For Bank of America, the Pressure Mounts Over Merrill Deal
Davis Turner/Bloomberg News
Published: January 17, 2009
Just months ago, Kenneth D. Lewis was the triumphant hero.
Today, he is struggling to defend a controversial conquest that now threatens the mighty empire he built at Bank of America.
Hours after the bank received a new government bailout to cover heavy losses at its Merrill Lynch subsidiary, Mr. Lewis came under fire Friday from investors wanting to know why the bank did not notify them of Merrill's losses in December, when the bank told the government it would need additional support to ensure the merger would survive.
Merrill Lynch reported a devastating $15.3 billion loss in the fourth quarter, its last quarter before the merger closed. Those losses came atop Bank of America's own $1.79 billion loss last quarter, as the nation's largest consumer bank suffered from credit card, mortgage loan and commercial real estate problems. The shares closed at $7.18, down 13.7 percent. In a conference call with analysts, Mr. Lewis found himself fending off a barrage of questions about what he knew of Merrill Lynch's losses, and when he knew it.
"The question is, When did Merrill Lynch know they had these losses? A lot of times companies would disclose losses of that magnitude," said Michael Mayo, an analyst at Deutsche Bank. "This was dramatic."
Mr. Lewis told analysts that he was surprised to learn in December, three months after the bank snapped up Merrill Lynch in a shotgun deal, that the magnitude of losses at the brokerage was far greater than expected. He said he had considered walking away from the deal at that point, but was persuaded not to, partly by regulators who feared that a failure to seal the deal could set off a new round of panic in the markets.
The decision to stick with Merrill despite its problems, he said, was patriotic. "I do think we were doing the right thing for the country," Mr. Lewis said.
Page 1 of 4