By IEVA M. AUGSTUMS and STEPHEN BERNARD, AP Business Writers Ieva M. Augstums And Stephen Bernard, Ap Business Writers – 29 mins ago
CHARLOTTE, N.C. – New York's attorney general said Thursday government officials pressured Bank of America Corp. CEO Ken Lewis to complete the bank's purchase of Merrill Lynch, threatening his job security.
A letter from New York State Attorney General Andrew Cuomo's office sent Thursday to Congressional leaders and federal regulators said Lewis testified in February that former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke threatened to oust Bank of America's management if the bank tried to back out of buying Merrill Lynch.
The government helped orchestrate the acquisition of the investment bank by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off one of the most intense periods of the financial crisis.
Bank of America completed its purchase of New York-based Merrill Lynch on Jan. 1.
The bank has repeatedly defended its acquisition to shareholders and investors amid revelations of huge losses at Merrill Lynch before completion of the deal.
"We believe we acted legally and appropriately with regard to the Merrill Lynch transaction," Bank of America spokesman Scott Silvestri told The Associated Press Thursday.
Representatives from the Treasury Department had no immediate comment.
Lewis' testimony came in response to questioning by the attorney general's office about bonuses paid to Merrill Lynch employees in December, before BofA completed its acquisition of the investment bank. The attorney general's office was trying to determine the timing of the bonuses and whether BofA failed to provide adequate disclosure to shareholders about them.
The investigation's focus has since broadened to encompass the transparency of the government's $700 billion bailout program, which it launched last fall to help unclog credit markets. The attorney general's office continues to investigate the bonus payments, but is now also running a parallel investigation into potential securities fraud tied to Bank of America's purchase of Merrill Lynch.
Bank of America has received $45 billion from the government's Troubled Asset Relief Program. As part of that money, the bank received $20 billion in January after Lewis requested it to help offset mounting losses at Merrill Lynch.
Neil Barofsky, the special government inspector general assigned to oversee the Troubled Asset Relief Program, said Thursday he will be issuing audits of various bailout transactions, including government assistance provided to Bank of America in connection with its acquisition of Merrill Lynch. He said his office is also conducting an investigation involving Bank of America.
"I would caution anyone from leaping to too many conclusions about what Secretary Paulson or Chairman Bernanke said until we've looked at all the facts and reported on them," Barofsky, who said he witnessed Lewis' testimony, told the economic panel. "The conclusion that one may draw that it's black and white that there was an order from the United States government not to disclose this information, I don't think it's as crystal clear."
Lewis has admitted in recent months that he had trepidations about completing the purchase of Merrill Lynch. In December, just before it was sold to Charlotte, N.C.-based Bank of America, Merrill Lynch said it lost more than $15 billion in the fourth quarter.
According to the testimony, Lewis had several discussions with government officials over his concerns about the deal, including his desire to scuttle it. Purchase deals typically allow companies to back out if there are significant changes in operations or performance.
But Secretary Paulson advised Lewis in late December that if Bank of America terminated the deal, the company's management and board would be replaced.
Lewis told the attorney's general's office during his testimony that Secretary Paulson said to him: "I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but ... we would remove the board and management if you called it."
Paulson essentially confirmed Lewis' testimony when he was questioned by the attorney general's office, according to the letter Cuomo sent to government officials on Thursday. But Bernanke and the Federal Reserve have declined to discuss the conversations with Lewis over the Merrill Lynch purchase. The Fed has invoked its bank examination privilege to avoid divulging what it told Lewis to do regarding the purchase of Merrill Lynch, according to the letter.
A government official on Thursday said Bernanke did not advise Lewis or Bank of America on questions of disclosure and their responsibilities in that arena. The official spoke on condition of anonymity because of sensitive legal issues raised in the New York proceeding.
Just a few weeks after the deal was completed, Bank of America's fourth-quarter earnings report showed the hit its balance sheet took on the Merrill Lynch transaction, making Lewis the target of much shareholder fury. In January, Bank of America reported a $2.39 billion fourth-quarter loss.
During Lewis' testimony before the attorney general's office, he said he never considered resigning because Paulson and Bernanke had applied pressure to him to complete the deal. Lewis also admitted the deal was likely to hurt Bank of America shareholders over the next two to three years.
Two of the nation's largest state pension funds are seeking to lead a class action lawsuit against Bank of America, alleging the bank's management "misstated or omitted" important information about Merrill Lynch's financial health before the deal was completed.
And Finger Interests Number One Ltd., which owns about one-fifth of one percent of Bank of America stock, is asking shareholders to vote against re-electing Lewis as well as lead director O. Temple Sloan Jr. and director Jackie Ward during the bank's annual meeting next week in Charlotte.
On Monday, Bank of America warned of worsening loan default problems even as it posted a first-quarter profit of $2.81 billion. The amount of its problem loans more than tripled to $25.7 billion, and Lewis said he couldn't predict when the bank's credit morass would end.
___
Stephen Bernard reported from New York.
Thursday, April 23, 2009
Wednesday, April 15, 2009
U.S. planning to reveal data on health of top banks: report
Wed Apr 15, 1:28 am ET
(Reuters) – The Obama administration is drawing up plans to disclose the financial condition of the 19 biggest banks in the country, the New York Times said, citing senior administration officials.
The administration has decided to reveal some sensitive details of the "stress tests" now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest, the paper said.
The stress tests, announced in February, were designed to see if banks are adequately capitalized. Banks that are found to need more money would then have six months to raise it, or take funds directly from the government in a new round of capital injections.
But government officials have been less than clear about how the details of the test results will be released.
The Treasury Department and the Federal Reserve have asked banks not to discuss the exams publicly out of concern that information will trickle out inconsistently and create market chaos, a source familiar with the talks between the government and the banks told Reuters.
While all of the banks are expected to pass the tests, some are expected to be graded more highly than others, according to the paper.
Officials have deliberately left murky just how much they intend to reveal - or will encourage the banks to reveal - about how well the banks would weather difficult economic conditions over the next two years, according to the paper.
Indicating which banks are most vulnerable still runs some risk of doing what officials hope to avoid, the paper said. "The assessments are not yet complete," the paper cited Stephanie Cutter, a spokeswoman for the Treasury, as saying. "When they are, we'll work with the banks on how best to release the appropriate data and on what time-frame to ensure fairness and minimize market uncertainty."
(Reporting by Ajay Kamalakaran in Bangalore; Editing by Muralikumar Anantharaman)
(Reuters) – The Obama administration is drawing up plans to disclose the financial condition of the 19 biggest banks in the country, the New York Times said, citing senior administration officials.
The administration has decided to reveal some sensitive details of the "stress tests" now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest, the paper said.
The stress tests, announced in February, were designed to see if banks are adequately capitalized. Banks that are found to need more money would then have six months to raise it, or take funds directly from the government in a new round of capital injections.
But government officials have been less than clear about how the details of the test results will be released.
The Treasury Department and the Federal Reserve have asked banks not to discuss the exams publicly out of concern that information will trickle out inconsistently and create market chaos, a source familiar with the talks between the government and the banks told Reuters.
While all of the banks are expected to pass the tests, some are expected to be graded more highly than others, according to the paper.
Officials have deliberately left murky just how much they intend to reveal - or will encourage the banks to reveal - about how well the banks would weather difficult economic conditions over the next two years, according to the paper.
Indicating which banks are most vulnerable still runs some risk of doing what officials hope to avoid, the paper said. "The assessments are not yet complete," the paper cited Stephanie Cutter, a spokeswoman for the Treasury, as saying. "When they are, we'll work with the banks on how best to release the appropriate data and on what time-frame to ensure fairness and minimize market uncertainty."
(Reporting by Ajay Kamalakaran in Bangalore; Editing by Muralikumar Anantharaman)
Monday, March 30, 2009
Bank CEOs voice support for Obama's economic plans
WASHINGTON (Reuters) – President Barack Obama won support from top bankers on Friday for his efforts to rid financial institutions of bad debts, but differences remained over broader U.S. plans for the financial industry.
Chief executives from Wells Fargo, JP Morgan Chase and other financial giants met Obama at the White House and echoed his call for cooperation to help the economy.
But their statements about tough trading conditions in March overshadowed the positive spin the executives and the White House sought to give to the meeting.
"The basic message is we're all in this thing together," Wells Fargo Chief Executive John Stumpf told reporters after the meeting, with other bank executives at his side.
Obama, in an interview later with CBS News, said he told the bankers they should be more sensitive to how Wall Street's actions look to the rest of the country.
"Show some restraint," he said he told them. "Show that you get that this is a crisis and everybody has to make sacrifices."
Obama saw the meeting as productive and frank, White House spokesman Robert Gibbs said, adding the president stressed the importance of dealing with "toxic assets" -- bad loans many banks are stuck with thanks to the collapse of the U.S. housing market.
"The president opened up by talking about the importance of dealing with toxic assets and getting banks lending again," Gibbs told a briefing.
The meeting came just days after the U.S. Treasury Department provided details on a government plan to cleanse banks' balance sheets of up to $1 trillion in distressed loans and securities, a plan the banks will have to support in order for it to work.
White House advisers said the president wanted to get a snapshot of the economy from the banking chiefs, and the message they sent was lukewarm.
"March was a little rough," said JPMorgan Chase Chief Executive Jamie Dimon. Bank of America's Ken Lewis said his institution's "trading book for March was not as good" as it was the first two months of the year.
The comments pushed bank stocks and the overall market lower.
The White House meeting came ahead of next week's G20 summit, at which Obama is expected to pitch his plans to rescue the recession-hit U.S. economy to fellow world leaders.
BONUSES, TARP MONEY
The executives, who have often found themselves bearing the brunt of Obama's criticism about the financial mess and the bonuses many executives in the struggling industry accepted, said not all issues were agreed upon at the meeting.
One hot topic involves government bailout funds and executive compensation limits.
Financial analysts are concerned that if healthier banks return government money to get out of newly imposed executive pay rules, weaker banks that cannot afford to return the funds will be stigmatized.
Dimon said Obama did not instruct the bankers to stop considering an early return of some of the bailout funds that they received as part of the government's $700 billion rescue plan for the financial industry.
Disagreements aside, the two sides acknowledged the need for regulatory reform. "It's fair to say that they agreed on the need to update the framework of regulations," Gibbs said.
The Obama administration announced on Thursday its plan to rewrite financial rules, including creating a single regulator to monitor any firm whose failure could threaten the financial system.
Officials said executive compensation was discussed, although it did not dominate the conversation, and bankers indicated a public outcry over the issue had sunk in.
"We know mistakes were made" around executive compensation, JPMorgan's Dimon told CNBC after the meeting. Bank of America's Lewis said everyone understood the "golden age" of bank pay was over.
About 15 chief executives attended, according to the White House, including Lloyd Blankfein of Goldman Sachs and Vikram Pandit of Citigroup.
Others on the list included chiefs from Freddie Mac, Bank of New York Mellon, Northern Trust, PNC Financial, State Street, Morgan Stanley, American Bankers Association and Independent Community Bankers.
