Bank of America Corporate Center - Charlotte, NC

Reading the Wall Street Journal today, an article on the 3rd page caught my eye. Apparently, Bank of America has gotten into the business of home invasions and parrot-napping (NY Daily News).

Angela Iannelli, a 46 year old from the Pittsburgh area, came home to find her door padlocked, her house ransacked, and her 11-year old parrot – Luke – missing. A Bank of America employeed royally screwed up, believed her property to be vacant (it wasn’t, nor was she behind on her payments), and sent a contractor over to install a new lock and “secure” the property. I guess in Pittsburgh, the method of securing a property is to cut the power and water, cut electrical lines inside the house, damage floors, damage furniture, pour anti-freeze into the toilets, and take animals. Maybe the contractor should be lucky it was caught after the fact, because there is a good chance that somebody might have gotten shot.

When Ms. Ianelli returned home, you can imagine what went through her mind. The biggest thing to her was that her parrot was missing. She claims to have stayed with friends until he was returned.

Bad enough that the bank goofed, even worse was the lack of response or helpfulness from the bank when she called. They denied knowing where he parrot was, then eventually was told she could drive the 80 miles to the contractor’s office and retrieve Luke herself.

Needless to say, she is suing the bank for more than $50,000, and she rightfully should. If I had been her, I would’ve wanted to make sure that I received enough to repair all of the damage, pay my lawyer, give myself a little, and, most importantly, had them wipe away my mortgage. Why? Just as we are judged by trustworthiness by the bank (i.e. credit score), we need to have trust in the bank too. Just because they hold the lien doesn’t give them to right to waltz in and out whenever they please, especially when it involves damaging the property.

The bank issued an apology this week after the lawsuit went public. Too little, too late. I’m rooting for you, Ms. Iannelli. Did I mention I have a Bank of America mortgage too?

It never hurts to add up your own numbers

It’s a good question. A couple of jobs back, I had an 401k account. They didn’t match, but they put 3% of my salary into my 401k, regardless of what I put in. So I put in 3%. As the times were good, I watched it grow. It was a measly amount, maybe $3500 at its best time. Gains were totaled in the 20% range, even after 2-3 years of not working for them anymore (no more in).

Then times weren’t so good. I dragged my feet on opening up an IRA and rolling it over, and it cost me. By the time I rolled it over, the account was worth slightly south of $2100. $1,400 hit. And these were invested into very good funds. I had a slight amount in a very aggressive fund, some in a more moderate fund, then 40% in bond and money market funds. I did the safe path, just like they tell you to do.

When I opened up my IRA, I had already gained some experience with the markets before hand. I decided to take “the risk” of using some money, particularly from overtime to start with, and buy some stock. But what to buy?! There are soooooooo many options out there, and even with screeners, you can find hundreds that fit your criteria. So I went with what I knew, and in some ways trusted my gut.

My first move was unfortunately stopped short. I had opened up an E*Trade account, and I didn’t realize the 7 business day delay before I could start buying. I had been eyeing Wachovia on Friday, it had moved into the $10 range, and I figured it was a good time to strike. Monday morning I logged on to buy, realized that it was in the 80 cent range, and went for it. 300 shares. Whoops, couldn’t buy it yet. But at least I had witnesses. The deal was appraised to roughly $1 a share, so I figured I was in the green, but figured that that price was still too low, someone else was going to make a move. By the end of the week, I was right. Wells Fargo stepped in, launching the share price north of $6. By the end of the next week, I would’ve been able to sell the stock for an over 750% increase. But at least I had some confidence.

Next move was to a couple of companies I was a bit more familiar with. Bank of America and Fluor Corporation. Bank of America had dipped to $20, but worked its way back up to $25. I bought some. Fluor was running slightly above its low at the time, and scooped up a few for $42.

I began doing some research and looked into other companies to buy. Off a hunch, I picked up some shares of VRS (my long shot honestly), and I bought into a company called the Potash Corporation of Saskatchewan. Their product, Potash, is a primary ingredient for fertilizer, and they had nearly a quarter of the global market share. They were also in the $70 range, off from highs over $250. So I bought some.

