Ken Lewis: Bank of America's CEO Answers His Critics
Not long ago Ken Lewis, CEO of Bank of America (BAC), was being hailed—along with Jamie Dimon of JPMorgan Chase (JPM)—as one of banking's saviors, a savvy executive who stepped in to help Washington stabilize the system as Wall Street teetered last September. Now Lewis is being pilloried for acquiring a Merrill Lynch that's more toxic than anyone imagined—on the heels of buying LaSalle Bank and Countrywide Financial. There is even talk that his job is on the line. I interviewed Lewis at length on Feb. 6 and asked him more questions after his testimony on Capitol Hill on Feb. 11.
What was accomplished today by having you and other banking industry CEOs testify before Congress?
The banks got an opportunity to say we are actively lending. Bank of America extended $115 billion in new loans in the last three months of 2008.
This year has been tough for Bank of America. The stock is down 65% in 2009 and almost 90% over the past 52 weeks. Do you worry about the bank being nationalized?I have talked with government officials, members of Congress, and regulators, and no one has ever thought nationalization of the industry was likely to happen. When you talk about nationalization of Bank of America, it becomes absurd. What it appears to be are a bunch of malicious rumors.
Your company has received $45 billion in taxpayer money. Will you be able to operate the bank the way you want to operate it with the government owning a stake and questioning some of your decisions?I don't think it will fundamentally change the way we run the company.
So are you comfortable with a $500,000 cap on the salaries of top managers?I don't feel good about the $500,000 cap. And it's not about me—I'll take $500,000. However, you will have talented individuals, particularly revenue producers, going to foreign banks and other asset management firms. That's a problem.
You agreed to acquire Merrill during an extremely stressful time last September, and you paid a premium. A lot of people were shocked that you paid $29 a share in an environment where JPMorgan had first offered $2 a share and then, ultimately, paid $10 a share for Bear Stearns. What was the rush to do that deal?There were others that wanted to make an investment in Merrill. Even now, on a longer-term basis, that brand has a lot of value.
But is it fair to say you overpaid?With any [acquisition] over the past 18 months you could probably make that case in the short term.
The losses at Merrill are stunning—$15 billion in the fourth quarter of 2008 alone. Once you saw the losses piling up, why did you pull the trigger? Investors want to know what you were thinking when you allowed this deal to go through.There was a point in mid-December that we said: "Hey, the losses are accelerating," and we went to the Treasury and the Fed and talked to them about that. We jointly concluded that it would pose a systemic risk if the deal did not go through. And they promised to assist us in getting the deal done, in filling the bucket of capital that was taken away by the loss.
You did try to get out of this deal. You called [former Treasury Secretary Henry] Paulson, you went to Washington. You had this discussion. Did they say: "No, no, no. You can't walk away"?They said: "Too much damage will be done to the industry, to the country, to you." And so it got to be, in some ways, enlightened self-interest. We are so inextricably tied in with the U.S. economy that what's good for America is good for Bank of America.
Did you feel as though you were strong-armed?The Fed, in particular, can call a cease-and-desist and take management out, take directors out. But I promise you that was not a factor. When we reflected on their advice, we agreed it was the right thing to do.
Will you need more government money?No.
Categorically, you can say, "no"?Right. Categorically.
When you took over from Hugh McColl, who was a big acquirer, you said: "The days of the big deals are behind us." Then you acquired the big credit-card company MBNA. And you're looking at losses there. Now you've acquired LaSalle, Countrywide, and, of course, Merrill. Were the acquisitions of LaSalle and Countrywide mistakes?We also acquired Fleet.
People say you overpaid for Fleet, too.And we proved them wrong for about a two-year period. I'm not making predictions, but I think that in the next two years we can show that every acquisition was a good acquisition.
Just over the past few weeks, you have personally bought about 400,000 shares of BofA. Where do you see the stock in six months?I have no idea. You can't get me to predict that. But at these prices, it's an outstanding long-term investment. I felt I should put my money where my mouth was.
Are you worried about your job?I don't have time to worry about my job. If somebody wants me to go, all they have to do is ask one time, and I'm gone.