(Additional reporting by Caren Bohan, Tabassum Zakaria, Kim Dixon, John Poirier, Rachelle Younglai, Matt Spetalnick, Ross Colvin and David Alexander)
Chief executives from Wells Fargo, JP Morgan Chase and other financial giants met Obama at the White House and echoed his call for cooperation to help the economy.
But their statements about tough trading conditions in March overshadowed the positive spin the executives and the White House sought to give to the meeting.
"The basic message is we're all in this thing together," Wells Fargo Chief Executive John Stumpf told reporters after the meeting, with other bank executives at his side.
Obama, in an interview later with CBS News, said he told the bankers they should be more sensitive to how Wall Street's actions look to the rest of the country.
"Show some restraint," he said he told them. "Show that you get that this is a crisis and everybody has to make sacrifices."
Obama saw the meeting as productive and frank, White House spokesman Robert Gibbs said, adding the president stressed the importance of dealing with "toxic assets" -- bad loans many banks are stuck with thanks to the collapse of the U.S. housing market.
"The president opened up by talking about the importance of dealing with toxic assets and getting banks lending again," Gibbs told a briefing.
The meeting came just days after the U.S. Treasury Department provided details on a government plan to cleanse banks' balance sheets of up to $1 trillion in distressed loans and securities, a plan the banks will have to support in order for it to work.
White House advisers said the president wanted to get a snapshot of the economy from the banking chiefs, and the message they sent was lukewarm.
"March was a little rough," said JPMorgan Chase Chief Executive Jamie Dimon. Bank of America's Ken Lewis said his institution's "trading book for March was not as good" as it was the first two months of the year.
The comments pushed bank stocks and the overall market lower.
The White House meeting came ahead of next week's G20 summit, at which Obama is expected to pitch his plans to rescue the recession-hit U.S. economy to fellow world leaders.
BONUSES, TARP MONEY
The executives, who have often found themselves bearing the brunt of Obama's criticism about the financial mess and the bonuses many executives in the struggling industry accepted, said not all issues were agreed upon at the meeting.
One hot topic involves government bailout funds and executive compensation limits.
Financial analysts are concerned that if healthier banks return government money to get out of newly imposed executive pay rules, weaker banks that cannot afford to return the funds will be stigmatized.
Dimon said Obama did not instruct the bankers to stop considering an early return of some of the bailout funds that they received as part of the government's $700 billion rescue plan for the financial industry.
Disagreements aside, the two sides acknowledged the need for regulatory reform. "It's fair to say that they agreed on the need to update the framework of regulations," Gibbs said.
The Obama administration announced on Thursday its plan to rewrite financial rules, including creating a single regulator to monitor any firm whose failure could threaten the financial system.
Officials said executive compensation was discussed, although it did not dominate the conversation, and bankers indicated a public outcry over the issue had sunk in.
"We know mistakes were made" around executive compensation, JPMorgan's Dimon told CNBC after the meeting. Bank of America's Lewis said everyone understood the "golden age" of bank pay was over.
About 15 chief executives attended, according to the White House, including Lloyd Blankfein of Goldman Sachs and Vikram Pandit of Citigroup.
Others on the list included chiefs from Freddie Mac, Bank of New York Mellon, Northern Trust, PNC Financial, State Street, Morgan Stanley, American Bankers Association and Independent Community Bankers.
(Additional reporting by Caren Bohan, Tabassum Zakaria, Kim Dixon, John Poirier, Rachelle Younglai, Matt Spetalnick, Ross Colvin and David Alexander)
Monday, March 23, 2009
Administration seeks to free frozen credit markets
WASHINGTON – The Obama administration launched a new effort Monday to end a paralysis in lending, saying it will team with investors to sop up a half-trillion dollars of bad assets from banks that have been reluctant to make loans to consumers and companies.
In announcing the program, Treasury Secretary Timothy Geithner pleaded for patience, saying that work to rehabilitate an industry with such systemic problems must go forward despite "deep anger and outrage" over executive bonus payments.
Geithner's performance in President Barack Obama's Cabinet has come under heavy criticism from some in Congress. The secretary announced the initiative in a Treasury Department room with no cameras allowed. He was with Obama later in the morning, however, when the president spoke briefly, saying he was "very confident" the latest plan will succeed.
Obama called it "one more critical element" in a multi-pronged effort to revive the economy and said the depressed housing market is beginning to show glimmers of hope.
Geithner said the new program will seek to harness government and private resources to purchase a half-trillion dollars of bad assets off the balance sheets of banks and said he expects purchases eventually could grow to $1 trillion.
The latest rescue plan represents another test for the embattled Geithner, whose performance has come under heavy criticism from some in Congress.
Wall Street seemed to feel rejuvenated, at least at the opening. In late morning, the Dow Jones industrial average was up 221 at 7,500. Reaction to an earlier administration bank rescue program on Feb. 10 was anything but enthusiastic, with dispirited investors sending the Dow Jones plummeting by 380 points.
The administration's newest toxic-asset repellant was another in a string of banking initiatives that have included efforts to deal directly with mortgage foreclosures, boost lending to small businesses and thaw out the credit markets for many types of consumer loans.
Administration officials said the plan put forth Monday will deploy $75 billion to $100 billion from the government's existing $700 billion bailout program for the purchase of bad assets — resources that will be supported by loans from the Federal Deposit Insurance Corp. and a loan facility being operated by the Federal Reserve.
Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan provided in many cases by the Federal Deposit Insurance Corp.
Geithner defended the decision to have the government carry so much of the risk. He said the alternative would have been to do nothing and risk a more prolonged recession or have the government carry all of the risk.
Geithner also said there would be significant advantages from having private market participants bidding against each other to set prices for which the bad assets will be purchased. "There is no doubt the government is taking risks," he told reporters. "You can't solve a financial crisis without the government taking risks."
Devising bailout plans has never been easy work, and the brouhaha surrounding millions in executive retention bonuses paid out by financially strapped American Insurance Group, Inc., hasn't improved the political atmosphere.
Geithner himself has been under siege from many quarters, with some congressmen saying they don't believe he's up to the job. President Barack Obama, however, has stood steadfastly behind his Treasury secretary.
Officials said they expect participation by a broad array of investors ranging from pension funds and insurance companies to hedge funds. To achieve that goal, the program would be set up to entice private investors with low-cost loans provided by the Federal Deposit Insurance Corporation and the Federal Reserve. The government itself would shoulder the bulk of the risk.
Geithner has said that the country cannot afford to simply wait for banks to work off these bad assets over time.
Christina Romer, who heads the White House Council of Economic Advisers, said: "This has never been about helping Wall Street or helping a firm that made mistakes. We're doing this for ourselves. ... It's absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans."
The government has been struggling since the credit crisis hit last fall to figure out a way to sop up the bad assets, many of them involving home loans.
Former Treasury Secretary Henry Paulson never did come up with a solution and the Obama team has been wrestling with the same thorny problems of how to price the assets and make sure the government's resources are up to the task.
The program surfaced after a week of Wall Street-bashing in Congress, where lawmakers were outraged with the action by troubled insurance company American International Group Inc. to distribute $165 million in bonuses after obtaining more than $170 billion in government bailouts to remain in business.
Some hedge funds and other investors have expressed reluctance to participate in the new program for fear that Congress will subject them to what they view as onerous restrictions on executive compensation.
But administration officials insisted that they believe they have found the right mix to attract private investors and make a dent in what, by some estimates, could be more than $2 trillion in troubled assets on banks' books.
They said the program has the capacity to purchase $500 billion and possibly as much as $1 trillion in troubled loans, which go back to the collapse of the housing boom and the subsequent tidal wave of foreclosures.
But private analysts believe that with the $700 billion bailout fund nearly tapped out by capital disbursements to banks and lifelines provided the auto companies and AIG, there are only enough resources left to get the asset purchase program launched.
Mark Zandi, an economist with Moody's Economy.com, estimated the government will need another $400 billion to make a sufficient dent in the bad asset problem.
Administration officials said they want to get the new program launched and see how successful it is before deciding whether to ask Congress for more resources.
The administration included a placeholder in its budget request to Congress last month for an additional $750 billion, more than doubling the financial rescue effort, but many lawmakers have said the current bailout fatigue among voters dims the prospect of getting further resources.
According to administration officials, the toxic asset program will include a public-private partnership to back private investors' purchases of bad assets, with government support coming from the $700 billion bailout fund. The government would match private investors dollar for dollar and share any profits equally.
In announcing the program, Treasury Secretary Timothy Geithner pleaded for patience, saying that work to rehabilitate an industry with such systemic problems must go forward despite "deep anger and outrage" over executive bonus payments.
Geithner's performance in President Barack Obama's Cabinet has come under heavy criticism from some in Congress. The secretary announced the initiative in a Treasury Department room with no cameras allowed. He was with Obama later in the morning, however, when the president spoke briefly, saying he was "very confident" the latest plan will succeed.
Obama called it "one more critical element" in a multi-pronged effort to revive the economy and said the depressed housing market is beginning to show glimmers of hope.
Geithner said the new program will seek to harness government and private resources to purchase a half-trillion dollars of bad assets off the balance sheets of banks and said he expects purchases eventually could grow to $1 trillion.
The latest rescue plan represents another test for the embattled Geithner, whose performance has come under heavy criticism from some in Congress.
Wall Street seemed to feel rejuvenated, at least at the opening. In late morning, the Dow Jones industrial average was up 221 at 7,500. Reaction to an earlier administration bank rescue program on Feb. 10 was anything but enthusiastic, with dispirited investors sending the Dow Jones plummeting by 380 points.
The administration's newest toxic-asset repellant was another in a string of banking initiatives that have included efforts to deal directly with mortgage foreclosures, boost lending to small businesses and thaw out the credit markets for many types of consumer loans.
Administration officials said the plan put forth Monday will deploy $75 billion to $100 billion from the government's existing $700 billion bailout program for the purchase of bad assets — resources that will be supported by loans from the Federal Deposit Insurance Corp. and a loan facility being operated by the Federal Reserve.
Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan provided in many cases by the Federal Deposit Insurance Corp.
Geithner defended the decision to have the government carry so much of the risk. He said the alternative would have been to do nothing and risk a more prolonged recession or have the government carry all of the risk.
Geithner also said there would be significant advantages from having private market participants bidding against each other to set prices for which the bad assets will be purchased. "There is no doubt the government is taking risks," he told reporters. "You can't solve a financial crisis without the government taking risks."
Devising bailout plans has never been easy work, and the brouhaha surrounding millions in executive retention bonuses paid out by financially strapped American Insurance Group, Inc., hasn't improved the political atmosphere.
Geithner himself has been under siege from many quarters, with some congressmen saying they don't believe he's up to the job. President Barack Obama, however, has stood steadfastly behind his Treasury secretary.
Officials said they expect participation by a broad array of investors ranging from pension funds and insurance companies to hedge funds. To achieve that goal, the program would be set up to entice private investors with low-cost loans provided by the Federal Deposit Insurance Corporation and the Federal Reserve. The government itself would shoulder the bulk of the risk.
