Wednesday, January 16, 2008

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).


Taylor Conant said...

Several more reasons to stay away from BofA's stock, mortgage crises aside.

You said banks should stick to banking and avoid real estate speculation. I think you meant that in regards to buying an ailing company like Countrywide. But isn't part of "banking" speculating in all kinds of industries? I mean the banks are lending money to various enterprises at a fixed rate, sure, so it's not hardcore price speculation necessarily, but at the same time do you think a bank would lend to a homeowner on their home if they thought the home was going to drop rapidly in price and create a negative equity situation along with a borrower who is financially insolvent? Seems like some kind of speculation to me.

Maybe you're saying stay away from THAT, too, I just mean to say that part of a banks operations is speculative... they expect to be paid back but sometimes they don't. Am I making sense? Not trying to argue, just trying to clarify a definition here.

Also, I just don't get your beef with immigrants. I see how you're trying to tie in BofA's push into the Hispanic market as part of Lewis's "activism" but what the hell is activist about this? Is he getting them green cards? Showing them where there are holes in the border to cross over through?

Why do you find immigrants to be so objectionable? You use "undocumented" grudgingly, you seem to think illegal is a more appropriate term. Can you define this term and explain why you think it's reasonable? I'd appreciate clarification on this particular subject from someone of your point of view because I don't get it.

Anonymous said...

Hey, can I steal your chalupa taco bell cartoon? I was rolling in the floor when I saw it.

CaptiousNut said...


Yes, every loan or line of credit extended by a bank is inherently speculative.

But building skyscrapers when you have no one to work in them (BoA) or when your biz is cratering (NYT) AND the market is in the later stages of an extended run in prices is, IMO, pushing the envelope.

I will not define the word "illegal". I have no beef with immigrants. I do believe that border jumpers, visa-overstayers, or whatever present a political risk to American properity. Again, you get rid of Big Government and the socialist incumbents and I say open up the borders.

Order is the child, NOT THE PARENT, of liberty.

Think about it.

Check that - don't think about it, go research it.

CaptiousNut said...


Steal my stolen property with impunity.

Taylor Conant said...


I don't think your position makes any sense. You say get rid of Big Government, then open the borders. Closed borders ARE Big Government. Keeping the borders closed requires billions of dollars, an army of border patrol agents and related immigration services bureaucracy, plus the costs of R&D and deployment of border fences and border monitoring technology. What is Small Government about that?

Your problem with "illegals" (which you won't define, but continue to use anyway) seems to stem from some kind of economic argument. You'll have to correct me if I am putting arguments into your mouth here, but you haven't ever really stepped up and stated your position explicitly the many times I've asked, so this is the best I can do.

Economically, you think illegal immigrants are a drain on the economy because they come in and use Big Government welfare services. Your solution is to forcibly (that is, violently, through the use of prisons, and, if necessary, murder) prevent these people from entering the country so that they can't make use of these services, and to forcibly (again, that is, violently, etc.) deport them if they make it past the border and are found. You've also hinted at punishment for employers who "facilitate" this activity by providing these people with jobs under the table. I would guess you have similar concerns with landowners who rent or sell real estate to these people as well. Remember, all these laws that target illegal aliens and their employment and housing negotiations also affect the people providing them with jobs and housing... you're limiting their freedom as well.

If you're really worried about having to pay more taxes to support these people, why are you advocating a policy that will result in your taxes being increased to implement it?

Furthermore, what about LEGAL immigrants who use welfare? And what about people who were born in this country ("true Americans") who live off of welfare? And what about all, yes ALL government employees, whose salaries are derived, not in part, but wholly, through taxes? Should we deport all of these people as well? If your argument was made from a consistently applied principle, I'd guess your answer would be yes, but somehow I get the feeling your answer is no and that you're applying your principle selectively, and rather arbitrarily, according to some other motivation you have but won't be honest about.

You say order is the CHILD, not the parent, of liberty. I'd agree with the essence of that statement, but then I'd have to ask you what kind of order you are expecting from an unfree-system such as the current immigration-prevention system that exists in the United States.

CaptiousNut said...

Sorry. I mistyped.

It should have read oppositely:

Liberty is the child, NOT THE PARENT, of order.

Now go research it. Bear in mind that is the conclusion of Will Durant who spent decades studying human history.

This argument is getting old. IMO, it would not cost a lot of money to reverse immigrate. You argue it would cost plenty and I disagree. Remember, this discord is over a theoretical - an unprovable one.

It will be interesting to see how much "liberty" you grant your future children. I doubt you'll let them run around without any discipline, core values, or sense of gratitude for the sacrifices you make for them.

Taylor Conant said...


I have to be honest, I am really disappointed with your lack of intellectual honesty with me right now, especially on this subject. The way you are responding to the things I say would be the very things you would quickly point out to be BS avoidance tactics and illogic if practiced by any of the socialist morons you crucify on your site every day.

Do you care to explain your (or Durant's) maxim "Liberty is the child, NOT THE PARENT, of order" or are tautological definitions and explanations supposed to suffice for anyone not convinced at the outset?

