More Park-side Gossip

Another snippet from my afternoon conversation today.

StateStreetEmployee - I personally know the guy who's in charge of the Bank of America/Countrywide integration..... He's based in Charlotte. He said it's a complete disaster. He said they keep uncovering one problem after another.

CaptiousNut - Yeah, well everyone knew that but Ken Lewis. He's an idiot.

StateStreetEmployee - He's a complete idiot.



Now I have written a lot on Ken Lewis - read it all here.

My favorite post was still the first one Bank Of America's Ken Lewis - Socialist Hero, Shareholder Villain.

And just you watch, this Merrill Lynch merger may prove more disastrous than Countrywide. Today, Merrill announced that it lost $5.2 billion in the third quarter.

A. P. Giannini is no doubt trying to strangle Ken from the grave!

When it's all said and done, Lewis will be pilloried - just you watch.

Bank Of America's Board Of Directors - Throw Them In Jail AND Sue them

Ken Lewis, that Moron that runs Bank Of America Corp, said the other day that the pending Countrywide deal remains:

"...a compelling financial transaction." Lewis added that, "nothing has happened that is out of the boundaries we contemplated when we did the deal."

COMPELLING!?!?!?!

The entire financial world KNOWS that Countrywide is a $20-$50 billion dollar losing timebomb, yet Lewis won't back out.

He first invested ($2 billion) when the stock was $18 - today it is $5 a share. To say that nothing happened that he didn't expect is to, well, say nothing at all. He doesn't get paid based on the theoretical probability distributions buzzing in his head; his job is a performance-based one.

Furthermore, I call BS on Kenny's claim to have foreseen ALL scenarios. As evidence I will use the Moron's own words against him from December 2007:

"We're seeing people who are current on their credit cards but are defaulting on their mortgages," Mr. Lewis says. "I'm astonished that people would walk away from their homes."

Of course, nobody with any clout is holding Ken Lewis to his words - so he can very well say and do whatever the heck he wants. More on that in a minute.

Right now, everyone with a functioning brain is pulling their hair out trying to figure out why Bank of America won't:

• Back completely out of the Countrywide deal and take their $4 billion loss.
• Reduce the purchase price - to around $0.
• Step out, let CFC go bankrupt, and then buy the parts it covets, e.g. "servicing".

So why is Kenneth walking into one of the dumbest business transactions in the history of humanity?

Well, I hinted at it above. Ideally, a board of directors would rein in a renegade CEO - if not fire him. But I suppose his board is crony- and Moron- riddled.

Let's take a look.

If you need to, click the chart to enlarge.

Note first, that the BoA highlights the number of independent directors. "We have a substantial majority of Independent Directors. Thirteen out of the seventeen director nominees are independent as defined by the New York Stock Exchange Listing Standards, the Sarbanes-Oxley Act and our Director Independence Categorical Standards". The proxy statement then notes that the board of directors has "affirmatively determined, upon the recommendation of the Corporate Governance Committee," that the following directors are independent:

William Barnet, III, John T. Collins, Gary L. Countryman, Tommy R. Franks, Paul Fulton, W. Steven Jones, Monica C. Lozano, Walter E. Massey, Thomas J. May, Patricia E. Mitchell, Thomas M. Ryan, O. Temple Sloan, Jr., Meredith R. Spangler and Jackie M. Ward. The board met eight times in 2006.

In other words, Spangler and Ward are paid almost $1 million and they are treated as independent directors. Spangler, by the way, serves on the compensation committee and the corporate governance (i.e. nominating) committee; Ward She has been a director of the Corporation since 1994 and is chair of the Asset Quality Committee (a committee that reviews asset quality, credit risk policies, and reserves). She also serves as a director of Equifax, Inc., Flowers Industries, Inc., Sanmina-SCI Corporation, SYSCO Corporation and Wellpoint, Inc. By the way, Gifford, who made more than $1.3 million did not qualify as independent. It was not the amount of income that disqualified him but the fact that he had been "employed by Bank of America or a predecessor within a three-year period."



Note that this is a report from 2006; I am sure there have been a few changes.

BUT, with all the zeroes in the "total compensation" column, the fact remains that board membership is a politically-acquired sinecure - a well paid one at that. While it may have some marketability, I highly doubt that General Tommy Franks has the financial acumen to advise Ken Lewis on the perils of HELOCS and subprime lending.