Then overtime, I built up stronger positions in these companies. While I was a tech contractor at Bank of America, I watched their share price plummet. Instead of freaking out like so many other shareholders, I used this time to build up a strong position with them (relatively. I’m a poor man, but I do own 300 shares). In fact, that is the strongest position I have. I wasn’t privy to insider information, but I was able to tell from the attitudes of the employees and managers at BoA that they weren’t going to be nationalized as the media speculated, and that they were going to end up much stronger than they started. So while all of these scared little lambs “sold sold sold,” I kept hitting the buy button. FYI, I stopped buying in mid-February due to financial trouble, but I currently have a 89.48% gain on Bank of America with my personal brokerage account. I trust my instincts. And excluding VRS, the lowest gain I have is still over a 10% gain.

So I finally opened up my IRA and rolled everything over. Time to take what I had learned, and apply it to my retirement savings. I wasn’t too thrilled about being down so much, and I was intent on formulating a plan to return that lost savings. My plan included a few details:

• A stock based mutual fund that required no more than a $1000 buy in, was down, and primarily was invested into companies I believed had the most potential.
• Stocks in sectors that had been hit hardest but I considered to be undervalued
• Included on this list, Bank of America

So while I was waiting for my rollover check to arrive from my 401k servicer, I did my homework. I did a mutual fund search on E*Trade, and quickly found what I believed to be a good fit. A fund that had been around for quite some time, was able to provide steady returns as the economy had improved over the years, had relatively low management costs included, invested heavily in corporations that I believed would recover well from the recession, and most importantly, No Load, No Fee funds. The particular fund is FMIEX, Wasatch 1st Source Income Equity.

As a side note, I was somewhat disappointed that my preferred first choice, the Columbia Value and Restructuring Fund (UMBIX) was not open to new shareholders, nor was it minimum buy in within my criteria either ($2,500 required). I had a chance to meet and talk with Dave Williams, the fund manager, while I was in Naples, Florida last year, shortly after his had completed an interview with Barron’s. I also got to meet his assistant Dana in Essex, Ct, 2 months later. Great guy, very knowledgeable, but very down to earth, and I’ve seen a number of other sources who agree to that. I didn’t even know – nor could I imagine – he ran a $9+ billion fund nor drove a Maserati until it was brought to my attention. At some point in the future I hope to get in on that fund; it has already rebounded fairly well.

So now I have FMIEX and BAC. A very kind bank employee pointed me out to another stock that fit my bill. A stock more like a fund really. CHN, China Fund, Inc. They are “a non-diversified, closed-end management investment company. The Fund’s investment objective is to achieve long-term capital appreciation through investment in the equity securities of companies engaged in a substantial amount of business in the People’s Republic of China.” China, the fastest growing economy in the world. I did a little homework and they were on the list.

So that’s what I did. Call me nutty, but 50% mutual fund, 25% BAC, and 25% CHN. If I had a financial advisor, he’d have a conniption fit. In fact, I have little to no exposure to the “safe” bond markets right now. Call me crazy, but ask me why I should. Marginal returns. Let’s bet on the safe place that everyone ran to, so I can run back into the water like everyone else, but everything is inflated again. Am I saying the bond markets are bad things? No, absolutely not. But right now, there is NOTHING there. The returns are so slim, you make more money digging through the neighbor’s couch for change. Why?

I’ve learned a lot of lessons by taking on the markets on my own. Buy what you know. Believe the cliche “when people get greedy, be fearful; when people get fearful, be greedy.” Don’t always believe the “experts.” The experts gave me a 30% loss, while my own planning and objectives have provided me a 44% gain. My first foray into the market, trusting only what I new with little planning, has given me a 67% gain. My only regret is not having enough money to buy what I wanted. After I learned a bit I started paying attention to more stocks, bought them in my mock portfolio, and it is up over 130% right now.

These times aren’t normal, so why attack them with normal strategy. Yet that is what far too many financial advisers have done throughout the entire recession. And a lot of people have lost a lot on money on the faith of these men. It’s easy to make returns when the market is going up. But when everything is going to hell in a hand basket, you need to think your plan through.

I hope this inspires a tad bit of confidence for those straddling the fence, waiting to jump into the water. If you wait to jump in until everyone else does, you might miss what you truly seek. I’m better for putting myself in charge of what my money does. I’ve learned valuable lessons, and I’ve also been able to develop my own plan for future investments, not based off of what some guy in a suit tells me, but from what I’ve learn from my own successes and mistakes, but also from others. So just remember, it is your money, who do you want to trust with me?

Ken Lewis, CEO of Bank of America

Read an interesting article on the Dow Jones Newswire today. Of all of the criticism that Ken Lewis, CEO and former Chairman of the Board at Bank of America, has received, he got a bit of praise from an unexpected source: Barney Frank. Rep Frank commended Ken Lewis’ bold move to forge ahead with Merrill Lynch, and in doing so saving the markets from another fatal blow.