Geithner has said that the country cannot afford to simply wait for banks to work off these bad assets over time.
Christina Romer, who heads the White House Council of Economic Advisers, said: "This has never been about helping Wall Street or helping a firm that made mistakes. We're doing this for ourselves. ... It's absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans."
The government has been struggling since the credit crisis hit last fall to figure out a way to sop up the bad assets, many of them involving home loans.
Former Treasury Secretary Henry Paulson never did come up with a solution and the Obama team has been wrestling with the same thorny problems of how to price the assets and make sure the government's resources are up to the task.
The program surfaced after a week of Wall Street-bashing in Congress, where lawmakers were outraged with the action by troubled insurance company American International Group Inc. to distribute $165 million in bonuses after obtaining more than $170 billion in government bailouts to remain in business.
Some hedge funds and other investors have expressed reluctance to participate in the new program for fear that Congress will subject them to what they view as onerous restrictions on executive compensation.
But administration officials insisted that they believe they have found the right mix to attract private investors and make a dent in what, by some estimates, could be more than $2 trillion in troubled assets on banks' books.
They said the program has the capacity to purchase $500 billion and possibly as much as $1 trillion in troubled loans, which go back to the collapse of the housing boom and the subsequent tidal wave of foreclosures.
But private analysts believe that with the $700 billion bailout fund nearly tapped out by capital disbursements to banks and lifelines provided the auto companies and AIG, there are only enough resources left to get the asset purchase program launched.
Mark Zandi, an economist with Moody's Economy.com, estimated the government will need another $400 billion to make a sufficient dent in the bad asset problem.
Administration officials said they want to get the new program launched and see how successful it is before deciding whether to ask Congress for more resources.
The administration included a placeholder in its budget request to Congress last month for an additional $750 billion, more than doubling the financial rescue effort, but many lawmakers have said the current bailout fatigue among voters dims the prospect of getting further resources.
According to administration officials, the toxic asset program will include a public-private partnership to back private investors' purchases of bad assets, with government support coming from the $700 billion bailout fund. The government would match private investors dollar for dollar and share any profits equally.
WaMu holding company sues FDIC over bank seizure
SEATTLE – Washington Mutual's holding company is suing federal regulators for billions of dollars, saying the firesale of the bank's assets to JPMorgan Chase violated its rights.
The lawsuit was filed Friday in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history.
Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu's assets had been liquidated prudently, they would have been worth more than that.
An FDIC spokesman did not immediately return a call seeking comment Saturday.
The lawsuit was filed Friday in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history.
Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu's assets had been liquidated prudently, they would have been worth more than that.
An FDIC spokesman did not immediately return a call seeking comment Saturday.
Monday, March 16, 2009
Wells Fargo chair flays TARP, "asinine" stress test
NEW YORK (Reuters) – Wells Fargo & Co's (WFC.N) chairman lambasted the U.S. government for imposing new curbs on lenders that receive federal bailout money, and called the federal plan to subject big banks to stress tests "asinine."
In remarks after a speech Friday at Stanford University, Chairman Richard Kovacevich said the fourth-largest U.S. bank should not be lumped with weaker rivals in being forced to adhere to new rules governing such matters as lending and pay.
Wells Fargo took $25 billion of capital last year from the government's Troubled Asset Relief Program at the behest of regulators including then-Treasury Secretary Henry Paulson, but has said it did not need the money. It was one of nine original TARP recipients.
Like a growing number of rivals, the San Francisco bank is now complaining about TARP, including a provision that lets Congress unilaterally impose new restrictions on recipients.
"Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?" Kovacevich said. A video of his comments was posted online by the Stanford Institute for Economic Policy Research.
Bank of America Corp (BAC.N), Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and several smaller lenders have said they want to get out of TARP when they can, although Bank of America Chief Executive Kenneth Lewis has said the program helped avert a financial meltdown.
On March 6, Wells Fargo slashed its quarterly dividend 85 percent to 5 cents per share, saving $5 billion a year.
The bank in the fourth quarter posted its first quarterly loss since 2001, and at the end of the year it completed its acquisition of troubled larger rival Wachovia Corp.
Even with the $25 billion of TARP capital, Wells Fargo has less capital relative to its size than some analysts prefer.
Kovacevich nevertheless said that had the bank not been forced to take TARP money last October, "we would have been able to raise private capital at that time, and with that private capital, given what is going on today, it is very unlikely that we would have had to reduce the dividend."
Wells Fargo and 18 other large companies are being subjected to stress tests to determine which can withstand a particularly severe recession. Those that cannot will need to raise more capital. Results are due by the end of April.
"We do stress tests all the time on all of our portfolios," Kovacevich said. "We (have) shared those stress tests with our regulators, forever. It is absolutely asinine that somebody would announce we're going to do stress tests of banks and we'll give you the answer in 12 weeks."
Kovacevich said press reports that Wells Fargo acted purely out of self-interest in resisting regulators' demand that it accept TARP money were misleading.
"They felt that if they gave it to everybody, whether they needed it or not, that the consequence would be that everyone would be raised up equally, and people would not know who was swimming naked and who wasn't swimming naked," he said.
In afternoon trading, Wells Fargo shares were up 69 cents, or 5 percent, at $14.63 on the New York Stock Exchange. They began the year at $29.48.
(Reporting by Jonathan Stempel; editing by John Wallace)
In remarks after a speech Friday at Stanford University, Chairman Richard Kovacevich said the fourth-largest U.S. bank should not be lumped with weaker rivals in being forced to adhere to new rules governing such matters as lending and pay.
Wells Fargo took $25 billion of capital last year from the government's Troubled Asset Relief Program at the behest of regulators including then-Treasury Secretary Henry Paulson, but has said it did not need the money. It was one of nine original TARP recipients.
Like a growing number of rivals, the San Francisco bank is now complaining about TARP, including a provision that lets Congress unilaterally impose new restrictions on recipients.
"Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?" Kovacevich said. A video of his comments was posted online by the Stanford Institute for Economic Policy Research.
Bank of America Corp (BAC.N), Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and several smaller lenders have said they want to get out of TARP when they can, although Bank of America Chief Executive Kenneth Lewis has said the program helped avert a financial meltdown.
On March 6, Wells Fargo slashed its quarterly dividend 85 percent to 5 cents per share, saving $5 billion a year.
The bank in the fourth quarter posted its first quarterly loss since 2001, and at the end of the year it completed its acquisition of troubled larger rival Wachovia Corp.
Even with the $25 billion of TARP capital, Wells Fargo has less capital relative to its size than some analysts prefer.
Kovacevich nevertheless said that had the bank not been forced to take TARP money last October, "we would have been able to raise private capital at that time, and with that private capital, given what is going on today, it is very unlikely that we would have had to reduce the dividend."
Wells Fargo and 18 other large companies are being subjected to stress tests to determine which can withstand a particularly severe recession. Those that cannot will need to raise more capital. Results are due by the end of April.
"We do stress tests all the time on all of our portfolios," Kovacevich said. "We (have) shared those stress tests with our regulators, forever. It is absolutely asinine that somebody would announce we're going to do stress tests of banks and we'll give you the answer in 12 weeks."
Kovacevich said press reports that Wells Fargo acted purely out of self-interest in resisting regulators' demand that it accept TARP money were misleading.
"They felt that if they gave it to everybody, whether they needed it or not, that the consequence would be that everyone would be raised up equally, and people would not know who was swimming naked and who wasn't swimming naked," he said.
In afternoon trading, Wells Fargo shares were up 69 cents, or 5 percent, at $14.63 on the New York Stock Exchange. They began the year at $29.48.
(Reporting by Jonathan Stempel; editing by John Wallace)
Tuesday, March 10, 2009
Treasury provides $284.7M to 22 banks from bailout
WASHINGTON – The Treasury Department has provided $284.7 million to 22 banks in the latest payments from the government's $700 billion financial rescue fund.
The government is buying preferred stock in banks as a way to bolster their balance sheets in hopes of getting them to resume more normal lending. With the new payments, the government said Tuesday it has spent $197 billion on this part of bailout.
The largest payment in the new round was $100 million to First Busey Corp. of Urbana, Ill., followed by Park Bancorporation Inc. of Madison, Wis., which received $23.2 million.
The smallest payment in the latest round was $500,000 to Community Bancshares of Kansas Inc. of Goff, Kan. The purchase program for preferred shares of bank stock has provided support to 489 institutions in 47 states and Puerto Rico.
The bailout effort also has supplied billions of dollars under other rescue programs, including one designed for large troubled banks that has provided aid to Citigroup Inc. and Bank of America Corp. Insurance giant American International Group Inc., as well as automakers General Motors Corp. and Chrysler LLC and their auto financing arms, also have received taxpayer support.
The purchase of bank stock is expected to use $250 billion of the first half of the rescue fund. Congress has authorized President Barack Obama's administration to use the second $350 billion of the fund. The new administration has promised to attach more strings to the assistance than the Bush administration did, but has not said how much of the fund will be used for bank stock purchases.
The overhaul is requiring 19 of the nation's largest banks to undergo stress tests to see whether they would need additional support to withstand a more severe downturn than the country is experiencing.
The administration has said that it would use part of the rescue fund to set up a private-public partnership to buy bad assets from banks, but it has not provided the specifics of how that program would work.
The Obama administration raised the possibility when it released its first budget request to Congress last month that it could ask for up to another $750 billion in rescue support.
The new round of stock purchases revealed Tuesday were made by the Treasury Department Friday. Under the law that created the rescue fund, the government has two business days to make its transactions public.
The government is buying preferred stock in banks as a way to bolster their balance sheets in hopes of getting them to resume more normal lending. With the new payments, the government said Tuesday it has spent $197 billion on this part of bailout.
The largest payment in the new round was $100 million to First Busey Corp. of Urbana, Ill., followed by Park Bancorporation Inc. of Madison, Wis., which received $23.2 million.
The smallest payment in the latest round was $500,000 to Community Bancshares of Kansas Inc. of Goff, Kan. The purchase program for preferred shares of bank stock has provided support to 489 institutions in 47 states and Puerto Rico.
The bailout effort also has supplied billions of dollars under other rescue programs, including one designed for large troubled banks that has provided aid to Citigroup Inc. and Bank of America Corp. Insurance giant American International Group Inc., as well as automakers General Motors Corp. and Chrysler LLC and their auto financing arms, also have received taxpayer support.
The purchase of bank stock is expected to use $250 billion of the first half of the rescue fund. Congress has authorized President Barack Obama's administration to use the second $350 billion of the fund. The new administration has promised to attach more strings to the assistance than the Bush administration did, but has not said how much of the fund will be used for bank stock purchases.
The overhaul is requiring 19 of the nation's largest banks to undergo stress tests to see whether they would need additional support to withstand a more severe downturn than the country is experiencing.
The administration has said that it would use part of the rescue fund to set up a private-public partnership to buy bad assets from banks, but it has not provided the specifics of how that program would work.
