Suddenly, Superstar Ken Lewis Has a Lot to Answer For

Throughout all of the miserable year 2008, Kenneth Lewis was like Superman, bounding tall buildings, picking up catastrophic subprime lender Countrywide Financial, speeding faster than a locomotive and then snapping up Wall Street investment giant Merrill Lynch. He got federal bailout money last fall to the tune of $25 billion, but explained to Leslie Stahl on CBS's "60 Minutes" that his Bank of America didn't really need it. It was his patriotic duty.
What a guy! Or, that's what he seemed at the time. Now it turns out that Lewis ain't no Superman. In fact, he might be toast at BofA where he's been CEO since 2001.

Lo and Behold, Lewis has another bailout from the feds to the tune of $20 billion plus $118 in loan guarantees. He had said he didn't need the money, but apparently he did.

What happened? Last August and September, during all of the hyperventilating after the gravity of the financial crisis became clear, Merrill Lynch was in deep trouble due to its involvement in subprime loans and various derivatices. Superman came ot the rescue, but it appears that neither he nor his team did appropriate due diligence when BofA quickly considered a takeover of Merrill during the harried days of last Sept. 13 and 14.

Lewis won international kudos when the Merrill deal was sealed. But, as yearend approached, Merrill suddenly started looking a lot worse than earlier thought to the tune of a $21.5 billion loss. BofA shareholders approved the Merrill takeover on Dec. 5. At some point, when isn't exactly clear, Lewis met with federal bailout officials with the bad news about the upcoming loss. Left in the dark were the shareholders.

So, many are asking, what did Lewis know and when did he know it? Did he suddenly discover on Dec. 6 that the Merrill bull was really a white elephant?
Also, this raises more questions about how the Troubled Assets Relief Program, Treasury Secretary Hank Paulson's branchild, has worked or hasn't work. A Congressional subcommittee has trashed TARP for its utter lack of controls yet Paulson was certainly saying the sky was falling around September and October. In the panic, a lot of funny deals got done, such as the one between BofA and Merrill. The big question is what Barack Obama's team does.

Personal note: many months ago I was playing tennis with a friend who happened to work for BofA. He looked glum. I asked him what was wrong and he said his job had gone sour because of a lot of Jack Welch-style, Six Sygma nonsense that Lewis was thrusting down on the rank and file. "We're bankers with personal relationships, not widgets," he said. He's since moved on and is probably happier.