countrywide Bank in January of 2008 to become the nation's largest mortgage lender. What cannot be debated is that B of A's purchase of Countrywide in the middle of a collapse in the housing market was very good for the nation.
At a time when others were frightened, B of A displayed courage. It could have waited until Countrywide's condition deteriorated further and then taken it over with billions of dollars of government aid.
When the government let Lehman Brothers collapse in September of 2008, the worldwide financial markets pretty much shut down. Banks were unwilling to lend even to other banks.
Once again B of A stepped in where others feared to tread and agreed to purchase Merrill Lynch without government aid. The hysteria had reached such a feverish pitch that if B of A had not come to the rescue, a government package costing tens of billions almost certainly would have been forthcoming.
It is proper to question whether the Merrill acquisition was a good one for B of A's shareholders and whether it paid too much. But it is incontrovertible that B of A performed a huge public service.
Then Treasury Secretary Henry Paulson proclaimed at the top of his lungs in September of 2008 that we were facing financial Armageddon if Congress failed to immediately appropriate $700 billion to purchase toxic assets from financial institutions. While he succeeded in frightening Congress into appropriating the money, he also scared the wits out of consumers and businesses, and economic activity plunged worldwide.
Paulson belatedly recognized that his plan to spend $700 billion on toxic assets was a bad idea, but he needed to do something with the money he had demanded. So he summoned the CEOs of the nine largest banks, including B of A, and ordered them to accept capital infusions from the Treasury.
When some CEOs objected, they were told that participation was not voluntary.
In late 2008, B of A found the problems at Merrill Lynch were worse than expected. B of A CEO Ken Lewis told the government that it was considering aborting the deal.
Paulson responded that B of A's failure to complete the Merrill purchase would have a devastating impact on the financial system, and he threatened severe sanctions against Lewis and B of A if the deal were not completed. He also said that the Treasury would consider increasing its investment in B of A if the deal closed.
While B of A (and hundreds of other companies) wound up receiving significant taxpayer investment in its capital, it is clear that the bank preferred to do without it. It is equally clear that the bank is itching to repay, and when it does taxpayers will receive an attractive return on their investment.
I do not see a hanging offense in this picture. I see a CEO who acted boldly and thought long term and strategically instead of short term and tactically. My guess is that in a few years everyone may well see the wisdom of the Countrywide and Merrill acquisitions, despite the short-term pain they caused shareholders.
The allegations that B of A failed to adequately disclose to shareholders the year-end bonus payments to Merrill Lynch executives have become a political circus. If the disclosures were not adequate, shareholders have well-established recourse through the courts, and it is highly inappropriate for politicians to intervene in that process.
Twenty-five years ago B of A was a $16 billion North Carolina bank called NCNB. Lewis and his predecessor, Hugh McColl, turned NCNB into a $2 trillion-plus company with a dominant market share in virtually all of the fastest growing states in the country.
Lewis and McColl built a great company. It pains me to see Ken Lewis raked over the coals for political purposes when what he deserves is our gratitude for resolving two major problems he did not create.
The attacks against Lewis and his bank are symptomatic of a much larger problem. Instead of digging hard into the real causes of the financial crisis, we are looking for easy political targets.
B of A is arguably our nation's most important financial institution, and it touches the lives of most families in the country. It did not cause the financial crisis and is an important part of the solution.