 

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said Lewis needs to get credit for acting in the broader public interest by going through with the deal.

“People say ‘What’s the matter with these financial executives? Why are they only thinking of their own narrow interest? What about the public interest?’” Frank said. “That’s what Ken did. It ought to be acknowledged.”

 

Now the shareholders seem to have a different thought, being upset that the public interest prevailed over the interest of the shareholders. Yet as a shareholder, you should also recognize that the public interest is YOUR interest too. And if we want to get technical, the people of the United States, by proxy of the United States Government, have a vested interest as well.

Unfortunately, shareholders look at the world via tunnel vision. Sure, they realize that things are happening, but their only concerns are their shares. I can understand that, I am defensive over my money too. While it is understandable, sometimes we need to take a step back and look at the larger picture. Merrill was perilously close to failing, and probably would’ve declared bankruptcy at the same time as Lehman Brothers. Lehman dying was bad enough, imagine the shockwave of Merrill went too. I highly doubt that the pain would’ve only been doubled; instead, I think we would be looking at EXPONENTIALLY worse issues. In other words, not an outcome we wanted to consider. To oversimplify it, things would’ve gotten much worse for all players involved.

But what would’ve happened if the Merrill deal wasn’t approved? Merrill, just reeling off of its $15 billion loss, would’ve been toast. Since September, Merrill was on life support, and if the bank had pulled the plug, I fear the markets would’ve gone into another painfully fast spiral. Bank of America would’ve been hurt too in the process, so don’t believe otherwise.

Instead, Ken Lewis and upper management did some questionable things, but ensured the deal went through. A large portion of Bank of America’s 1st quarter profits are a direct result of Merrill Lynch, and as the transition and cost cutting measures continue, I believe we will quickly see even more gains related to Merrill. Ken Lewis helped to avoid further disruptions in the market by snatching up Merrill, and provided the best value for the shareholders by getting Merrill before its reputation was marred with bankruptcy. You don’t hear the names Lehman Brothers or Bear Sterns doing business anymore, because those names are worthless. Merrill Lynch does have a longstanding reputation and incredible brand recognition, which is going to prove to be additional value down the road.

I was reading my latest issue of Conde Nast Portfolio, and in it they had a list of the Best 20 and Worst 20 CEO’s of all-time. Names like Henry Ford, Lee Iacocca, Warren Buffett, Steve Jobs, Bill Gates, John D. Rockafella, and Andrew Carnegie fit in the best, while names like Fuld (former CEO of Lehman), Lay (former CEO of Enron), and Pandit (CEO, Citigroup) filled up the worst 20. So what defined a great CEO over an average one? Most were defined by their innovations, but many were defined by their ability to make tough choices regardless of criticism during difficult times. Its easy to make decisions when things are going good. But when the economy is crumbling all around, and everyone is looking for a decision to be made, those who made those tough decisions and made them work, those were the guys who earned their right to be called a best CEO. I think Ken Lewis has done an outstanding job leading Bank of America, especially during these murky times. Only time will prove this, but I honestly believe that he has equipped the shareholders with the best tools to get through this recession, and to emerge a much more powerful, and valuable, investment on the other side.

Bank of America CEO Ken Lewis has resigned from Chairman of the Board of Directors. He was replace by Dr. Walter E. Massey, an independent board member

That’s right. SEIU won this battle against the board, by getting this proposal through with right at 50.34% of the vote. The recount makes absolute sense now, given the .6% difference. But wow, I honestly didn’t think it would make it. I figured it would be close, but, wow. Coincidentally, this is the first time the by-laws of an S&P 500 company has ever been amended through a proxy vote.

The good news is that the entire board was re-elected by a comfortable margin, according to the PR Newswire. Lewis is still the Chief Executive Officer, and given that everything else went through, there shouldn’t be too much disruption in the leadership of the bank. Dr. Walter E. Massey has now replaced Lewis as the Chairman.