Go google some of these people. They are all crony executives - mostly retired. Many of them are hardcore in their support for socialist politicians as well. This could explain the thrust of my prior post Bank Of America's Ken Lewis - Socialist Hero, Shareholder Villain.

Here's another list of directors that appears to be more recent:




Again, click the pics to enlarge if needed.

One independent director of note is Thomas Menino. He's actually the mayor of Boston - not to mention a complete Moron - go to MumblesMenino to hear the idiot talk.

Clearly he's a token political appointee to BAC's board. The Bank took heat from the local communist establishment when they acquired Fleet Bank. The Boston echo-chamber bellowed "Bank of America is moving jobs out of Massachusetts..." so Ken Lewis paid off the extortionists by spending tens of millions (if not more) to move most of the brokerage and wealth management headquarters to 100 Federal Street in Boston. In the process, Bank of America lost gobs of talent and truckloads of money - all in an overture to gain the goodwill of Barney Frank and the Boston Globe (which, incidentally, no one reads anymore).

Again, like the retired General, a guy like Thomas Menino hasn't the brainpower to grill Ken Lewis over things like buying a bankrupt subprime lender. Yet guys like these constitute the "independent" vanguards of shareholder interests.

Also note how old these 'coots' are - eyeballing it, clearly the average age of the directors is in the 60s. One thing I have noticed over the past few years is how rare it is to find someone over the age of 60 that understands housing prices in the slightest. The reasons could be manifold - in particular, most old farts bought their homes years ago at lower prices; they all think they made out like bandits; but what they don't do is factor in all the "upkeep" or the "interest" they paid along the way. Furthermore, the killing that they think they made wouldn't look so good if they compared their housing investment to a stock or bond market one of similar duration.

Ah, maybe I am over-analyzing - 'Old coots' simply aren't that sharp - on just about anything!



Notice to Bank of America's "independent" directors:

As I type this, BAC is trading at $31.98 a share. Not only does that represent a five-year low, the stock actually traded higher in 1998, A DECADE AGO! (not visible on this chart).

So how long can a board of directors tolerate a CEO whose stock is an a multi-year rut?

I am no fan of class action attorneys, but if anyone deserves to be sued, I nominate Ken Lewis's cronies on the board.

By the way, if you want to check the political contributions of somebody, I found a great site - go to newsmeat.com.

As an example, click here top see whom board member Charles Gifford donates to.



The idea today that one particular political party is in the pocket of Big Business is an complete myth - and a modicum of research would prove it.

Naples Real Estate Update

As I mentioned in a previous post, the Naples/Fort Myers area of Florida is currently the foreclosure epicenter of the nation. Here's the text of an email my real estate guy from down there just sent me:

FYI, BAC owns 12 properties in Naples..Countrywide 15.

In Lee County BAC owns 66...Countrywide 17.

Citibank 9 and 20. I thought citi was the biggest dummy. Let's see how this plays out...

The important point to take from this anecdotage may be what it reveals about Bank of America.

Supposedly, according to Wall Street wisdom, Ken Lewis and Co. have the lowest exposure to the housing bust. But as you can see, they are already extremely competitive with Countrywide when it comes to bad lending in this particular region.

So maybe BAC has more bad mortgage debt than everyone thinks. I remember getting essentially attacked by a BAC branch loan officer in Charlotte after merely glancing at their posted mortgage rates, "ARE YOU BUYING A HOUSE??? DO YOU NEED A MORTGAGE???" They certainly seemed like aggressive lenders to me. Furthermore, these existing losses beg the question of why the heck do they want to pile on more via the Countrywide acquisition. As I type this CFC shares are down to a scant $4.36 per share. I still maintain that despite the density and ego of its chairman Ken Lewis, there's still a chance that BoA bails out of its Countrywide bid. (Elevated option premiums are suggesting uncertainty as well.)

My Naples real estate guy also sent me this item:



It's a 10,000 square foot mansion in Naples that is currently owned by, you guessed it, the Bank of America.

So long as they hold this foreclosed property, they'll be on the hook for $65,000 in annual taxes and $7,200 in HOA fees - those losses, of course, fall on top of the bath they likely took on the failed loan. For the moment, you can click here to see the full house details.

Maybe BoA is stumbling because their management has other non-financial priorities?

Bank Of America CEO: Carbon Emissions Need Cap-And-Trade System


RALEIGH, N.C. (AP)--Private investors alone can't spur an environmentally friendly "green economy," Bank of America Corp. (BAC) Chief Executive Ken Lewis said Tuesday, as he called on Congress to create a cap-and-trade system to help control carbon emissions.