The Obama administration raised the possibility when it released its first budget request to Congress last month that it could ask for up to another $750 billion in rescue support.
The new round of stock purchases revealed Tuesday were made by the Treasury Department Friday. Under the law that created the rescue fund, the government has two business days to make its transactions public.
Thursday, February 19, 2009
US, UBS in high stakes battle over banking secrecy
WASHINGTON (AFP) – Swiss bank UBS and US authorities Thursday were locked in a high-stakes legal tussle over banking secrecy despite a pact meant to settle a gigantic tax fraud case shaking the Swiss banking industry.
The showdown came a day after UBS admitted to US tax fraud and agreed to pay 780 million dollars as part of a provisional deal to settle charges by the US government that it helped thousands of American clients use Swiss accounts to evade US taxes.
Ratcheting up the pressure on Switzerland's biggest bank, the US government filed a lawsuit Thursday seeking a court order for UBS to disclose to the Internal Revenue Service (IRS) the identities of as many as 52,000 US customers who allegedly evaded taxes.
According to a UBS document filed with the lawsuit, as of the mid-2000s, those secret accounts held about 14.8 billion dollars in assets and the American clients had failed to pay taxes on income earned in those accounts.
"At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes," said John DiCicco, a senior attorney with the Justice Department.
"It is time for those who are trying to hide from the IRS to rethink their actions," he said.
But UBS, Switzerland's banking flagship, refused the US government's demand for information on the US clients, saying it had "substantial defenses" and "intends to vigorously contest the enforcement of the summons in the civil proceeding."
The bank said that the objections were based on US law as well as terms of its agreement with the IRS and provisions of Swiss financial privacy and other laws, as well as international obligations, respected by Washington.
UBS, the world's largest manager of private wealth, stressed that information about undisclosed accounts maintained by Americans at the bank in Switzerland were protected from disclosure by Swiss financial privacy laws.
US legislators have accused UBS and other banks of helping wealthy Americans hide about 1.5 trillion dollars in overseas tax havens.
According to the US lawsuit, Swiss-based bankers actively marketed UBS?s services to wealthy American customers within the United States.
UBS documents filed with the lawsuit show that its bankers came to the United States to meet with clients nearly 4,000 times per year in violation of US law.
The US government alleged that UBS trained its bankers to avoid detection by US authorities and engaged in cross-border securities transactions it knew violated US security laws, according to court documents.
The lawsuit also alleged that UBS helped hundreds of US taxpayers set up dummy offshore companies, to make it easier for those taxpayers to avoid their reporting obligations under US tax laws.
As part of a "deferred prosecution agreement" announced Wednesday, UBS agreed to immediately provide Washington with the identities of, and account information for, certain US customers of UBS's cross-border business.
The Swiss Financial Markets Supervisory Authority (FINMA) ordered UBS to reveal to US authorities account details for about 250 to 300 customers, according to Swiss President and Finance Minister Hans-Rudolf Merz on Thursday.
"Banking secrecy remains intact," Merz told journalists, adding that it "doesn't protect tax fraudsters."
Lawyers in Zurich Thursday said they would sue FINMA for violation of the country's financial secrecy law, on behalf of four US clients of UBS whose identities were revealed to US authorities.
The decision to hand over client details sparked a debate on the future of banking secrecy in Switzerland, also under pressure from its European neighbors, notably Germany, over claims that it encourages tax evasion.
European Commission spokeswoman Maria Assimakopoulou said in Brussels that the European Union had already suggested that secrecy should be lifted in cross-border requests for assistance.
The OECD group of mostly industrialized economies estimates that between five to seven trillion dollars are held in tax havens or banking secrecy jurisdictions globally.
by P. Parameswaran
The showdown came a day after UBS admitted to US tax fraud and agreed to pay 780 million dollars as part of a provisional deal to settle charges by the US government that it helped thousands of American clients use Swiss accounts to evade US taxes.
Ratcheting up the pressure on Switzerland's biggest bank, the US government filed a lawsuit Thursday seeking a court order for UBS to disclose to the Internal Revenue Service (IRS) the identities of as many as 52,000 US customers who allegedly evaded taxes.
According to a UBS document filed with the lawsuit, as of the mid-2000s, those secret accounts held about 14.8 billion dollars in assets and the American clients had failed to pay taxes on income earned in those accounts.
"At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes," said John DiCicco, a senior attorney with the Justice Department.
"It is time for those who are trying to hide from the IRS to rethink their actions," he said.
But UBS, Switzerland's banking flagship, refused the US government's demand for information on the US clients, saying it had "substantial defenses" and "intends to vigorously contest the enforcement of the summons in the civil proceeding."
The bank said that the objections were based on US law as well as terms of its agreement with the IRS and provisions of Swiss financial privacy and other laws, as well as international obligations, respected by Washington.
UBS, the world's largest manager of private wealth, stressed that information about undisclosed accounts maintained by Americans at the bank in Switzerland were protected from disclosure by Swiss financial privacy laws.
US legislators have accused UBS and other banks of helping wealthy Americans hide about 1.5 trillion dollars in overseas tax havens.
According to the US lawsuit, Swiss-based bankers actively marketed UBS?s services to wealthy American customers within the United States.
UBS documents filed with the lawsuit show that its bankers came to the United States to meet with clients nearly 4,000 times per year in violation of US law.
The US government alleged that UBS trained its bankers to avoid detection by US authorities and engaged in cross-border securities transactions it knew violated US security laws, according to court documents.
The lawsuit also alleged that UBS helped hundreds of US taxpayers set up dummy offshore companies, to make it easier for those taxpayers to avoid their reporting obligations under US tax laws.
As part of a "deferred prosecution agreement" announced Wednesday, UBS agreed to immediately provide Washington with the identities of, and account information for, certain US customers of UBS's cross-border business.
The Swiss Financial Markets Supervisory Authority (FINMA) ordered UBS to reveal to US authorities account details for about 250 to 300 customers, according to Swiss President and Finance Minister Hans-Rudolf Merz on Thursday.
"Banking secrecy remains intact," Merz told journalists, adding that it "doesn't protect tax fraudsters."
Lawyers in Zurich Thursday said they would sue FINMA for violation of the country's financial secrecy law, on behalf of four US clients of UBS whose identities were revealed to US authorities.
The decision to hand over client details sparked a debate on the future of banking secrecy in Switzerland, also under pressure from its European neighbors, notably Germany, over claims that it encourages tax evasion.
European Commission spokeswoman Maria Assimakopoulou said in Brussels that the European Union had already suggested that secrecy should be lifted in cross-border requests for assistance.
The OECD group of mostly industrialized economies estimates that between five to seven trillion dollars are held in tax havens or banking secrecy jurisdictions globally.
by P. Parameswaran
Thursday, February 12, 2009
Frank: New bank bailout grants will be protected
WASHINGTON – Rep. Barney Frank asserted Thursday that the Obama administration can be more trusted than the Bush administration to ensure that banks do not misuse money they get from a $700 billion bailout fund.
Frank, D-Mass., denied in a nationally broadcast interview that Congress has failed to put strings on these loans to ensure that banks do not pay extravagant executive bonuses or take expensive retreats.
"We didn't give them the second half ($350 billion) with no strings attached," Frank said on CBS's "The Early Show."
"The Treasury Department has agreed to impose very strict rules," the congressman added, "and I think it would be a very big mistake to assume that the Obama administration is going to be as lax as the Bush administration."
Frank did acknowledge that a bill he pushed to place specific limits on bonuses and other perks is not likely to get through Congress.
"The error is to assume that because the Bush administration resisted compensation restrictions ... that the Obama administration is going to do the same," he said.
"In fact, the Obama administration is behaving very differently," Frank said.
He was talking about disbursements to financial institutions of moneys from the second half of the $700 billion TARP initiative (Troubled Assets Relief Program) that was instituted last fall.
"The fact is, these funds are being conditioned by the Obama administration," Frank said. "If they get the money, they are legally bound to follow certain rules."
Frank also said that none of the money from the second part of TARP has been disbursed yet, and he said the new administration will insist that a much larger chunk of it go toward reducing home foreclosures.
The House chairman was interviewed a day after leading bank CEOs came before his committee to defend their practices in the wake of rampant criticism from both lawmakers and the public.
"We're Americans first and bankers second," said John Stumpf, president and chief executive of Wells Fargo & Co.
"As an industry, we clearly made mistakes," added John Mack, chairman and CEO of Morgan Stanley.
Eight chief executives sat at a witness table for more than six hours Wednesday, assuring lawmakers that an infusion last fall of $165 billion in taxpayer money to their banks was good for consumers. The money was part of that $700 billion rescue plan.
They also told Congress that lending has increased and that CEO bonuses have been eliminated.
And while some lawmakers said they hoped that by their testimony the bankers could gain some credibility, some of their inquisitors weren't convinced.
"America doesn't trust you anymore," declared Rep. Michael Capuano, D-Mass.
Frank, D-Mass., denied in a nationally broadcast interview that Congress has failed to put strings on these loans to ensure that banks do not pay extravagant executive bonuses or take expensive retreats.
"We didn't give them the second half ($350 billion) with no strings attached," Frank said on CBS's "The Early Show."
"The Treasury Department has agreed to impose very strict rules," the congressman added, "and I think it would be a very big mistake to assume that the Obama administration is going to be as lax as the Bush administration."
Frank did acknowledge that a bill he pushed to place specific limits on bonuses and other perks is not likely to get through Congress.
"The error is to assume that because the Bush administration resisted compensation restrictions ... that the Obama administration is going to do the same," he said.
"In fact, the Obama administration is behaving very differently," Frank said.
He was talking about disbursements to financial institutions of moneys from the second half of the $700 billion TARP initiative (Troubled Assets Relief Program) that was instituted last fall.
"The fact is, these funds are being conditioned by the Obama administration," Frank said. "If they get the money, they are legally bound to follow certain rules."
Frank also said that none of the money from the second part of TARP has been disbursed yet, and he said the new administration will insist that a much larger chunk of it go toward reducing home foreclosures.
The House chairman was interviewed a day after leading bank CEOs came before his committee to defend their practices in the wake of rampant criticism from both lawmakers and the public.
"We're Americans first and bankers second," said John Stumpf, president and chief executive of Wells Fargo & Co.
"As an industry, we clearly made mistakes," added John Mack, chairman and CEO of Morgan Stanley.
Eight chief executives sat at a witness table for more than six hours Wednesday, assuring lawmakers that an infusion last fall of $165 billion in taxpayer money to their banks was good for consumers. The money was part of that $700 billion rescue plan.
They also told Congress that lending has increased and that CEO bonuses have been eliminated.
And while some lawmakers said they hoped that by their testimony the bankers could gain some credibility, some of their inquisitors weren't convinced.
"America doesn't trust you anymore," declared Rep. Michael Capuano, D-Mass.
Wednesday, February 4, 2009
Electronic Signatures in Banking
The sixth largest bank in the United States¹ is currently using over 25,000 ePad signature capture devices to electronically sign direct deposit account (DDA) and consumer lending new account applications at more than 4,500 retail branches in 43 states.