Why am I so concerned about this? I mentioned earlier that I had points I wanted to address but wasn’t able too. Well, here’s my points:

• As was pointed out during the meeting, “you don’t change captains in the middle of a hurricane or a tornado, and right now we are in a hurricane and a tornado.”
• Beyond the current economic crisis, Bank of America is in the midst of two major transition projects. Countrywide, which is winding down some, and Merrill Lynch, which is just kicking off
• Bank of America, under Ken Lewis, has a strong history of successful integrations of acquired companies into the format of Bank of America. This is achieved by stable senior management, identifying key factors, and ensuring their respective teams are on the mark
• Merrill Lynch is a massive acquisition and requires an all out effort to be realized fully. The success of this project is directly linked with stable leadership.
• Ken Lewis and his team have earned a great deal of respect from a majority of the employees of Bank of America (at least from what I have witnessed from across the country, meeting bank associates in 10 different states, at about 40 or more different sites)
• Disrupting senior management at this time would be a poorly calculated move. We risk devaluing our shares off of a purely emotional move.
• As for the accusations of not looking out for the shareholders, until all of the facts are fully known, we cannot make a sound decision regarding those actions. Nothing is cut and dry, and this is America. Innocent until proven guilty.

What it all boils down to is that the last thing we need to do at this particular moment is to shake things up to the point that we inadvertently hurt ourselves. There is a time and a place for this, and while the shareholder meeting might be the right place, the timing is too soon. We, at a minimum, need to ensure that we can fully realize the potential of Merrill Lynch before we make rash decisions. Ken Lewis has a proven track record of making these acquisitions work, which says a lot about him and his team. These transitions are extremely complicated and time-consuming. Transitions were my favorite projects by the way, the only true challenges I ever saw on the job. I worked on the Print Optimization project for the US Trust transition (which after 6 years of so, Charles Schwabb STILL couldn’t integrate properly), and trained technicians in Chicago for BAND refresh (hardware upgrade) at the LaSalle bank transition. I’ve seen this stuff in action.

Irregardless of my personal experiences, it is well proven that these things are difficult to do, and even more difficult to do right. The current leadership of Bank of America has excelled in the category, and at the current moment, this is the talents we need on board. So we need a wait at least until next year, or the year after that, before we even begin to consider forcing Lewis out. Why cut off your nose to spite your face?

As a footnote, for the record, I am a strong supporter of Ken Lewis. He may not be perfect, but he’s a damn good CEO, and in the world of the biggest banks, BofA may have the highest standards of ethical and moral practices out there. Not saying I agree with everything, but given a corporation with the size and scope of this place, few can compare. Ken Lewis does have a drive to do the right thing, which is why I think he pushed ahead with Merrill. Had Merrill been left hanging in December, the shockwaves through the system would have been tremendous, and may have claimed even more casualties along the way. If the shareholders of the bank have a problem with putting our neck out there to protect all parties involved, then they may need to begin to question their own American spirit. Could the whole thing have been handled better? Probably. Should Ken Lewis has reported the larger than expected losses? Probably. Do I regret BofA buying Merrill? Absolutely not. In the long run, we the shareholders will have a lot to gain through the additional revenue generation of Merrill Lynch. Not to mention the pride and respect for being able to take on the risk to save everyone’s asses.

I guess I do have one other final thought. Some of the individuals who spoke, especially the olders one who were complaining, because it was affecting their retirement. Maybe next time they should read the damned disclosures, and maybe pay attention to the single most common piece of advice about saving for retirement. The older you get, the further away from equities you should be. If you’ve lost $75,000 in retirement because of Bank of America, and you are old enough to be able time to retire (or already retired), then you’ve got WAY too much money tied up in equities. Way too much. So stop your bitching because you refused to read basic, sound advice, don’t bitch because you refused to read a word on the disclosure statements, letting you know the risks of owning equities, that all they can show you is past performance, which does NOT guarantee future performance in any way, shape, or form.

Bank of America Corporate Center - Charlotte, nc

I just got back from the 2009 annual Bank of America shareholder meeting, which started at 10AM at the Belk Theater, adjacent to the Bank of America Corporate Center. After some confusion as to which line was which (me and several other shareholders ended up standing in line with associates), the theater was full to the brim, and it was standing room only outside of it, watching the meeting live on TV.

Right at the end of the 3 board proposals, I managed to get in on the balcony. What a show it was. The speakers were extremely diversified, ranging from pension fund managers, risk analysts, the head of habitat for humanity and the united way, a retired fish peddler, an incoherently slow woman, a 90+ year old man, and the battle between two older Jewish women: one rich, one not. Needless to say, the reactions were diversified as well. Some were accusatory, some quoted Thomas Jefferson (more on that one in a minute), a modified biblical verse, to praise and adulation for the Chief Exec and Chairman.