Such a cap-and-trade system would allow businesses to buy and sell emissions credits - selling extra allowances if they come in under a carbon-emission quota, and buying them if exceed the cap. It was one of several suggestions Lewis made to policy makers in a speech at the Institute for Emerging Issues forum, held at North Carolina State University in Raleigh.

"We favor a market-based mechanism to set a value for carbon allowances, and a clear, federal standard that would give investors the certainty they need to plan for the future," Lewis said.

The two-day conference, attended by General Electric Co. (GE) Chairman and Chief Executive Jeff Immelt and Duke Energy Corp. (DUK) CEO Jim Rogers, among others, focused on the development of alternative fuels and conservation efforts that will create jobs and reduce the pollution blamed for global warming.

"Like any large, important, transformative project, this one is going to require a lot of money," Lewis said. "I'm guessing that's why you invited me."

Along with the cap-and-trade system, Lewis said policy makers must determine what kind of environmental incentives and regulations work best at the state level, which would help avoid a patchwork of inconsistent regulation. The private capital market also needs "a stable and predictable regulatory environment with a bias toward clean energy and the green economy," he said.

Last March, Bank of America launched a $20 billion initiative to help its customers support the growth of environmentally friendly activities and to reduce global warming. On Tuesday, he said Bank of America had created a team whose sole focus will be to identify and finance projects that support a green economy and address the nation's environmental challenges.

"There are a lot of great ideas out there," Lewis said. "This fact creates a huge risk-management challenge for banks...as a financial backer of new technologies, the bank is in the position of picking winners and losers."



Well now Kenny, isn't it the free markets that actually pick "winners and losers".

Aren't you learning that down in Southwest Florida?

If you haven't already, visit my oft-hit post Bank Of America's Ken Lewis - Socialist Hero, Shareholder Villain.

Bank Of America's Ken Lewis - Socialist Hero, Shareholder Villain

Last Thursday afternoon I was talking to a buddy and I told him that Bank of America was in all likelihood going to buy Countrywide. An hour later, he called me back laughing. I asked what happened, "You called it!" he said as the rumors of imminent buyout hit CNBC.

It was the easiest prediction to make - and I was scarcely the only one making it. I believe Fortune even ran an article predicting it only a few days beforehand. I can't speak for others so I will explain my own thinking.

My prediction was based solely on the palpable, and monumental arrogance of BoA chairman Ken Lewis.

"We are aware of the issues within the housing and mortgage industries,"

The above quote of Lewis hit the wires on Friday and no doubt set off a few million wry chuckles. I am not sure what particular question that was an answer to but if we play a little Jeopardy we can safely surmise it was something like this:

"Ken, do you have any bleepin' clue what's going on in the housing market?!?!?!!?!"

By my last check, even though down to a mere $6 per share, Countrywide still had about 25% of its float sold short. The smart money on Wall Street is predicting bankruptcy. Ken Lewis doesn't see Countrywide as a ravaged mortgage company. He sees it as a chance to "build relationships".

I kid you not.

For those of you not current on the Countrywide soap opera, flashback to August. At that time, Ken Lewis' Bank of America shelled out $2 billion for a stake in the ailing mortgage lender. They bought warrants (long term call options) on CFC stock at around $18 a share. Only 5 months later and now the shares are down to $6. So you'll have to forgive those chucklers who are skeptical of Ken's awareness of "issues within the housing and mortgage industries."

I submit that Ken Lewis is no sober financial analyst - the guy is a self-styled, progressive superhero. He uses the Bank and shareholder assets to serve his personal, political agenda. Allow me to catalog the circumstantial evidence.

His bank advertises for the Boston Gay Man's Chorus - make that they are the "lead sponsor":

He's spent over $1 billion erecting a "Green" building - One Bryant Park - in Manhattan.



Mind you, this is after he spent tens of millions of dollars (and lost gob of talent) moving all the bank's brokerage operations from their scattered parts to Boston - the most expensive place to conduct business in America (ranked 200th out of 200 in Forbes). He made this move ONLY to appease Barney Frank and the socialists at the Boston Globe who pre-emptively lambasted the Bank for "moving jobs out of Boston".

So, I ask, who is going to work in this green building? Why did Ken's pagan temple have to be built with shareholders' assets?

