Thursday, January 15, 2009

Ask the Pilot who Landed the Plane in the Hudson River to Replace LEWIS at BAC

I just glad there are competent people in this world, and I am sure that we are all grateful tonight that one of them was flying that US AIR flight that made a successful landing in the Hudson River today.  The pilot, Capt. Chesley Sullenberger, was 57 and a veteran aviator.  NYTimes.com

It is just too bad that there are no competent people running most of our major financial institutions.  It is hard for me to let go of this issue.  The thing speaks for itself, res ipsa loquitur in Latin.  Res ipsa loquitur - Wikipedia, the free encyclopediaTheir incompetence is proven by the results.  

I said earlier today that Ken Lewis and his team at Bank of America have destroyed more value than they have created for BAC shareholders or could ever hope to create. BAC/ DEMs Being Dems/HRPT PROPERTIES/ DRIVING HABITS IN THE SUV CAPITAL When you reach such a catastrophic failure in management, there is only one option.  There is only one choice. You have to fire all of them.  Some would say Ken is a daring sort and is in the best position to manage the bank out of the mess that he created by his zeal for just being big and then bigger.  I am always curious why anyone suggests that the person who got you into a pickle is the one best able to avoid more mistakes.  Maybe I am old fashion, believing in responsibility and accountability, admittedly forgotten virtues and possibly no longer even considered virtues by many who would just call me a sap,  but I do not think anyone deserves a second chance who brings a major company to the brink of disaster.  The Board of Directors that approved the major decisions that led to the current fiasco, and who wish to keep those responsible for it possibly to avoid admitting a mistake, have to be removed, for these arrogant people rarely admit making an error. 

Tonight, the NYT has the best story on the contours of the BAC deal with the government.  NYTimes.comThe bank wants 20 billion.  The government might have to absorb up to 100 billion in losses with BAC being responsible for the first 10, the government the next 10 billion, and then the government would absorb the next 98 billion. If this sounds like the American citizens are getting the shaft by this latest bailout, then I would agree with that assessment.  The people who caused it barely feel a ripple.  The ones at Merrill Lynch who loaded up on the trash left with hundreds of millions to ply their wares elsewhere. It is the American people that they played for the suckers.

The WSJ story fills in some interesting details not in the NYT article.  According to the WSJ, Bernanke told Lewis that the bank would look bad if he did not finish the deal, not doing adequate due diligence.  And does anyone actually believe that BAC did due diligence or that they were told the true state of affairs by those desperate to do a deal?BWSJ.com

For the BAC shareholders, which unfortunately includes me, in what I have already referred to as my worst mistake in 2008, just keeping the shares in BAC that I owned in November 2007, the common share dividend would be cut to a penny as required in the model previously used in the Citigroup arrangement with the government.   I suggested in several earlier posts that this could be the likely result.Ken Lewis: Taking BAC to the Abyss/Bernie Rehabilitated already?  I do not see anything in the story about preferred dividends but the government is receiving preferred stock for its 20 billion investment.  I am sure that more details will be released soon.  As I said in a prior postGoldstein Article BusinessWeek: Nationalize Citi and Eliminate BAC's Common and Preferred dividends?, I would be seriously surprised if the government required deferral or elimination of any of the preferred dividends as a condition to the deal, as this would have far reaching implications for all financial firms including companies whose capital is tied up in those issues such as life insurance companies who are already suffering from previous preferred debacles including those issued by Lehman,  Fannie and Freddie as well as bonds from companies like AIG and its subsidiaries.    

I am not suggesting that Bank of America will have to be seized by the FDIC.  I do not know whether that will be in the cards somewhere in the future.  I do know that every member of the Board and top executives of any major banking institution that has to go hat in hand, begging Uncle Sam for help due to the foolish decisions of its managers, licking the boots of Hank Paulson, have to go.  

When will I recover my investment in Bank of America if I choose not to take a tax loss on it, that is hard to say?  I am just thinking to myself since I do engage in self reflection and try to learn from my mistakes. When will the brilliance of Ken and his boys earn me a dollar in excess of my capital invested?   My best guess would be in a decade, optimistically speaking, realistically in 15 years, and a realistic possibly of not in my lifetime.  Do you really think anyone in that bank would have the balls to stand up to Lewis on anything?  Anyone who votes for the BAC slate of Directors in the upcoming election needs to have their voting privileges removed on all securities held by them. 

I think that I will go back to a picture where I had more hair. 
 

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