Let me begin with some of the harsher remarks. At some point, a representative of probably a Georgian aristocrat (who else sends personal representatives?) spoke, addressing with the words and language of Thomas Jefferson. He equated the banks with aristocratic control, with power being in the hands of but a few. Unfortunately, as much of a fan of Jefferson that I am, these comments were well out of place. As another speaker mentioned, Hamilton or Lincoln would be more relevant. Plus I found the whole think a hypocrisy, given the man sent his own personal representative, and it was written and presented with an air of snobbishness.

Then there was our favorite not so rich Jewish lady. More than one person in that audience was ready to disconnect her mike. She would go on and on, go off topic, ask the same questions repeatable, make arguments with false information, etc. She was wearing a shirt that said “Fire them all!!! Kenneth Lewis & the board of directors!!!” She even brought a small sign that read “FIRE LEWIS!!! FIRE THE BOARD OF DIRECTORS!!!” Every single person in that audience was fed up with her, and she was the only one in the entire event (that I noticed) had even been interrupted.

One of the more aggravating shareholders to speak. I'm all for free speech, but can someone get her some thorazine? Even the Lewis opponents were moaning

To diverge on this lady for a second, I just figured I;d throw in one of Lewis’ responses. She was misreading the proxy statement, accusing Mr. Lewis of lying about his executive compensation. Lewis has a base salary of $1.5 million, plus any bonuses and options he is entitled to. Last year he received $0 compensation beyond his salary. Yet she saw 2008 and $10 million, and went into a fire and brimstone accusation process. Finally after sitting down, THEN coming back up again on the same point, he managed to get her to understand. Then she said he should go ahead and donate it all to charity, but he was too cheap to do that. That’s when he came back “Because of my pledges, I am already donating more than I am made.” +1 for Lewis, -1 for the old lady. The crowd cheered.

Yet others were not so tough on him. Some who wanted him out were still thankful for his years of service to the bank and praised him on the assets and talents he brought to Bank of America, although the believe his time has passed. Then there were a number of supports, including one man who told Mr. Lewis to “look behind you, we are all standing there.” Another gentleman asked him to keep standing there amid all of the criticism and attacks, because we need him to lead us out.

The reoccurring theme amongst supporters were the need to maintain leadership during this storm. As one lady, MRS. Davis, an affluent old Jewish lady who told it like it was (and was extremely funny), reminded us that when a ship faces a hurricane or a tornado, it is not the time to ditch the captain, and right now we are facing BOTH a hurricane and a tornado. A little unusual, but still very effective.

I wish I had managed to make it inside in time to speak about the re-election of the board. I have a number of points that I wanted to convey, points that I will post about a little bit later this evening.

Unfortunately, the votes were not totaled by the time I left. Mr. Lewis asked for the results, but was informed that they were still being tallied up. There were rumors floating about Sloan being ousted, and Lewis stripped of his Chairman titled. As of the latest reports, it appears the board may be safe, but they are recounting the votes for Lewis. Too close to call. It doesn’t surprise me, given the LARGE number of people there, and the mixture of attendees.

Once I hear word, I’ll keep you posted.

Update: Please check out these videos for some takes on the meeting

Protestors call for Lewis to be fired - notice the first lady they speak with, this was the one mentioned earlier, and was truely a pain to listen too. Upset, but rarely had any facts together

BofA delays release of votes on Lewis

Quick apology: this article would have been posted much sooner, but due to technical difficulties beyond my control (batteries died in wireless keyboard), I was unable to finish until now.

The Belk Theatre, adjacent to the BofA Corporate Center, and location of the 2009 shareholder's meeting on April 29th, 2009

I have elected to vote my shares in-person this year at the Bank of America shareholder meeting this Wednesday. I have already voted the bulk of my shares, and needless to say, the dissident holders won’t like me. Either way, nothing like free tickets to a suit-and-tie cage fight between Finger and others against Ken Lewis and the board.

I’m not inclined to agree with their arguments that Ken Lewis didn’t do his job by protecting the shareholders. I think he provided them far more protection than they want, plus a long value gem in Merrill Lynch.

With the upper echelons of the money side of the government stomping on his feet, many claim he was only protecting himself and the jobs of the board members. But consider this. Had Paulson and Bernanke done what they claimed they were going to do, what was not to say that they could have used that position to tear apart the bank at the expense of the shareholders. Plus if they had done that, the bank stock would’ve plummeted anyway.

