Under New Ownership: Bank Of America

CEO Of The Nation's Largest Bank Talks About The Treasury Department's Plans For Buying Into Financial Firms

Banks are supposed to lend money, and when they stop - as they have in recent months - the workings of our entire economy are threatened. Credit became so frozen, the government had to step in this past week and take an ownership stake in the country's biggest banks.

On Monday Treasury Secretary Henry Paulson summoned the CEOs of the nine largest banks to Washington - and gave them a massive amount of money so they would start lending again.

The largest of the banks is Bank of America (B of A) - now partly owned by the United States of America.

The head of Bank of America, Ken Lewis, says that when he and the others met at the Treasury Department, it became clear that Secretary Paulson's "offer" was an ultimatum - no negotiations.

"In other words, take it or leave it?" correspondent Lesley Stahl asked.

"Right. Right, right."

"It's said that he told the bankers and you, "This is your patriotic duty," Stahl said.

"I don't remember if he used the word, but there was an element to that," Lewis said, "that this was the right thing for the American financial system, and therefore it was the right thing for America."

"Did you feel that? Was that a persuasive line of argument?"

"Absolutely," Lewis said. "I deeply believe that. I think he was right on."

"Now explain, why was it so important to the government that everybody agreed, that the nine largest banks are ALL in this?" Stahl asked.

"If you have a bank in that group that really, really needed the capital, you don't want to expose that bank," Lewis said.

"In other words, stigmatize it."

"Right, exactly."

"So everybody knows that they're not as good as somebody else."

"Exactly."

"Most of you were just stunned by the amount of money that the government put on the table," Stahl said.

"Yeah," Lewis replied. "At least I was. And I think most everybody else was."

The total was $125 billion of taxpayers' money. Bank of America, Lewis says, didn't need the money … but got $25 billion anyway.

"Do you have any choice in this?" Stahl asked. "In other words, can you take the money and not lend?"

"We wouldn't want to do it that way, because you can make more money lending," Lewis said, "and so the intent will be to use it to grow loans and to make more net income."

But under the Treasury's plan, there's no requirement that a bank use the money to lend. It could use it to acquire weaker competitors - or put it in Treasury bills.

One of the few strings Secretary Paulson attached relates to salaries. A bank would have to pay more taxes if it paid an executive over $500,000 a year.

One of the bankers in the meeting objected, and started arguing with Paulson - and that's when Ken Lewis, a critic of excessive executive compensation, spoke up:

"I did make the point that we needed to stop talking about executive comp and get on with this because that should not stop the deal."

"Actually, you're quoted as saying, 'If this is what's going to stop this, you're out of your mind,'" Stahl said.

"I did use the phrase 'out of your mind.'"

"Because why? Because you thought if it got out publicly … ?"

"No, that the importance of this deal getting done versus these elements of executive comp were just out of sync," Lewis said. "I mean, this was so much more important. And all of us can take a little less money."

With his salary and lucrative stock and options, Lewis took home $25 million last year. But he's one of the few in the business who can be fired without a golden parachute, and he thinks executives on Wall Street have made too much money.

"I think they were overpaid,' he said. "It's more egregious in financial services than any other industry that I know of. We need to cut back compensation in this industry."

"So this is a question everybody wants answered: Is this Socialism?" Stahl asked. "Have we now taken a huge step away from the free-wheeling Capitalism that we've known for the last 30 or so years?"

"I don't know what we'll call it, but it will be different," he said. "And there will be more regulation. The Golden Era of financial services is over, in my opinion."

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