Bank of America

Star analyst touts three stocks

Jim Kim — Thu, 09 Oct 2008 14:27:57 -0400

Some would argue that you'd be a fool to buy bank stocks these days, but then again Meredith Whitney is no fool and she recommends the preferred shares of JPMorgan Chase, Bank of America and Wells Fargo, reports Fortune. She's got a point. JPMorgan Chase and Wells Fargo especially have fared as well, as could be expected in the credit crunch. No one thinks they're about to tank. And yields are looking very good, having soared to the 8 or 9 percent level. Of course Warren Buffett got 10 percent on his Goldman Sachs preferred shares, but you're not him. But then again, yields could actually rise a bit more as the uncertainty continues.

For more:
- here's the article

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Jury still out on Bank of America

Jim Kim — Mon, 06 Oct 2008 21:44:26 -0400

Bank of America fell well below analysts expectations when it announced earnings of 15 cents a share for the third quarter. The average analyst was predicting an estimate of 62 cents a share. The bank also cut its quarterly dividend in half to 32 cents, and announced an offering of common shares to raise $10 billion. None of this is really all that surprising. It certainly points to the challenges the bank faces as it tries to digest both Countrywide and Merrill Lynch. It's fair to say that CEO Ken Lewis has put it all on the line. The outcome of these deals will be his legacy. The integration must occur in a punishing environment. It's not clear at all that he'll get any help from the economy.

For more:
- here's a Fortune update

Thain to stay at Bank of America

Jim Kim — Thu, 02 Oct 2008 12:56:06 -0400

The CEO merry-go-round has been in overdrive in the financial securities industry. John Thain, who was brought on as CEO of Merrill Lynch to a lot of fanfare, looked like he would be another short-termer after he was essentially forced by events into a deal with Bank of America. Some speculated he would leave after the deal was struck. But the Financial Times reports that he will stay on as president of global banking, securities and wealth management. Immediately, you have to wonder if Thain is the guy who the Bank of America board is eyeing as the replace for current CEO Ken Lewis, 62. It looks like he will be given every opportunity to prove that he's their man. As of now, however, he is one of ten executives who report to Lewis.

For more:
- here's the article

Ken Lewis faces his future

Jim Kim — Tue, 30 Sep 2008 12:38:59 -0400

One of the most powerful men in finance resides and works in Charlotte, not Manhattan or London. Bank of America has been on quite a ride. From the doom and gloom of earlier this year, to the much-debated Countrywide acquisition, to the recent deal to buy Merrill Lynch. All of a sudden we're talking about a big three in terms of heft: Bank of America, Citigroup and JPMorgan Chase. For Bank of America CEO Ken Lewis, this is the crowning achievement of a career built on acquisitions. This, in many ways, is the bank he has always dreamed of, even as he tells Fortune that the golden age of financial services is over. His bank is no doubt poised to be a dominator. That assumes he can make it all work, which will be no small feat. Integrating the pieces will in itself be a challenge. Strategically, he must succeed where so many CEOs at Citigroup failed. Will the universalist model finally win? We'll find out.

For more:
- here's the Fortune article on Lewis

WaMu fails, government steps in

Jim Kim — Fri, 26 Sep 2008 08:04:11 -0400

Washington Mutual, even with Goldman Sachs working on its behalf, ran out of time Thursday. Things had deteriorated to the point that the FDIC had no choice but to step in. They seized the thrift in what amounts to the largest failure of a financial institution ever. They then sold much of the company to JPMorgan--buyer of last resort?-- for $1.9 billion. That will create the largest retail bank in the country, surpassing Bank of America, according to the Washington Post. The FDIC acted to protect WaMu's assets and not drain the government's insurance funds. WaMu, in the end, had degenerated into a toxic company that no one else would touch on its own. Depositors were getting antsy, and the bank's bond rating had plummeted. It couldn't fund normal operations. So who's next? The dominoes keep falling.

For more:
- here's a Washington Post article

Assessing the John Thain era at Merrill Lynch

Jim Kim — Tue, 16 Sep 2008 10:09:23 -0400

The John Thain era at Merrill Lynch was short, but long on drama. It ended on a good note. From the moment he stepped in, he was faced with one crisis after another. They all built to the point that the storied brand was threatened. Dominoes were set to crash into it. Thain, unclouded by a long emotional tenure at the firm (perhaps unlike Lehman Brothers CEO Richard Fuld), was clear-eyed enough to see the end, though it just might have survived the Lehman crisis. Still, Thain played it safe and did what he had to. He sold out to Bank of America at a price that leaves little room for shareholders (Merrill's anyway) to quibble. The brand will survive. Bank of America will continue to use it. It's unclear what role Thain will play if any. My guess is that he will move on.

