Lewis, McColl and Storrs Drinking Their Own Cool-Aid in Defending Merrill and Countrywide Deals

Bank of America CEO Ken Lewis says that Merrill Lynch and Countrywide are things of beauty and that they will become major profit centers over the next year. Ex BofA CEOs Hugh McColl and Thomas Storrs defend the acquisition. I prefer the market verdict - over $40 billion in government funds and a stock price of $4.

The spin machines are out to try and save Bank of America and Ken Lewis's job.   

Bank of America CEO Ken Lewis said today in a Bloomberg TV interview that Merrill Lynch and Countrywide are "things of beauty" and that they will become major profit centers over the next year.  Of course, that's after the government had to pump in over $40 billion to rescue the bank.

He went on to add that "“Everything we thought is playing out” with the Merrill purchase, Lewis said. Industry statistics show the company is gaining market share against Wall Street rivals, he said.

And in an editorial in the Charolotte Observer, former BofA CEOs Hugh McColl and Thomas Storrs also defended the acquisitions, saying:

"The Observer criticized Lewis for taking a risk in acquiring Merrill Lynch. CEOs get paid to make big decisions, and public criticism comes with the territory. But Lewis also tried to kill the deal in December as Merrill's losses ballooned. Our sense is that the government pressured management to  

They sense the goverment pressured Lewis?  Did the government pressure Lewis to make an offer everyone, even the writers on this site knew was bad?  At the time I defended the deal, believing that Lewis had a real strategy or knew something we didn't.  I was wrong and admit my mistake.  Plus, it's been noted that Merrill's condition did not materially change between when he made his offer and when the deal closed.  So why did Lewis suddenly get cold feet?

They go on to say:

"Lewis' decision to acquire Countrywide has put Bank of America in a unique position to take advantage of one of the few bright spots in the entire industry right now: the surging market for mortgage financing that is being fed by extremely low interest rates."

Ah, yeah.  I guess Bank of America stock down at $4 and $.01/share dividend payout the acquisitions were good buys.  I guess the fact that the company was forced to accept a huge government bailout means that these were sound financial decisions.  After all, if you swallow a whole chicken and choke on the bones, who cares?  That chicken will sure taste good once it gets down, if you're not already dead. 

And let's look at the future prospects of the companies Mr. Lewis purchased.  Countrywide is still sitting on a pile of toxic assets that are getting more toxic every hour.  We learned today that housing prices dropped 14.8% compared to a year ago, the second largest drop on record.  Sales dropped 5.3% to a 12-year low.  Slow sales, no equity in their houses - where's the booming mortgage business that will support Countrywide earnings and stem the flow of delinquint loans?

What about Merrill?  The company grew fat taking enormous risk, trading, securitizing all kinds of financial products, etc.  That's all gone.  The brokerage business remains but does anyone believe that equities are going to be a growing business over the next ten years?  Will you listen to your Merrill broker who put you in stocks that have lost 50% of their value?  I guess they'll switch to selling bonds but the big money isn't there.

I had friends who worked at Bank of America and the bank was run by the numbers.  If you didn't hit your numbers, your future was bleak.  I admired that in the company.  Hold people responsible if they don't deliver.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • AGF

    February 26, 2009

    Lewis is like my ex-wife. He does all sorts of crazy things and then tries to explain them away instead of apologizing.

  • Scotto

    February 26, 2009

    It is Kool-Aid, not Cool-Aid.

  • Sam Cass

    February 26, 2009

    Thanks Scotto. I should have remembered that.

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