According to recent market research, providing an efficient and completely electronic new account opening process will give banking institutions a key differentiator that will drive additional revenue. Interlink's eSign Anywhere™ platform enables organizations to merge their brick and click to generate cross-selling opportunities.
By implementing one standard electronic signature technology across all channels of business-in-branch, in-field and online-you can capture your customers' electronic signature when and where they are ready to act.
For in-branch processes, use the ePad-LS to capture your customer's handwritten electronic signature in a variety of processes, such as new account openings. When the ePad-LS is not in use, leverage its full-color LCD display to present targeted marketing messages. Read more about the ePad-LS
With IntegriSign Emcee you can empower your customers to apply a legally-binding and secure electronic signature using their standard web browser or transform their touch-screen smartphone into an electronic signature capture device. Read more about IntegriSign Emcee™
Ultimately, the goal is to implement an electronic signature technology enterprise-wide in order to maximize your IT investment and reap the cost-saving benefits of an efficient and paperless office.
¹ U.S. Federal Reserve National Information System² “Online Account Opening: Raising the Bar", Celent LLC July 2007 www.celent.com³ http://www.msnbc.msn.com/id/6936297/
According to recent market research, providing an efficient and completely electronic new account opening process will give banking institutions a key differentiator that will drive additional revenue. Interlink's eSign Anywhere™ platform enables organizations to merge their brick and click to generate cross-selling opportunities.
By implementing one standard electronic signature technology across all channels of business-in-branch, in-field and online-you can capture your customers' electronic signature when and where they are ready to act.
For in-branch processes, use the ePad-LS to capture your customer's handwritten electronic signature in a variety of processes, such as new account openings. When the ePad-LS is not in use, leverage its full-color LCD display to present targeted marketing messages. Read more about the ePad-LS
With IntegriSign Emcee you can empower your customers to apply a legally-binding and secure electronic signature using their standard web browser or transform their touch-screen smartphone into an electronic signature capture device. Read more about IntegriSign Emcee™
Ultimately, the goal is to implement an electronic signature technology enterprise-wide in order to maximize your IT investment and reap the cost-saving benefits of an efficient and paperless office.
¹ U.S. Federal Reserve National Information System² “Online Account Opening: Raising the Bar", Celent LLC July 2007 www.celent.com³ http://www.msnbc.msn.com/id/6936297/
Bank of America tumbles on nationalization worries
NEW YORK (Reuters) – Bank of America Corp (BAC.N) shares fell below $5 for the first time since 1990 on speculation that spiraling losses at newly acquired Merrill Lynch & Co might lead to government control of the largest U.S. bank, wiping out shareholders.
Shares fell more than 11 percent, marking the fifth straight decline, as rumors persisted that mounting losses on mortgages and corporate loans might lead to the nationalization of the Charlotte, North Carolina, lender, or even the ouster of Chief Executive Kenneth Lewis. Bank of America and Merrill Lynch ended 2008 with $2.49 trillion of assets.
"Until we get some clarity that even the largest banks will remain in shareholder hands, this downward spiral is just going to continue," said Nancy Bush, an analyst with NAB Research.
A spokesman for the Office of the Comptroller of the Currency and a spokesman for Bank of America declined comment.
Bank of America shares fell 60 cents to $4.70 and slipped as low as $4.62 during trading. The cost of protecting the bank's debt against default with credit default swaps rose 0.3 of a percentage point.
But according to the Charlotte Observer, Lewis in a memo to employees said the bank's board "unanimously" supported Bank of America's business model last week in "the longest board meeting in anyone's memory."
Lewis has come under fire from shareholders as the once-lauded Merrill Lynch acquisition has unraveled, leaving Bank of America dependent on government support to battle mounting losses and evaporating shareholder value.
"Part of what's going on with the stock price is reflecting the uncertainty of Lewis' position," said Michael Nix, portfolio manager at Greenwood Capital Associates.
Nix discounted the board's support of Lewis, noting he would not expect the board to be other than supportive and that board support has proved fleeting for bank chief executives in the recent past.
A FIASCO
Bank of America last month posted its first quarterly loss in 17 years, and said Merrill's $15.31 billion quarterly loss was so much worse than expected that Lewis needed help from the government to complete the acquisition.
The government, which had already given Bank of America $25 billion in October under the Troubled Asset Relief Program (TARP), agreed to inject $20 billion more, and to share in losses on $118 billion of residential and commercial mortgages, derivatives and corporate debt.
"This Merrill Lynch deal has become a fiasco for Ken Lewis," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. "His whole reason for grabbing Merrill Lynch was getting the brokers, and what he ended up with was gigantic writedowns from the part of the business he didn't even want."
Lewis had coveted Merrill for its brokerage force, often known as the "thundering herd," which he called the "crown jewel" of the roughly $19.4 billion takeover.
Bank of America shares have fallen 67 percent this year, compared to a 41 percent decline in the broader KBW Banks Index (.BKX).
Shares in Citigroup Inc (C.N), which has also received a large cash injection and a government guarantee of assets, were up as much as 10 percent at $3.82 before falling back to close at $3.49 -- a gain of 0.9 percent, or 3 cents.
(Reporting by Elinor Comlay; Additional reporting by Dan Wilchins; Editing by Brian Moss, Gary Hill)
Shares fell more than 11 percent, marking the fifth straight decline, as rumors persisted that mounting losses on mortgages and corporate loans might lead to the nationalization of the Charlotte, North Carolina, lender, or even the ouster of Chief Executive Kenneth Lewis. Bank of America and Merrill Lynch ended 2008 with $2.49 trillion of assets.
"Until we get some clarity that even the largest banks will remain in shareholder hands, this downward spiral is just going to continue," said Nancy Bush, an analyst with NAB Research.
A spokesman for the Office of the Comptroller of the Currency and a spokesman for Bank of America declined comment.
Bank of America shares fell 60 cents to $4.70 and slipped as low as $4.62 during trading. The cost of protecting the bank's debt against default with credit default swaps rose 0.3 of a percentage point.
But according to the Charlotte Observer, Lewis in a memo to employees said the bank's board "unanimously" supported Bank of America's business model last week in "the longest board meeting in anyone's memory."
Lewis has come under fire from shareholders as the once-lauded Merrill Lynch acquisition has unraveled, leaving Bank of America dependent on government support to battle mounting losses and evaporating shareholder value.
"Part of what's going on with the stock price is reflecting the uncertainty of Lewis' position," said Michael Nix, portfolio manager at Greenwood Capital Associates.
Nix discounted the board's support of Lewis, noting he would not expect the board to be other than supportive and that board support has proved fleeting for bank chief executives in the recent past.
A FIASCO
Bank of America last month posted its first quarterly loss in 17 years, and said Merrill's $15.31 billion quarterly loss was so much worse than expected that Lewis needed help from the government to complete the acquisition.
The government, which had already given Bank of America $25 billion in October under the Troubled Asset Relief Program (TARP), agreed to inject $20 billion more, and to share in losses on $118 billion of residential and commercial mortgages, derivatives and corporate debt.
"This Merrill Lynch deal has become a fiasco for Ken Lewis," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. "His whole reason for grabbing Merrill Lynch was getting the brokers, and what he ended up with was gigantic writedowns from the part of the business he didn't even want."
Lewis had coveted Merrill for its brokerage force, often known as the "thundering herd," which he called the "crown jewel" of the roughly $19.4 billion takeover.
Bank of America shares have fallen 67 percent this year, compared to a 41 percent decline in the broader KBW Banks Index (.BKX).
Shares in Citigroup Inc (C.N), which has also received a large cash injection and a government guarantee of assets, were up as much as 10 percent at $3.82 before falling back to close at $3.49 -- a gain of 0.9 percent, or 3 cents.
(Reporting by Elinor Comlay; Additional reporting by Dan Wilchins; Editing by Brian Moss, Gary Hill)
Wednesday, January 28, 2009
Stocks rise on hopes for new bank plan
The Obama administration is close to a plan to buy bad assets from financial companies. The House votes today on the president's stimulus plan. Yahoo posts a loss but beats Wall Street's estimate. Target cuts jobs.
Financials are sparking a rally today, on hopes that President Barack Obama will move forward with a "bad bank" plan.
Under the plan, the government would buy the toxic assets weighing on financials' balance sheets to help get the credit markets flowing and give a lift to the troubled sector, CNBC reported late Tuesday.
Federal Deposit Insurance Corp. Chairwoman Sheila Bair is pushing to manage the plan, Bloomberg News reported. A plan could be announced as early as next week.
Stocks were higher on the news. At 11:35 a.m. ET, the Dow Jones Industrial Average was up 126 points to 8,301. The Nasdaq Composite Index had gained 43 points to 1,547, and the Standard & Poor's 500 Index added 20 points at 866.
Crude oil fell 48 cents to $41.10 this morning after tumbling more than $4 Tuesday to close at $41.58 a barrel.
Financials were jumping this morning. JPMorgan Chase (JPM, news, msgs) was up $2.41, or 9.6%, to $27.47; Citigroup (C, news, msgs) had added 71 cents, or 20%, to $4.26; and Morgan Stanley (MS, news, msgs) was up $2.15, or 11%, to $21.67.
The S&P Banking Index ($BIX.X, news, msgs) rose 17.1% as well.
Meanwhile, Obama has a big test today: The House of Representatives will vote on his $825 billion economic stimulus package. Obama has been courting Republicans in an effort for bipartisan support of his plan, but not all Republicans are convinced the plan will work.
"This Democrat bill won't stimulate anything but more government and more debt," Rep. Mike Pence, R-Ind., said Tuesday. "House Democrats (will) use a time of national crisis to fund big government priorities under the guise of stimulating the economy."
And the Federal Reserve will announce its decision on interest rates this afternoon. Economists expect the central bank to keep rates at the current levels of between 0% and 0.25%.
"The Fed's job is going to be to convince markets and the broader public that they can still support the economy . . . even with the funds rate at zero," said Al Broaddus, the former president of the Richmond Fed.
Wells Fargo, Boeing post results
Wells Fargo (WFC, news, msgs) shares were soaring $4.17, or 25.7%, to $20.36 this morning despite the bank's report of a net loss of $2.55 billion, or 79 cents per share, down from profit of $1.36 billion, or 41 cents per share, in the same period a year ago.
Wells Fargo said the loss was mostly due to its merger with Wachovia. Analysts had been looking for profit of 33 cents per share.
The bank said it will not take any more Troubled Assets Relief Program funds and will keep its quarterly dividend.
Meanwhile, Boeing (BA, news, msgs) this morning said it lost $56 million, or 8 cents per share, in the fourth quarter – down from a profit of $1 billion, or $1.36 per share, in the same period a year ago.
Boeing's results included charges related to its machinist strike, difficulties in its 747 program and a litigation issue. Analysts had been looking for earnings of 76 cents per share.