Maybe the veracity of the statement depends on your definition of order. Perhaps your idea of order is "people not being free to do anything I don't like them doing" and then liberty would be defined as "any action I don't mind if people do or not?" Mussolini's Italy had order. Hitler's Germany had order. Stalin's Russia had order. The Kuomintang's China had order (any areas that weren't being contested by the Communists, anyway). Ahmadinejad's Iran has order, as does Abdullah's Saudi Arabia. But none of these places have liberty. You'd try to argue America and other Western countries have both liberty and order, and that the liberty comes from the order, but there are so many acitivities, from the minor to the major, which are prohibited in America and similar countries that you'd have to be talking about liberty out of one side of your mouth only.

By your definition, America must have been much less free in the period shortly after the American Revolution, when there was comparatively less "order," than today. Is this something you'd agree with? That America was a veritable chaotic "anarchy" back then and that today we live in a much freer country? I could've sworn you spent your time blogging instances of the exact opposite nature.

What do I care if that is the conclusion of Will Durant? Your pointing this out seems like an attempt at argument from authority... like I should believe this is true simply because an authority like Will Durant said so. Karl Marx spent decades researching his class theory and exploitation theories, shall I believe them too just because he spent a lot of time and is an authority on the subject? What about Adam Smith? He's an authority on economics but he believed in the labor theory of value as well. I suppose it's true because he says so?

This argument is getting old because you NEVER show me the respect in it enough to simply answer my questions. You brush me off everytime by pointing out that this is all "theoretical" and "unprovable" and you hint that somehow when I am all grown up I will "get it" or something. I resent that. I'm trying to respectfully engage your ideas as a thoughtful adult because I am interested in your reasoning but you never want to share this with me so I am forced to conclude you do not have any reasoning, or at least none that is logically defensible, however emotionally invested you might be.

You say that in your opinion it wouldn't cost a lot to reverse immigration. You're entitled to your opinion, sure, but you're not entitled to anyone agreeing with you if you can't substantiate your belief with some kind of reasoning or evidence. You try to cover for this by claiming it's all theoretical. Excuse me, are there no statistics on the cost of CURRENT immigration restriction efforts? And are there no projections or budget earmarks for further endeavors in this regard? I believe there are, and I believe that it is to the tune, already, of several billion dollars. If current efforts are not working, then not enough money is being spent as it is, apparently (since this is how government always views whether or not a program is funded adequately or not-- if it fails, it MUST be underfunded). This would dictate that MORE money will need to be thrown at the problem to see any results. Is billions of dollars suddenly a pitiable amount?

Maybe you think that all that needs to happen is to enforce existing laws and mandates. Well, part of the existing laws and mandates that aren't being enforced have to do with funding. But even then, again, if you simply enforce what's already on the books we're already looking at billions of dollars. Here's an article I just found with a quick google search (which I did not fully read and thus can not say I endorse or do not endorse the opinion of the article) which states that yearly immigration enforcement costs are around $4 billion a year! $4 billion! And thanks to the progressive tax structure in the United States, you're paying a lot more than $4bil/300mil people, probably closer to several hundred dollars at least.

I'd say leaving the theoretical and entering the realm of the empirical isn't too challenging in this instance. By the way, gravity is a theory, isn't it? I suppose there isn't enough evidence where the theory of gravity is concerned for you to feel like you can make any kind of informed decision whether gravity exists or not?

Then you engage in what I think seems like a thinly veiled ad hominem snipe at me, trying to deflect attention away from your argument and onto some perceived personal hypocrisy of my own if I decide to not allow my children to be free-wheeling libertines. It's outrageous and offensive that you'd imply as much, but it's even more ridiculous that you added this into your response to me, as if this helped your argument in any way, shape or form. How I do or do not raise my children has ZERO to do with the principles we're discussing in this argument about IMMIGRATION POLICY, which hinges on whether it is right or even utility-maximizing or something like that for the government to be forcefully intervening in the lives of people who are not its "citizens." If I let my children go to Mexico on their own, for instance, or don't let them go to Mexico on their own, that wouldn't affect the argument we're having at all.

It's worrisome, also, that you seem to be comparing the United States Federal Government to a parent. The USFG and its representatives and agents make SO MANY sacrafices for me... after they've STOLEN my wealth so they can do so, first, of course. "Hey buddy, give me $10," says the Gov, then it buys me a milkshake and I say I don't want it, "Are you kidding me?" says the Gov, "I sacrificed $10 for you to have this milkshake and you don't even thank me? You brat." I mean, come on, C. If I governed my children the way the government governs me (locking my children in cages, or killing them, anytime they disobeyed my dictates), you'd probably call me a child abuser, and rightfully so.

If you answer just one of my questions, please answer this one: "If we disagree as to how immigration policy should be implemented, and yours is the one that is chosen by the government, do you think it is right that I be imprisoned or killed if I refuse to pay my taxes in protest of this policy?" This is really all I need to know, I guess, yes or no, would you or would you not support my imprisonment or death via the government if I refused to financially support an immigration policy that I don't agree with?

Real Estate Analysis said...

I don't like Bank of America at all. I have a checking and savings accounts there for a few years, but when I actually needed something from them, they never were willing to help. Once I tried to get a credit card (a first one) and that was rejected and second time I was trying to apply for a mortgage and also didn't work out. Even though I don't have any debts and have incomes. Their rules are pretty strict and nobody will talk to me about specific needs. ;o(

CaptiousNut said...


You're the only one who's been rejected by them for a mortgage!