Aside - The Bank is currently bragging about the value of their green skyscraper - much the same way The New York Times is bragging about the paper profits they've made on their new building. Commercial real estate has been appreciating in NYC the past two years - defying the bust in residential real estate in the rest of the country. Neither Bank of America nor the NYT has "made" any real money from their buildings since they can't sell the building without paying the same cost to rent office space elsewhere. They haven't made any money in much the same way as your neighbor who was gloating over the "value" of his house in 2005.

I submit that a bank should stick to the banking industry and stay away from real estate speculation. Is that not the lesson being learned at financial institutions all across the land these days?

Here's more evidence of Ken's Earth-hump-o-philia:



Why does a bank have to earmark monies ($20 billion!) for anyone or any industry whatsoever? After all, shouldn't a publicly owned bank grant loans to creditworthy businesses, pardon the pun, on a color-blind basis?

Go ahead and kid yourself that this is just "marketing" to an important demographic.

Bank of America employees are also encouraged to buy hybrid cars and I hear that there have been showings nationwide of Al Gore's feat of fiction An Inconvenient Truth in office conference rooms.

It goes without saying that those conference rooms should have been focused more on real estate analysis than agitprop cinema.





Ah, then you have the issue of illegal, er undocumented Americans. Bank of America is bending over backwards (and jumping through loopholes) to get them to open bank accounts, issue them credit cards, and even facilitating wired money to Mexico.

Any single one of these issues could forgivably be construed as, like I mentioned above, merely targeted marketing towards certain demographics. Individually, Ken's activism might be taken for the the working of a rational, profit-maximizing corporation - after all, a corporation is an animal inherently immune to all non-financial value judgments. It will respect all extant laws and regulations but nonetheless is programmed to forge ahead for lucre.

But taken collectively, they paint Bank of America as Sculptor of America. Sure, much of Lewis' bungling of the Countrywide purchase amounts to just pure ego - the inability to admit he was wrong at $18 a share. As a trader, my ego has me averaging down in securities just about every single day. But my trades are not motivated by politics. I don't really have anything more than a hunch that Ken Lewis bought Countrywide in part to "save the housing market" - but I wouldn't be surprised if he didn't feel so righteously obligated.

Maybe Ken Lewis the social crusader moonlights as a savvy financial analyst? Maybe Countrywide will return money in spades for the Bank? I simply don't have the information or skill set to predict one way or the other. But my gut tells me Kenny is drunk not only on acquisitions - Fleet, MBNA, US Trust, LaSalle, and Countrywide - but on his massive ego. Housing is still at least 25% overvalued. Interest rates are at 60 year lows. I fear he is way over his head this time. He's not battling homophobia or carbon emissions. He's trying to flout the unblinking laws of economics and mathematics.

Ken is not simply paying $4 billion (on top of the $2 billion that already vanished); he is assuming the debt of a company whose liabilities exceed $120 billion. Even with a light recession and slightly higher Treasury rates, his gamble could easily cost BoA $20 billion!



Bank of America's shares are currently trading at a 4.5 year low; in fact they are unchanged over the past 10 years. It will be interesting to see if Kenny gets any flack over the proposed Countrywide purchase. I wouldn't be very surprised if some large shareholders vocalize opposition to the deal. They've just got to be tiring of Kenny's BS.

Don't worry Ken. Even if they ignominiously oust you from the Bank, you'll still be welcome at all those West Side and Hamptons cocktail parties that you oh, so, cherish.

I did some light googling on Bank of America and "transgendered". Let's just say I wasn't surprised to find out the Bank sponsored some "Transgendered Job Fair" in San Francisco.

Just name the progressive cause and Kenny will be there with his cape on (and shareholders' monies).

Marginalizing Bank Of America

If BoA were a trader in the pit, ball-breaking colleagues would be asking,

How much more CFC do you want?

CFC is Countrywide Financial Corporation, a ravaged mortgage lender. Look at its precipitous decline over the past five months from $40 to $9.56 per share as I type this.



As the stock was sliding towards bankruptcy, Bank of America made a $2 billion investment in Countrywide. The stake took the form of warrants (long term call options) with a strike price of $18. Roughly speaking, Countrywide shares were trading for just over $20 at the time.

Back when the news broke, I predicted that BoA would be buying more Countrywide - at a lower price (see my comments in this thread). As the stock is now south of $10, the "lower price" is available. Bank of America may be prohibited from buying more - I am really not up on all of the banking legislation. Regardless, they should have waited a few months and gotten a lower strike price.