If Merrill had not been purchased, consider what effects that would’ve had on the economy, especially the banking system. When Lehman and Bear died, panicked investors rushed out to sell who they thought was the next to go. Although BoA may not have felt the worst of that pain, the banking sector, and potentially other markets, would’ve crashed. We have not seen another major bank outright fail since WaMu, and if my memory serves me correctly, Wachovia was the closest we came after that. If BoA backed out of Merrill there in December, the nasty cycle would’ve been unleashed again. Who in the hell would want to buy Merrill when one of the largest banks, that is still relatively healthy, doesn’t want it.

Finally, BoA got some long term value out of that acquisition, but the only way we are going to be able to extract that is via a smooth transition. I can vouch first hand for the abilities of BoA to make solid transitions, after being a part of two of them myself (US Trust and LaSalle bank). You can knit-pick micro issues at the execution phase, but overall they do a tremendous job of eliminating overlap, streamlining systems, integrating products, etc. into the new combined units. Countrywide, which I wasn’t a part of, has been a tremendous success, especially with the current refinance market. Many chastised Lewis for this deal too, but it is already paying its dividends, albeit to the government.

Pulling out Lewis and the other senior management at this time would be a grave mistake on the part of these shareholders. If they want to extract the most value of their ownership, then don’t pull away the leaders during mid-transition. Believe it or not, Lewis has earned a tremendous amount of respect within the bank itself. Many employees, many of whom are also shareholders, have an understanding of why they stuck to the deal, and this was even before anything came out about it (many theorized it, based upon the morals of Mr. Lewis).

And I guess, finally, I’m tired of hearing about Lewis being chastised for being an outstanding corporate citizen. By sticking with the deal with his feet pinned, he did a great deal to help our economy out, and in the end, provide a good day for many of the investors such as myself who found new opportunity to own some equity of BoA. This is an outstanding corporation that will continue to churn out profits for many more years to come.

So for all of you BoA shareholders out there, vote against these dissident views. They are held by frantic tunnel-visioned companies, activists by their own name, yet history proves that activist investors are rarely the people we need making decisions.

Quick screen shot of BAC this evening.. Feel the momentum?

Wow, you know, there are some days that the street can put you in a GREAT mood. Right now my aggressive buying of certain financials during it’s move into the pit are showing great promise. In fact, my financials alone are strong enough to overcome my modest losses and other sectors. My IRA is in the green for the first time since I started it (after my 401k lost 30%+ on the poor management of the funds).

So is this just another short term rally or a sustainable move? Well, we’ve been creeping up now for about a week. The fed’s aggressive purchasing of more securitized debt has definitely helped. The news that Citi and BoA, which some had considered good as dead, may actually post a profit for Q1 helps. Plus BoA’s news that it intends on paying off it’s TARP obligations by the end of 2009 or beginning of 2010 doesn’t hurt either. Seems opposite for a company in supposed dire straights. If it all pans out, amazing how I’ve been saying it all along. If you don’t believe me, just read through the posts. I’ve been buying up BoA like it’s candy when it was sub-$4. My only regret? I didn’t have enough money to buy as much as I wanted (like a few thousand shares). Average price for my BoA? $6.04, buying since it was $25 on south. it closed at $7.67 and is at $7.85 in after-hours trading.

So to those guys trying to get Lewis ousted: stick to what you know. You don’t run banks, you run funds, and there is a large gap. This man is large and in charge (ironic he’s short), and he’s the bank’s best bet to recovering and being a full force.

I also heard some disturbing news last night regarding the banks. Some in Congress are wanting to blame lack of proper anti-trust regulation as the cause of the recession. Hogwash. They also want to consider forcing some of the larger banks to break up. Honestly, this is horrible stuff. Their supporting evidence is flimsy at best. They have seen only what they want to see, and ignore the rest of the wide world.

And finally, an analyst on CNN I can agree with. I don’t remember who it was – I saw it eating a quick bite before evening Physics Lab – but someone they were speaking to on The Situation Room was fearful of the plan of the special tax on AIG bonuses. He agreed that they are trying to make up for the fact they dropped the ball the first time around by abusing their legislative abilities. When a government decides it wants to arbitrarily tax those it wishes because they don’t like what they are getting, that is when we need to be fearful people.

For a quick laugh though, an iReporter jokingly went with the whole pitchforks ready to to mob against AIG because of the bonuses. I’ll see if I can grab the video somewhere.

Bank of America CEO Ken Lewis

Nationalization would undermine confidence in the financial system.

By Kenneth D. Lewis

The Wall Street Journal

(Copyright (c) 2009, Dow Jones & Company, Inc.)  

