It was a surprise when Ken Lewis, the CEO of Bank of America (BAC), finally resigned. Neither shame nor pressure could move him out of his corner office. He was replaced as the bank’s chairman and the government replaced a number of his board members, and even those rebukes were not sufficient to embarrass him enough to leave with grace.
Lewis became the Richard Nixon of the credit crisis. In the eyes of the public he would lie or cheat whenever necessary to defend his legacy and burnish his image. Many people thought he lied about what he knew regarding bonuses paid to Merrill Lynch employees at the end of last year and about when he knew that Merrill had booked huge losses for the fourth quarter. He and former Merrill CEO John Thain played liar’s poker over who was least at fault. Now that the SEC will have to present much of what actually happened in federal court, the public may find out how so much important information could have been hidden. Lewis could still end up being charged with concealing material information or fraud. The public wants to see someone hung for the collapse of Wall St.
Former AIG (AIG) chief Hank Greenberg dodged that by blaming Eliot Spitzer for being overzealous, as a prosecutor at least, and then settling with the government for millions of dollars. Chuck Prince was able to leave Citigroup (C) before he was crushed by the rubble. Richard Fuld retreated into the woods of Idaho where he lives in a compound undoubtedly guarded by dogs and security personnel to keep out angry shareholders who lost their fortunes when Lehman collapsed.
Lewis stayed in the public eye and in his job longer than any of them. In the process he became the most hated man in the financial world, hated by the press and by investors who could not fathom the complex reasons for the credit meltdown. They needed a villain, and Lewis was their man. It is unbelievable that he was able to take the beating so long, but it was too important to him to fly on the company jet and see his name in the newspaper. Financial historians are likely to recall him as an arrogant bumbler who thought so highly of his management skill that he was willing to take on the combined weight of two of the most broken bank institutions in American history—Merrill Lynch and Countrywide, which was run by Angelo Mozilo who was himself eventually charged with securities fraud.
The reaction to Lewis’s departure was muted. B of A’s stock barely moved. Whatever Lewis had done to damage the company was done some time ago. It will now go through a longer period of recovery which could still be pushed off track if the economy flags again. Lewis may end of being deposed for the rest of his natural life for what he did at B of A, but he won’t have to spend any more hours as CEO giving out excuses for the failure of his strategies to make it into the largest bank in America.
Lewis must have broken out into a profuse sweat when a federal judge in Manhattan did not approve a bargain between the SEC and the bank that would have only cost B of A $33 million to walk away from charges that certain of the statements in its proxy involving the Merrill deal were less than accurate. The SEC, humiliated by the incident, will spend millions of dollars and thousands of man hours breaking the executives and lawyers who wrote and approved the proxy. The line probably goes all the way up to Lewis, and keeping his job finally became untenable.
There is a small minority of Wall St. historians who believe that Lewis will eventually be viewed as a hero. When the government was in trouble and needed to find homes quickly for Countrywide and Merrill, Lewis stepped up and took them over for the good of the country. Henry Paulson and Ben Bernanke may have put relentless pressure on Lewis to complete the Merrill transaction once it occurred to the B of A chief that it would be his Waterloo. It was too late. The government was not going to let him give Merrill back to its shareholders and then watch it crumble to pieces the way that Lehman had. Lewis apologists will say that he prevented the Lehman catastrophe from happening a second time. In his memoirs, Paulson is likely to write that Lewis buckled under pressure when it became clear that his job as CEO was on the line.
Nixon once said that “if the president does it, it can’t be illegal.” Lewis thought that applied to the head of a bank that got $45 billion in loans from the taxpayers along with guarantees for $118 billion in potential losses on toxic paper that B of A put on its books on Lewis’s watch.
The fact of the matter is that the press and the public will miss Lewis. He won’t be here to be kicked anymore. There will be one less villain on Wall St., perhaps the last real one.
Douglas A. McIntyre
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