For more:
- here's a New York Post article

Man in the middle: Ken Lewis

Jim Kim — Mon, 15 Sep 2008 21:11:25 -0400

The CEO of Bank of America is not shy about laying big bets, despite the conservative image he wants for his bank. People have been saying for a while now that the Countrywide deal would be his legacy. Now it appears that the Merrill Lynch deal will be. Lewis is buying on the dips, not unlike so many discredited value investors. The result is that he's suddenly running a financial service behemoth. Did he overpay? He says no. The bank is paying about 1.8 times book value. Indeed, the crisis created a golden opportunity to get the Thundering Herd cheap. Merrill, of course, is in no position to bargain. Lewis also wanted to cement a deal and not have to worry about another bidder. But Bank of America is hardly in the clear. Still, Merrill's big deal with Lone Star may pave the way for a successful integration, which Bank of America has done so well in the past.

For more:
- here's a Fortune article
- here's a New York Times article

Brave new financial regulatory structure needed?

Jim Kim — Mon, 15 Sep 2008 09:47:37 -0400

What to make of the pyrotechnics from a regulatory point of view? You could argue it two ways: When push came to shove, Henry Paulson and Tim Geithner somehow pulled off a workable rescue, aided in part by Bank of America's and Merrill Lynch's deal. In that sense, the system held, assuming the CDS markets don't stop functioning. At the same time, a big-name bank was allowed to fail--and that in itself is a victory. There's a lot of moral hazard on Wall Street. But given all this, there's a sense that the markets and investment banking have outrun the current regulatory structure. The OTC derivatives market is, from a regulator's point of view, a black hole. It's hard to even get good information. So we may see this be addressed once the crisis has passed. We'll likely see more oversight of investment banks by the Fed, whose primary duty now, on paper anyway, is commercial banking.

For more:
- here's a Washington Post article

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Bank of America and Merrill Lynch agree to deal, valuation at issue

Jim Kim — Sun, 14 Sep 2008 21:48:52 -0400

What should be made of Ken Lewis, CEO of Bank of America? Most people assumed he wanted no piece of Lehman Brothers, given the bank's integration challenges with Countrywide and his famous quip that he had all the fun he could stand in investment banking. But he loomed as Lehman Brothers' savior until the very end, when he decided he couldn't go forward. Which set the stage for a fateful switch: he set his sights on Merrill Lynch, which stood to be lashed in the fallout of the Lehman news. One might argue that Lewis shrewdly played the endgame, coming out with a deal to buy a much stronger property. One that offers even more synergies. Lewis has long coveted the Thundering Herd, but then there's the issue of price. At $29 a share, there has already been some grumbling. After all Merrill had been trading around $17. This strikes many as another bet-the-farm deal, right on the heels of Countrywide. John Thain, the CEO of Merrill Lynch, after a stormy, short tenure is not expected to be remain as an executive.

For more:
- here's an AP article
- No regulatory issues seen. Article

Lehman Brothers, RIP

Jim Kim — Sun, 14 Sep 2008 21:48:16 -0400

Wow! What else is there to say? In an extraordinary weekend, Wall Street has been remade. We've written recently that Lehman Brothers was another Bear Stearns. But it's even worse. It was forced into bankruptcy despite a frantic weekend of negotiating among top regulators and Wall Street execs. In the end, the government sealed Lehman's fate--and indirectly Merrill Lynch's. You cannot argue with Henry Paulson's decision not to extend the same backing for a potential Lehman deal that the government did to JPMorgan's deal for Bear Stearns (some $30 billion in assurances). At some point, someone had to end the moral hazard. At the same time, without such assurances, you can't blame Barclays and Bank of America for walking away, which left death as the only option for storied Lehman Brothers. Incredible.

For more:
- here's the AP overview
- Lehman employees already in a Bear Stearns-like situation. Article
- Bank of America, Lehman, could it have been a natural fit? Article
- Lehman has decided not to provide coffee for camped-out reporters
- the last minute options. Article

Related Article:
Lehman Brothers, another Bear Stearns after all