The story of our economic crisis mirrors every great market bubble in history. Clearly, banks were key participants, but they were not alone. Mortgage lenders, borrowers, regulators, policy makers, appraisers, rating agencies, investors and investment bankers all played a role in pushing economic excesses forward. The institutions that gave in completely to the frenzy are no longer with us. Those that balanced the need to compete with the need to lend prudently survive today and are helping to stabilize the system.

Amid the turmoil, it has become clear that banks need to make changes in the way they run their business, from risk management to expense control to compensation practices. Most banks are making these changes in a good-faith effort to adjust to new economic realities.

And what role should government play in this? Speculation is rife about whether banks need more capital assistance from the government or whether they need to be nationalized. Unfortunately, our current debate has been riddled with misinformation that will not help us understand our current reality, or help us decide on a sensible path forward.

I would like to provide some clarity on a few key claims that have been repeated so often they are now taken to be fact. They are not.

• The banks aren’t lending. This claim is simply not true. Yes, banks have tightened lending standards after a period in which standards were too lax. But, according to Federal Reserve data, bank credit has actually increased over the course of this recession, and business lending is trending up modestly so far in 2009. Also, mortgage finance volume is booming as a result of low interest rates. What’s gone from the system is the easy credit that got us into this mess, as unregulated nonbank lenders have disappeared, and the market for many asset-backed securities has all but dried up. Most banks are making as many loans as we responsibly can, given the recessionary environment.
• The banks are insolvent. In the past 18 months, we’ve seen fewer than 50 bank failures. That compares to about 2,000 failures or closings of commercial banks or savings institutions between 1986 and 1991. There may be more to come, but the vast majority of banks will weather this economic storm.
• The Troubled Asset Relief Program (TARP) hasn’t worked. Not true. Last October, when the TARP was enacted, systemic risk threatened our entire financial system and economy. The point of the program was to stabilize surviving banks, prevent a total meltdown, and enable banks to lend more. The TARP and other government programs have worked, and banks are making more loans as a result.
• Taxpayers have given the banks billions and won’t get their money back. TARP funds are not charity. Banks that received TARP funds will make about $13 billion in dividend payments to the U.S. Treasury this year. TARP funds are loans yielding anywhere from 5% to 8% interest. This is a win-win: Banks are getting the capital they need, and taxpayers are getting a strong return on their investment.
• The banks that caused this mess must be held accountable. In fact, while all banks participated in the bubble economy to some degree, the companies that did the most to cause this mess are gone. The managers and shareholders of those institutions have been held accountable by the toughest, most unforgiving master of all: the free market.
• The only way to fix the banks is to nationalize them. This is a misguided premise. The announcement of nationalization would undermine confidence in the financial system and send shudders through the investment community. Politicizing lending decisions and the credit allocation process would be destructive for the economy. Nationalization also would give the false impression that all banks are insolvent. We agree with Federal Reserve Chairman Ben Bernanke’s statement that nationalization of banks is not necessary to stabilize the banking system.

Getting our facts straight as we debate the important issues will help us rebuild a healthy financial services sector that can better support economic growth. I have two thoughts to help us get started.

First, our industry must continue to work in partnership with the government to solve our toughest problems. Congress and the administration have already taken several very positive steps. The Fed is providing sufficient liquidity and has helped lower mortgage rates. The $787 billion stimulus package will help boost economic activity. The Term Asset-Backed Securities Loan Facility (TALF) will help liquefy the credit markets. And the administration’s housing and foreclosure relief plan will be very helpful to both homeowners and banks as we work to stabilize housing markets across the country.

Second, one of our greatest challenges is balancing the need to extend credit with the need of households to pay down excessive debt. In an economy that became too dependent on debt-driven consumption to create growth, the prospect of household deleveraging is sobering. The answer, in my view, is to let competitive forces lead us back to responsible lending practices, not the type of indiscriminate lending that has created so many problems.

Dow Jones closed at 6594, a territory uncharted since 1997

Nasdaq on 6 year lows. Dow and S&P 500 taking out new 12 year lows. You know, it reminds me of another process of bleeding that’s anatomical in nature. “If it bleeds for 7 days and doesn’t die, don’t trust it.” So now here we are, with nobody trusting it, forcing it to die.

Citigroup managed to set an all time low at $0.97 a share (it closed at $1.02). I like values, and to think of a company size and breadth of Citi at under a dollar, you wonder if they are really that bad. I didn’t buy, so you can see where I stand. Some risks are just too risky.