Boeing, a Dow component, said it will earn between $5.05 and $5.35 per share for 2009, shy of Wall Street's estimate of $5.76 per share.
The stock rose 62 cents, or 1.4%, to $43.84 this morning.
And AT&T (T, news, msgs), another Dow stock, reported a 23% drop in profit for the fourth quarter.
AT&T earned $2.4 billion, or 41 cents per share, down from $3.1 billion, or 51 cents per share, in the same quarter a year ago. Excluding items, the company earned 64 cents per share, a penny shy of estimates.
The telecommunications company said it added 2.1 million wireless subscribers in the quarter, including 1.9 million Apple (AAPL, news, msgs) iPhone subscribers.
AT&T shares fell 53 cents, or 2%, to $25.40 today. Apple shares were up $2.26, or 2.5%, to $92.99.
Wall Street bonuses take a dive
Wall Street lost billions in 2008, but New York bankers took home $18.4 billion in bonuses last year.
Still, cash bonuses paid to New York City employees of Wall Street firms fell 44% last year -- from the $32.9 billion executives took home in 2007 -- according to New York State Comptroller Thomas DiNapoli, who stressed the cuts' painful effect on the New York's economy.
"A 44% decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues," DiNapoli said in a press release. "The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It's painfully obvious that 2009 will probably be another difficult year for the industry."
Employment in the securities industry in New York City fell from 187,800 in October 2007 to 168,600 in December 2008, a loss of 19,200 jobs, or 10.2%, the comptroller's office said.
The average bonus declined by 36.7% to $112,000 last year.
Yahoo swings to a loss
Yahoo (YHOO, news, msgs) had a rough fourth quarter.
The Internet company late Tuesday reported a net loss of $303 million, or 22 cents per share, down from $206 million, or 15 cents per share, in profit in the same quarter a year earlier.
Excluding items, Yahoo earned 17 cents per share, topping Wall Street's estimate by 4 cents.
Shares rose 79 cents, or 7%, to $12.13 on the news.
Net revenue at Yahoo slipped 2% to $1.38 billion in the fourth quarter.
Yahoo said expects income from operations will be between $75 million and $85 million in the current quarter, far short of the consensus estimate $165 million.
"The marketplace is extremely difficult right now, we're still seeing strong growth in the search business, and display has slowed down, and I have no idea how advertisers will react over the next two or three quarters," Chief Financial Officer Blake Jorgensen said in an interview with Thomson Reuters.
One analyst was concerned about the outlook.
"This is pretty ugly," Sanford Bernstein analyst Jeffrey Lindsay, told MarketWatch.com. "They're trying to reset expectations as low as possible."
Yahoo CEO: 'Everything's on the table'
Comments from Yahoo Chief Executive Officer Carol Bartz could offer a little hope for investors who want Yahoo to be acquired or to sell its search business.
"If there's something to look at, we'll look at it," Bartz said on a conference call with analysts. "Everything's on the table."
But Bartz did not go quite so far as to talk about any sort of deal. In fact, Bartz tried to reel in any speculation about a sale by saying that she did not join Yahoo with a preconceived notion to do a search deal.
"I'm still learning about the business," Bartz said. "Search is a very valuable part of (the) business."
It's been a year since Microsoft (MSFT, news, msgs) first approached Yahoo and offered $31 per share for the company; Microsoft ended up walking away from a higher $33-per-share bid in May; Yahoo shares have since tumbled. (Microsoft is the publisher of MSN Money.)
Disappointed shareholders blamed then-CEO Jerry Yang -- whom Bartz replaced earlier this month -- for failing to secure the Microsoft deal and for letting an advertising partnership with Google (GOOG, news, msgs) fall apart.
"I think there's a 100% chance they'll have meaningful conversations," Tom Wilde, CEO of video search company EveryZing, told Fortune, referring to Yahoo and Microsoft. "In terms of something meaningful actually happening, I would put that at about 70%."
Microsoft most recently has said it does not want to purchase all of Yahoo but would still be interested in its search business.
Target cuts jobs
Target (TGT, news, msgs) late Tuesday followed in what's become a long line of companies announcing layoffs.
The discount retailer said that it plans to cut its work force by approximately 9%, which would eliminate about 1,000 jobs.
The current plan includes eliminating 600 jobs and 400 open positions, primarily in the Minneapolis/St. Paul area. Most of the layoffs occurred Tuesday.
The company also said it will close its Little Rock, Ark., distribution center, which employs 500 people, later this year.
Target has struggled to compete with Wal-Mart Stores (WMT, news, msgs), which has managed to weather the economic downturn better than most -- if not all -- other retailers.
Shares of Target jumped $1.77, or 5.3%, to $35.11 this morning.
Fund data provided by Morningstar, Inc. © 2005. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
Financials are sparking a rally today, on hopes that President Barack Obama will move forward with a "bad bank" plan.
Under the plan, the government would buy the toxic assets weighing on financials' balance sheets to help get the credit markets flowing and give a lift to the troubled sector, CNBC reported late Tuesday.
Federal Deposit Insurance Corp. Chairwoman Sheila Bair is pushing to manage the plan, Bloomberg News reported. A plan could be announced as early as next week.
Stocks were higher on the news. At 11:35 a.m. ET, the Dow Jones Industrial Average was up 126 points to 8,301. The Nasdaq Composite Index had gained 43 points to 1,547, and the Standard & Poor's 500 Index added 20 points at 866.
Crude oil fell 48 cents to $41.10 this morning after tumbling more than $4 Tuesday to close at $41.58 a barrel.
Financials were jumping this morning. JPMorgan Chase (JPM, news, msgs) was up $2.41, or 9.6%, to $27.47; Citigroup (C, news, msgs) had added 71 cents, or 20%, to $4.26; and Morgan Stanley (MS, news, msgs) was up $2.15, or 11%, to $21.67.
The S&P Banking Index ($BIX.X, news, msgs) rose 17.1% as well.
Meanwhile, Obama has a big test today: The House of Representatives will vote on his $825 billion economic stimulus package. Obama has been courting Republicans in an effort for bipartisan support of his plan, but not all Republicans are convinced the plan will work.
"This Democrat bill won't stimulate anything but more government and more debt," Rep. Mike Pence, R-Ind., said Tuesday. "House Democrats (will) use a time of national crisis to fund big government priorities under the guise of stimulating the economy."
And the Federal Reserve will announce its decision on interest rates this afternoon. Economists expect the central bank to keep rates at the current levels of between 0% and 0.25%.
"The Fed's job is going to be to convince markets and the broader public that they can still support the economy . . . even with the funds rate at zero," said Al Broaddus, the former president of the Richmond Fed.
Wells Fargo, Boeing post results
Wells Fargo (WFC, news, msgs) shares were soaring $4.17, or 25.7%, to $20.36 this morning despite the bank's report of a net loss of $2.55 billion, or 79 cents per share, down from profit of $1.36 billion, or 41 cents per share, in the same period a year ago.
Wells Fargo said the loss was mostly due to its merger with Wachovia. Analysts had been looking for profit of 33 cents per share.
The bank said it will not take any more Troubled Assets Relief Program funds and will keep its quarterly dividend.
Meanwhile, Boeing (BA, news, msgs) this morning said it lost $56 million, or 8 cents per share, in the fourth quarter – down from a profit of $1 billion, or $1.36 per share, in the same period a year ago.
Boeing's results included charges related to its machinist strike, difficulties in its 747 program and a litigation issue. Analysts had been looking for earnings of 76 cents per share.
Boeing, a Dow component, said it will earn between $5.05 and $5.35 per share for 2009, shy of Wall Street's estimate of $5.76 per share.
The stock rose 62 cents, or 1.4%, to $43.84 this morning.
And AT&T (T, news, msgs), another Dow stock, reported a 23% drop in profit for the fourth quarter.
AT&T earned $2.4 billion, or 41 cents per share, down from $3.1 billion, or 51 cents per share, in the same quarter a year ago. Excluding items, the company earned 64 cents per share, a penny shy of estimates.
The telecommunications company said it added 2.1 million wireless subscribers in the quarter, including 1.9 million Apple (AAPL, news, msgs) iPhone subscribers.
AT&T shares fell 53 cents, or 2%, to $25.40 today. Apple shares were up $2.26, or 2.5%, to $92.99.
Wall Street bonuses take a dive
Wall Street lost billions in 2008, but New York bankers took home $18.4 billion in bonuses last year.
Still, cash bonuses paid to New York City employees of Wall Street firms fell 44% last year -- from the $32.9 billion executives took home in 2007 -- according to New York State Comptroller Thomas DiNapoli, who stressed the cuts' painful effect on the New York's economy.
"A 44% decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues," DiNapoli said in a press release. "The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It's painfully obvious that 2009 will probably be another difficult year for the industry."
Employment in the securities industry in New York City fell from 187,800 in October 2007 to 168,600 in December 2008, a loss of 19,200 jobs, or 10.2%, the comptroller's office said.
The average bonus declined by 36.7% to $112,000 last year.
Yahoo swings to a loss
Yahoo (YHOO, news, msgs) had a rough fourth quarter.
The Internet company late Tuesday reported a net loss of $303 million, or 22 cents per share, down from $206 million, or 15 cents per share, in profit in the same quarter a year earlier.
Excluding items, Yahoo earned 17 cents per share, topping Wall Street's estimate by 4 cents.
Shares rose 79 cents, or 7%, to $12.13 on the news.
Net revenue at Yahoo slipped 2% to $1.38 billion in the fourth quarter.
Yahoo said expects income from operations will be between $75 million and $85 million in the current quarter, far short of the consensus estimate $165 million.
"The marketplace is extremely difficult right now, we're still seeing strong growth in the search business, and display has slowed down, and I have no idea how advertisers will react over the next two or three quarters," Chief Financial Officer Blake Jorgensen said in an interview with Thomson Reuters.
One analyst was concerned about the outlook.
"This is pretty ugly," Sanford Bernstein analyst Jeffrey Lindsay, told MarketWatch.com. "They're trying to reset expectations as low as possible."
Yahoo CEO: 'Everything's on the table'
Comments from Yahoo Chief Executive Officer Carol Bartz could offer a little hope for investors who want Yahoo to be acquired or to sell its search business.
"If there's something to look at, we'll look at it," Bartz said on a conference call with analysts. "Everything's on the table."
But Bartz did not go quite so far as to talk about any sort of deal. In fact, Bartz tried to reel in any speculation about a sale by saying that she did not join Yahoo with a preconceived notion to do a search deal.
"I'm still learning about the business," Bartz said. "Search is a very valuable part of (the) business."
It's been a year since Microsoft (MSFT, news, msgs) first approached Yahoo and offered $31 per share for the company; Microsoft ended up walking away from a higher $33-per-share bid in May; Yahoo shares have since tumbled. (Microsoft is the publisher of MSN Money.)
Disappointed shareholders blamed then-CEO Jerry Yang -- whom Bartz replaced earlier this month -- for failing to secure the Microsoft deal and for letting an advertising partnership with Google (GOOG, news, msgs) fall apart.
