Wednesday, January 14, 2009

Ken Lewis: Taking BAC to the Abyss/Bernie Rehabilitated already?

Ken Lewis has brought Bank of America to its knees.  Apparently, two days of due diligence, trying to ascertain the amount of toxic and radioactive waste that Stan and his 20 mil a year financial wizards placed on Merrill's books, was not sufficient, nor was there any need to tell BAC's shareholders about any known problems before they voted on the merger. I did vote against the acquisition of Merrill, believing that Lewis had overpaid,  but the shareholders were not told everything that they needed to know before voting in favor of the merger.  The WSJ is reporting tonight that Ken is requesting more money from the government. This article also summarizes Goldman Sach's latest estimate of loan losses in the U.S., which is 2.1 trillion dollars.

One of the reasons that I made an erroneous decision to keep Bank of America stock in 2007 was a belief that Lewis was not a fool.  After watching what he did in 2008, I came gradually to the inevitable conclusion that I erred in my assessment of his judgement and abilities.   It would now be just foolhardy to have even the slightest degree of confidence in the people running our major financial institutions.  Fortunately, I did not buy any BAC in 2008, but I did reinvest my dividends at ever lower prices.

While it is too soon to make a declarative statement of certainty, it would be reasonable to expect a further reduction of BAC's common stock dividend, and there is certainly a possibility now of its virtual elimination (i.e. 1 cent a quarter, similar to the restriction placed on Citigroup by the government).  I do view it as too late for me to take a loss unless I am given a gift in another security, maybe one of my biotechs will discover a cure for cancer later this year, where I can then offset a gain with the BAC loss and even feel good about it.  There is always hope.

I suspect my trading activity will be very light this year.  Most likely, this will be a transition year where most of my new positions will have an extended holding period.  

Ken Lewis of course needs to be fired along with the entire Board, but this is not likely to happen due to the complacency and even complicity of large institutional holders.   There can be no doubt that Lewis' foolish audacity and recklessness has brought Bank of America to the brink, and  he has unquestionably destroyed more value than he has ever created at the bank.  Possibly, way into the future, the shareholders who acquired stock before 2008 will somehow be made whole from his large number of major mistakes in 2008.  That day may even come in my lifetime assuming I live a few more decades.   However,  when an institution the size of BAC is taken to the very edge of the abyss, there has to be a complete house cleaning of every Board member and every top member of management. There needs to be accountability even though accountability is admittedly an old fashioned word these days.  What a mess.     
By waiting to add common stock until tomorrow, I will at least be able to buy at lower prices.  The only question is whether to just let the cash build up and do something later.  I am glad that I do not drink or smoke since both vices would probably accelerate in the current environment.  

I heard that Bernie wants to repent, turn a new leaf, and spend the remainder of his life using his investing expertise to earn back that 50 billion he allegedly misplaced.  Based on what I have seen so far, this plea may just work on the Federal Judge overseeing his case.   Maybe there will be a plea deal sold to this judge with Bernie and his mouthpiece mouthing the words of contrition which sometimes is confused by the gullible as an honest expression of guilt. There is not now, nor will there ever be, an ounce of remorse in Bernie.  But maybe Ira Sorkin can spew enough smoke, come up with a twinkie defense or something equally worthy and serious, and plead Bernie to 30 days community service with a promise that he will work really, really hard to make whole the victims of his "alleged" Ponzi scheme.     

The pictures of Steve Jobs, showing him emaciated, was indicative of a more serious illness than shareholders had just been led to believe.  A Yahoo! Finance

I really do not see how anyone could be approved as treasury secretary after failing to pay taxes on income received.

Mary Schapiro is going to have to toughen up and learn that it is necessary to go after a few big fish rather than limiting her enforcement activities to low hanging fruit. We do not need an SEC Chairman that will go after some Haitian Ponzi scheme while giving Bernie a pass.  I was not aware that FINRA may have had some jurisdiction over Madoff's managed brokerage accounts.

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