Bank of America got beat up again as well, thankfully not to it’s 25 year low that was set a few weeks. But with the way the market has been slipping since mid-week, you never know. My finger has been playing with buy, but I think it’ll still move down more.

And a coalition of pension fund managers are crying for Lewis to be canned. Honestly, I’ve never had much for activist funds, trying to make their breed of changes on management. Maybe these guys would be better served by running after the hedge funds that have been a large part of the sinking stock price. Or maybe we need to look around and see everyone’s stocks are well down for the year, even the banks who are in decent positions. I’m not even going to get started on these guys, but I will be voting for Ken Lewis for CEO when the time comes. It’s at lost easier for fund managers to sit there and complain, given they don’t have to make the individual day to day decisions of running the companies they own.

GM was also another sore spot today.  It’s saying it needs more federal money, and that it is considering chapter 11. I think someone needs to come to grips with reality in GM. They obviously have done a piss poor job deciding how much they need to stay afloat. They seriously need to get a group of guys together, determine worst case scenarios, evaluate the risks of various positions, then come up with an actual amount. Although their step by step approach reduces the risk to the taxpayers, every time GM hits its “dire straights” again, the stock value plunges and takes the market with it. That’s the sign of an key national industry, when it can move a national market.

What have we learned from this week? We don’t know where the bottom is, and we can’t until we are able to look back. Bad news sells, and bad news is abound, so we are going to see the stocks get beat up. Once again, far too many undisciplined investors and greedy hedges funds, who either sell in fright or profit on short. The economy is bad enough, but it will only get worse while we allow these morons to keep it down.

For more information on the dismal performance of March 5th, 2009, you can check out these articles on CNNMoney and Yahoo! Finance.

AIG Headquarters

AIG, the largest crook, eh, insurance company around, has accepted another $30 billion from the U.S. Government. If we think Citi and Bank of America are in dire straights, consider this: If you combine the amounts the largest 12 US Banks received in TARP funds, you would still be nearly $6 billion short of the AIG bailout. Thats right, Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, PNC Financial, US Bancorp, Bank of New York Mellon, Suntrust Bank, State Street Bank, Capital One, BB&T, and Regions Financial has received a whooping total of $174.3 billion, as compared to AIG’s $180 billion. Plus the US Government will be taking risky securities from them as well. Us taxpayers will also be taking over partial control of a few business units that AIG has been trying to sell but has come up short.

People scream and complain all day, because the thought of Bank of America receiving $45,000,000,000 (yes, that’s 9 zeros) is mind boggling. Maybe we don’t want to sit down and think about how big $180,000,000,000 really is. There are countries that don’t even have a GDP that high. In fact, there are a LOT of countries with a GDP lower than $180 billion. Yet here we go, giving away medium developing countries to an insurance agent, who should be a master of risk management even more so than a bank, who took on ungodly risks and is paying the piper for it. Their company’s credit rating is being considered for downgrade to junk, which is why the government stepped in again. If it gets downgraded, clauses in insurance contracts will allow customers to close their policy.

Maybe we need to let AIG fail. Not quickly and painfully, since it’s span is webbed throughout the world, and could cause serious withdrawels in places like Japan, China, Hong Kong, among other places.  We need to let it fail gracefully, selling off its pieces as we go along.

How can I say this? Even though I support the bailout and government intervention in times of need, I still believe it goes slap against the core of what a government really is supposed to do. That is to provide infrastructure, emergency services, education. Enticing businesses to come and and stirring up economic activity is of intrinsic interest, but not the first priority (though it is needed for the 1st). AIG is a company that is supposedly too big to fail. Yet if it’s credit ratings drop, customers move elsewhere, investors move elsewhere. While AIG would shrink, it’s competitors would grow. At some point the cost has to outweigh the risk, so is the risk worth at least $180 billion? I dunno, but I think at some point we’re going to find out. That is a tremendous investment, seeing as how most companies in the U.S. have never earned that much money.

Honestly, at this point I’m feeling taken by AIG.  Citigroup is getting to me too, with their 36% move, which unless they get up to like, say $30 a share or so (rough estimate), we the taxpayers are getting a really big short end. At least Bank of America has been repaying their interest to the government, so I can tolerate that $45 billion.

Too many things are still uncertain, but I do think that we are going to see some bad things happen or nearly happen to Citi and AIG this year. Just an opinion. Think differently, then put it out there.