"I think there's a 100% chance they'll have meaningful conversations," Tom Wilde, CEO of video search company EveryZing, told Fortune, referring to Yahoo and Microsoft. "In terms of something meaningful actually happening, I would put that at about 70%."
Microsoft most recently has said it does not want to purchase all of Yahoo but would still be interested in its search business.
Target cuts jobs
Target (TGT, news, msgs) late Tuesday followed in what's become a long line of companies announcing layoffs.
The discount retailer said that it plans to cut its work force by approximately 9%, which would eliminate about 1,000 jobs.
The current plan includes eliminating 600 jobs and 400 open positions, primarily in the Minneapolis/St. Paul area. Most of the layoffs occurred Tuesday.
The company also said it will close its Little Rock, Ark., distribution center, which employs 500 people, later this year.
Target has struggled to compete with Wal-Mart Stores (WMT, news, msgs), which has managed to weather the economic downturn better than most -- if not all -- other retailers.
Shares of Target jumped $1.77, or 5.3%, to $35.11 this morning.
Fund data provided by Morningstar, Inc. © 2005. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
Monday, January 26, 2009
Thain says hid nothing from BofA, to repay costs
NEW YORK (Reuters) – Former Merrill Lynch Chief Executive John Thain defended the acquisition of the brokerage by Bank of America Corp (BAC.N) and said the bank knew of Merrill's losses and bonuses before the merger closed.
In a memo to Merrill employees, Thain also said he plans to reimburse Bank of America for $1.2 million spent to renovate his office a year ago, calling the expense "a mistake in the light of the world we live in today."
The renovation expenses, including a reported $35,115 commode and a $1,405 trash can, have become became the latest symbols of corporate excess. News of the expenses surfaced on January 22, the same day Thain was ousted as Bank of America's head of global banking, securities and wealth management, and just three weeks after the $19.4 billion merger closed.
Still, Thain's insistence that Bank of America knew the extent of Merrill's condition put added pressure on Bank of America CEO Kenneth Lewis, who has been criticized over the bank's falling share price, and increasing speculation about his future as chairman and CEO.
Bank of America has been hit with several lawsuits over its failure in December to disclose Merrill losses and talks with the U.S. Treasury Department, which led to a $20 billion capital infusion from the government.
The Charlotte, North Carolina-based bank said on January 16 that Merrill lost $15.31 billion in the fourth quarter. Shares were down 82 percent from September 15, when the merger was announced, through Friday.
Bank of America's board of directors is scheduled to meet on Wednesday.
In the memo, which was posted on several news Web sites, Thain said Merrill's fourth-quarter losses stemmed almost entirely from positions taken on by his predecessor, Stanley O'Neal, who was ousted in October 2007.
"We were completely transparent with Bank of America," Thain said. "They learned about these losses when we did."
Thain also challenged reports that Bank of America was critical of $4 billion in bonuses that Merrill awarded a few days before the merger closed, and earlier than in past years.
He said Merrill's discretionary bonuses were down 41 percent from a year earlier, and that the size, composition and timing of payments "were all determined together with Bank of America."
Bank of America spokesman Scott Silvestri declined to discuss the board meeting, or Thain's memo, apart from bonuses.
"John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation," he said. "We had no legal right to challenge it."
Bank of America shares rose 52 cents to $6.76 on the New York Stock Exchange.
(Reporting by Jonathan Stempel; editing by John Wallace and Jeffrey Benkoe)
In a memo to Merrill employees, Thain also said he plans to reimburse Bank of America for $1.2 million spent to renovate his office a year ago, calling the expense "a mistake in the light of the world we live in today."
The renovation expenses, including a reported $35,115 commode and a $1,405 trash can, have become became the latest symbols of corporate excess. News of the expenses surfaced on January 22, the same day Thain was ousted as Bank of America's head of global banking, securities and wealth management, and just three weeks after the $19.4 billion merger closed.
Still, Thain's insistence that Bank of America knew the extent of Merrill's condition put added pressure on Bank of America CEO Kenneth Lewis, who has been criticized over the bank's falling share price, and increasing speculation about his future as chairman and CEO.
Bank of America has been hit with several lawsuits over its failure in December to disclose Merrill losses and talks with the U.S. Treasury Department, which led to a $20 billion capital infusion from the government.
The Charlotte, North Carolina-based bank said on January 16 that Merrill lost $15.31 billion in the fourth quarter. Shares were down 82 percent from September 15, when the merger was announced, through Friday.
Bank of America's board of directors is scheduled to meet on Wednesday.
In the memo, which was posted on several news Web sites, Thain said Merrill's fourth-quarter losses stemmed almost entirely from positions taken on by his predecessor, Stanley O'Neal, who was ousted in October 2007.
"We were completely transparent with Bank of America," Thain said. "They learned about these losses when we did."
Thain also challenged reports that Bank of America was critical of $4 billion in bonuses that Merrill awarded a few days before the merger closed, and earlier than in past years.
He said Merrill's discretionary bonuses were down 41 percent from a year earlier, and that the size, composition and timing of payments "were all determined together with Bank of America."
Bank of America spokesman Scott Silvestri declined to discuss the board meeting, or Thain's memo, apart from bonuses.
"John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation," he said. "We had no legal right to challenge it."
Bank of America shares rose 52 cents to $6.76 on the New York Stock Exchange.
(Reporting by Jonathan Stempel; editing by John Wallace and Jeffrey Benkoe)
Friday, January 23, 2009
Former Merrill chief Thain out at Bank of America
NEW YORK – John Thain resigned under pressure from Bank of America on Thursday after reports he rushed out billions of dollars in bonuses to Merrill Lynch employees in his final days as CEO there, while the brokerage was suffering huge losses and just before Bank of America took it over.
The bonuses were paid before Bank of America's acquisition of Merrill became final on Jan. 1, and while Bank of America was privately telling the government that Merrill was losing so much money that the deal might fall through unless it could get more federal bailout money.
Bank of America later received an additional $20 billion from the government, in part to offset the unexpected Merrill losses. The brokerage lost $15 billion in the fourth quarter and more than $27 billion for the year.
The bonuses, typically paid in January, were instead given in December and totaled $3 billion to $4 billion, the Financial Times reported Thursday. Bank of America would not confirm the size of the bonuses.
Scott Silvestri, a Bank of America spokesman, noted that Merrill was still operating as an independent company at the time the bonuses were paid. Had Thain not acted early, it would have been up to Bank of America to pay or reduce the bonuses later.
Bank of America CEO Kenneth Lewis flew to New York on Thursday to meet with Thain, and within hours the spokesman issued a terse statement saying the two had "mutually agreed that his situation was not working out and he would resign."
The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off the most intense period of the financial crisis.
The government also promised last week to guarantee about $97 billion in losses on Bank of America's troubled assets, most of it coming from Merrill Lynch.
Thain himself did not accept a bonus last year. Nor did four other top executives at Merrill: its president and chief operating officer, its president of global wealth management, its chief financial officer and its general counsel.
Thain, 53, is a former head of the New York Stock Exchange and a former chief operating officer of investment bank Goldman Sachs. He had been named head of a wealth management division of the merged businesses of Merrill and Bank of America.
In 2007, Thain topped the list of highest-paid CEOs in American business, with a compensation package valued at $83 million, according to an Associated Press analysis. That included a signing bonus and other enticements that helped lure him from the NYSE to lead Merrill.
New York Attorney General Andrew Cuomo has opened an investigation into the bonuses, a person familiar with the probe told The Associated Press on Thursday. The person spoke on condition of anonymity because the investigation is ongoing.
Silvestri said Lewis was aware of Thain's decision to grant the bonuses, and some analysts said the disclosure also increases pressure on Lewis.
Bank of America stock, which was already tumbling Thursday, fell further after reports of Thain's departure but later regained ground. It closed down 97 cents, or more than 14 percent, at $5.71.
Bank of America stock has been among the hardest hit in the financial sector. It has lost almost 60 percent of its value since the Merrill deal went through. The stock is down 85 percent from one year ago.
"From a shareholder standpoint, board standpoint, you would really have to question his judgment," said Jason O'Donnell, a bank analyst with Boenning & Scattergood Inc.
It is unclear who would replace Lewis as Bank of America CEO if he were ousted by the board of directors. Thain was rumored to be most likely to be Lewis' eventual successor, O'Donnell said.
"Clearly Lewis made a bad deal. Thain did a very good job in selling him on the prospects of Merrill," he said. "He needs to take responsibility for that transaction."
At the very least, the payment of bonuses indicates Thain was "completely tone-deaf to the culture of B of A," said Tony Plath, finance professor at the University of North Carolina at Charlotte.
"My surprise is the board gave him an opportunity to resign and didn't just fire him," he added.
A spokesman for Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, said Frank was "very disappointed to learn this news, and these banks are the toughest people in the world to try to help."
Sens. Johnny Isakson, R-Ga., and Kent Conrad, D-N.D., said at the Capitol that they were not familiar with the details of the situation but that it would be an outrage to award bonuses in advance while the brokerage firm was suffering big losses.
"If it's found to be true that people were taking huge bonuses while accepting government assistance or taking bonuses while their shareholders were taking huge losses, it's unconscionable in my judgment," Isakson said.
Some analysts expected Thain to leave soon anyway. When two huge companies link up, one of the CEOs from the standalone companies usually departs. Bank of America named its general counsel, Brian Moynihan, to replace Thain.
Bank of America has come under criticism for acquiring Merrill and its huge losses, and Lewis has spoken out in the past about his dislike of the investment banking business.
In October 2007, after Bank of America posted a 32 percent drop in third quarter profits, hurt heavily by investment banking results, Lewis said: "I've had all of the fun I can stand in investment banking at the moment. So to get bigger in it is not something I really want to do."
___
AP Business Writer Ieva M. Augstums reported from Charlotte, N.C.
The bonuses were paid before Bank of America's acquisition of Merrill became final on Jan. 1, and while Bank of America was privately telling the government that Merrill was losing so much money that the deal might fall through unless it could get more federal bailout money.
Bank of America later received an additional $20 billion from the government, in part to offset the unexpected Merrill losses. The brokerage lost $15 billion in the fourth quarter and more than $27 billion for the year.
The bonuses, typically paid in January, were instead given in December and totaled $3 billion to $4 billion, the Financial Times reported Thursday. Bank of America would not confirm the size of the bonuses.
Scott Silvestri, a Bank of America spokesman, noted that Merrill was still operating as an independent company at the time the bonuses were paid. Had Thain not acted early, it would have been up to Bank of America to pay or reduce the bonuses later.
Bank of America CEO Kenneth Lewis flew to New York on Thursday to meet with Thain, and within hours the spokesman issued a terse statement saying the two had "mutually agreed that his situation was not working out and he would resign."
The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off the most intense period of the financial crisis.
The government also promised last week to guarantee about $97 billion in losses on Bank of America's troubled assets, most of it coming from Merrill Lynch.
