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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.

This article is from The Wall Street Journal. Please be sure to check out the article on the WSJ.com site for any updates. This is an opinion article by Ken Lewis, CEO of Bank of America, and I think it paints a very accurate picture, one far different than what has been spewing from the politicized mainstream media. I’ll opinion on this at a later time – it’s 12:30 AM and I’m exhaust. 

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.