Tuesday, September 15, 2009

BofA, Merrill Lynch, Ken Lewis, Bernanke, Paulson et. al.- Redux

The big news out of always-litigious New York state is that gubernatorial hopeful AG Andrew Cuomo is expected to file charges against BofA CEO Ken Lewis and perhaps his CFO, Joe Price, over the tortured purchase by the ailing bank of Merrill Lynch late last year.
I wrote these two posts, here and here, earlier this year, regarding the conflicting stories emanating from former Treasury Secretary Hank Paulson, Fed Chairman Ben Bernanke, and BofA CEO Lewis.
As I reread the first post, I found myself ironically delighted that a suit may actually be brought over this issue. Reviewing my impressions of Lewis' testimony before Congress, as well as recalling Paulson's and Bernanke's later remarks, also in on Capitol Hill, I'm looking forward to seeing this whole mess hashed out in a courtroom.
Serendipitously, Judge Jed Rakoff rejected the SEC's settlement in the case, pointing out that it is patently unfair to require injured shareholders of BofA to pay a fine for said injury.
Somehow, it seems appropriate that this entire affair is barrelling toward a more formal legal event.
The nearby 2-year price chart for BofA, Chase, Wells Fargo, Citigroup and the S&P500 Index shows that the entire sector hasn't done any favors for investors lately.
As you'd expect, the worst of this sorry bunch are Citi and BofA.
BofA is off more than 50% in the past two years, which hardly constitutes effective stewardship of shareholder assets. It's too simplistic to associate all of the loss in shareholder value in late 2008 with BofA's agreement to acquire the nearly-failed brokerage firm, Merrill Lynch. Still, the bank's equity price dropped an additional 20 or so percentage points through early 2009.
Having heard Lewis, Paulson and Bernanke tiptoe around the issue of whether, and how strongly the two federal officials intimidated and coerced the bank CEO, I, for one, welcome seeing them retell their stories under oath in a courtroom.
I'm not a lawyer, so I can't cite specific laws of which any of the three may be guilty. That said, as I alluded to in my prior posts, I think it's just possible that Lewis could be found guilty of violating Sarbane-Oxley and some other SEC rules. Bernanke and Paulson could potentially be charged with perjury and conspiracy to lead Lewis to violate federal laws.
While reading Amity Schlaes' "The Forgotten Man," it has occurred to me that, just as FDR's NRA was brought low by a seemingly-minor lawsuit in New York court, so, too, could recent, bipartisan federal overreaching into the affairs of financial service companies be brought to a halt by some convictions in the BofA-Merrill matter.

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