Thain himself did not accept a bonus last year. Nor did four other top executives at Merrill: its president and chief operating officer, its president of global wealth management, its chief financial officer and its general counsel.
Thain, 53, is a former head of the New York Stock Exchange and a former chief operating officer of investment bank Goldman Sachs. He had been named head of a wealth management division of the merged businesses of Merrill and Bank of America.
In 2007, Thain topped the list of highest-paid CEOs in American business, with a compensation package valued at $83 million, according to an Associated Press analysis. That included a signing bonus and other enticements that helped lure him from the NYSE to lead Merrill.
New York Attorney General Andrew Cuomo has opened an investigation into the bonuses, a person familiar with the probe told The Associated Press on Thursday. The person spoke on condition of anonymity because the investigation is ongoing.
Silvestri said Lewis was aware of Thain's decision to grant the bonuses, and some analysts said the disclosure also increases pressure on Lewis.
Bank of America stock, which was already tumbling Thursday, fell further after reports of Thain's departure but later regained ground. It closed down 97 cents, or more than 14 percent, at $5.71.
Bank of America stock has been among the hardest hit in the financial sector. It has lost almost 60 percent of its value since the Merrill deal went through. The stock is down 85 percent from one year ago.
"From a shareholder standpoint, board standpoint, you would really have to question his judgment," said Jason O'Donnell, a bank analyst with Boenning & Scattergood Inc.
It is unclear who would replace Lewis as Bank of America CEO if he were ousted by the board of directors. Thain was rumored to be most likely to be Lewis' eventual successor, O'Donnell said.
"Clearly Lewis made a bad deal. Thain did a very good job in selling him on the prospects of Merrill," he said. "He needs to take responsibility for that transaction."
At the very least, the payment of bonuses indicates Thain was "completely tone-deaf to the culture of B of A," said Tony Plath, finance professor at the University of North Carolina at Charlotte.
"My surprise is the board gave him an opportunity to resign and didn't just fire him," he added.
A spokesman for Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, said Frank was "very disappointed to learn this news, and these banks are the toughest people in the world to try to help."
Sens. Johnny Isakson, R-Ga., and Kent Conrad, D-N.D., said at the Capitol that they were not familiar with the details of the situation but that it would be an outrage to award bonuses in advance while the brokerage firm was suffering big losses.
"If it's found to be true that people were taking huge bonuses while accepting government assistance or taking bonuses while their shareholders were taking huge losses, it's unconscionable in my judgment," Isakson said.
Some analysts expected Thain to leave soon anyway. When two huge companies link up, one of the CEOs from the standalone companies usually departs. Bank of America named its general counsel, Brian Moynihan, to replace Thain.
Bank of America has come under criticism for acquiring Merrill and its huge losses, and Lewis has spoken out in the past about his dislike of the investment banking business.
In October 2007, after Bank of America posted a 32 percent drop in third quarter profits, hurt heavily by investment banking results, Lewis said: "I've had all of the fun I can stand in investment banking at the moment. So to get bigger in it is not something I really want to do."
___
AP Business Writer Ieva M. Augstums reported from Charlotte, N.C.
Thursday, January 22, 2009
Lloyds Banking Group Slides; FTSE 100 Modestly Lower
Lloyds Banking Group on Tuesday became the latest British bank to see its share price plunge, with shares in the lender at one point trading down as much as 48% in London's top share index.
Lloyds Banking Group (LYG) shares closed down 31.1% at 45 pence. At one point in the session, the shares fell as low as 34 pence, a drop of approximately 48% from Monday's 65 pence closing price.
The British government currently holds 43% of Lloyds Banking Group.
"The market is betting that further banking nationalizations will be necessary," said Manoj Ladwa, senior trader at ETX Capital.
On Monday, Royal Bank of Scotland shares slumped more than 60% after the bank revealed that it could be on track to post the biggest annual loss in U.K. corporate history and that the U.K. government would take a bigger stake in the lender.
RBS shares traded higher in the morning but eventually closed down 11.2%.
"The financial sector is on government life support," noted Richard Batty, investment director for strategy at Standard Life Investments.
Lenders that the government does not hold stakes in also had a rough session on Tuesday, with Barclays (BCS) down 17.2% and HSBC Holdings (HBC) down 3.2%.
"The question that investors are grappling with is what's going to happen to the economy given the importance of the financial sector. We see a severe recession," said Batty at Standard Life.
The sterling hit a six-year low against the dollar on Tuesday and was recently down 2.5% at $1.40.
Overall, the U.K. FTSE 100 index closed down 0.4% to 4,091.40. Other European shares also lost ground, as did U.S. stocks.
On Tuesday, Barack Obama takes power as the 44th U.S. president and his inauguration speech is expected to lay out an agenda for change in troubled times.
"We already have details of the $825 billion fiscal stimulus package. On some estimates the package will raise GDP by around 3% to 4% over the next couple of years and save or create around 3.5 million jobs. Success will crucially depend on the bank lending channel," noted economists at UBS.
Mineral extractors up, some retail relief
Still, oil producers advanced in London, with Royal Dutch Shell (RDSA) shares up 1.4% and BP (BP) shares up 1.8%.
In the retail sector, Burberry Group shares jumped 12.4%.
It said that its revenue in the three months ended Dec. 31 rose 30%, boosted by currency moves, which was about 14% above Merrill Lynch expectations.
The firm said that markets were challenging and volatile in the period. It's aiming cut costs further and plans to restructure its Spanish operations and consolidate U.K. manufacturing.
There could be around 250 redundancies in Spain and up to 290 redundancies in the U.K.
Shares of pub operator J.D. Wetherspoon surged 14.9%. Comparable sales in the 12 weeks to Jan. 18 rose 2.6%, an improvement on fiscal first-quarter performance when sales rose 1.5%.
"We feel consumers will become increasingly more price sensitive in 2009 and J.D. Wetherspoon is in an enviable position to take market share," noted analysts at Altium Securities. (END) Dow Jones Newswires
01-20-09 1211ET
Copyright (c) 2009 Dow Jones & Company, Inc.
Lloyds Banking Group (LYG) shares closed down 31.1% at 45 pence. At one point in the session, the shares fell as low as 34 pence, a drop of approximately 48% from Monday's 65 pence closing price.
The British government currently holds 43% of Lloyds Banking Group.
"The market is betting that further banking nationalizations will be necessary," said Manoj Ladwa, senior trader at ETX Capital.
On Monday, Royal Bank of Scotland shares slumped more than 60% after the bank revealed that it could be on track to post the biggest annual loss in U.K. corporate history and that the U.K. government would take a bigger stake in the lender.
RBS shares traded higher in the morning but eventually closed down 11.2%.
"The financial sector is on government life support," noted Richard Batty, investment director for strategy at Standard Life Investments.
Lenders that the government does not hold stakes in also had a rough session on Tuesday, with Barclays (BCS) down 17.2% and HSBC Holdings (HBC) down 3.2%.
"The question that investors are grappling with is what's going to happen to the economy given the importance of the financial sector. We see a severe recession," said Batty at Standard Life.
The sterling hit a six-year low against the dollar on Tuesday and was recently down 2.5% at $1.40.
Overall, the U.K. FTSE 100 index closed down 0.4% to 4,091.40. Other European shares also lost ground, as did U.S. stocks.
On Tuesday, Barack Obama takes power as the 44th U.S. president and his inauguration speech is expected to lay out an agenda for change in troubled times.
"We already have details of the $825 billion fiscal stimulus package. On some estimates the package will raise GDP by around 3% to 4% over the next couple of years and save or create around 3.5 million jobs. Success will crucially depend on the bank lending channel," noted economists at UBS.
Mineral extractors up, some retail relief
Still, oil producers advanced in London, with Royal Dutch Shell (RDSA) shares up 1.4% and BP (BP) shares up 1.8%.
In the retail sector, Burberry Group shares jumped 12.4%.
It said that its revenue in the three months ended Dec. 31 rose 30%, boosted by currency moves, which was about 14% above Merrill Lynch expectations.
The firm said that markets were challenging and volatile in the period. It's aiming cut costs further and plans to restructure its Spanish operations and consolidate U.K. manufacturing.
There could be around 250 redundancies in Spain and up to 290 redundancies in the U.K.
Shares of pub operator J.D. Wetherspoon surged 14.9%. Comparable sales in the 12 weeks to Jan. 18 rose 2.6%, an improvement on fiscal first-quarter performance when sales rose 1.5%.
"We feel consumers will become increasingly more price sensitive in 2009 and J.D. Wetherspoon is in an enviable position to take market share," noted analysts at Altium Securities. (END) Dow Jones Newswires
01-20-09 1211ET
Copyright (c) 2009 Dow Jones & Company, Inc.
Wells Fargo names president of Florida banking
Wells Fargo has tapped Shelley Freeman, its top officer in Los Angeles, to head the massive bank network it acquired in Florida from Wachovia Corp. on Dec. 31.
Freeman, who will be based in the Wachovia Financial Center in Miami as the Florida regional president of community banking, has been with San Francisco-based Wells Fargo (NYSE: WFC) for 12 years.
She comes from Los Angeles, where she was regional president of that market and national co-leader for the bank’s affluent customer support strategy.
Before that, Freeman led Wells Fargo’s interest investment services and directed its private banking and brokerage administration.
Freeman heads the largest branch network in the state. Wells Fargo did not have any Florida branches until it acquired Wachovia. Now, Freeman will handle that network’s retail, small business and standard business banking.
Wachovia is the second largest bank in the Jacksonville market, with $6.6 billion in local deposits and 22.6 percent market share, according to Federal Deposit Insurance Corp. data from June 30.
Wachovia had an 18.7 percent market share in Florida, with $71.1 billion in deposits. One of Freeman’s first tasks will be selecting the next level of leadership here, Wells Fargo spokeswoman Kathy Harrison said. Some positions could be eliminated, but there will also be plenty of job openings. The Wachovia signs will eventually be switched to Wells Fargo, but that’s not of immediate concern, Harrison added.
Freeman, who will be based in the Wachovia Financial Center in Miami as the Florida regional president of community banking, has been with San Francisco-based Wells Fargo (NYSE: WFC) for 12 years.
She comes from Los Angeles, where she was regional president of that market and national co-leader for the bank’s affluent customer support strategy.
Before that, Freeman led Wells Fargo’s interest investment services and directed its private banking and brokerage administration.
Freeman heads the largest branch network in the state. Wells Fargo did not have any Florida branches until it acquired Wachovia. Now, Freeman will handle that network’s retail, small business and standard business banking.
Wachovia is the second largest bank in the Jacksonville market, with $6.6 billion in local deposits and 22.6 percent market share, according to Federal Deposit Insurance Corp. data from June 30.
Wachovia had an 18.7 percent market share in Florida, with $71.1 billion in deposits. One of Freeman’s first tasks will be selecting the next level of leadership here, Wells Fargo spokeswoman Kathy Harrison said. Some positions could be eliminated, but there will also be plenty of job openings. The Wachovia signs will eventually be switched to Wells Fargo, but that’s not of immediate concern, Harrison added.
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