Submitted by Rolfe Winkler, CFA, publisher of OptionARMageddon.com
The Charlotte Observer deserves a big fat Bronx Cheer for prostituting its pages. Today the paper published excerpts of an “interview” with hometown CEO Ken Lewis of BofA. The quotes read like the standard puffery one finds in corporate press releases. If the interviewers asked any tough questions, there’s no record of it; instead they gave Lewis carte blanche to recite his corporate talking points.
The article is topped by a cheery and totally misleading headline: “Lewis: BofA may pay back TARP money by 2010.” Um, really? Losses on the left side of BofA’s balance sheet are bleeding the bank to death while the bank’s ridiculously high tangible leverage ratio suggests it has no cushion on the other side to absorb these losses. In other words, isn’t BofA actually starved for capital? Aren’t TARP cash, loose Fed lending and other government backstops the only reasons the bank still draws breath? Perhaps the interviewers just don’t know enough to ask pertinent questions. Or maybe they’re just not inclined to interrupt their subject’s train of thought. But Lewis, anticipating his critics, makes sure to add a caveat:
“The bank could turn over the money now if it weren’t maintaining higher-than-normal capital cushions because of the “fragile” state of the financial system, he said.
You see what he’s doing here? Lewis has the chutzpah to argue that he’s doing us a favor by using Treasury’s money—our money—to maintain a “higher-than-normal” capital cushion. So $1 of tangible common equity for every $38 of tangible assets is supposed to be “higher than normal?” This begs the question: what is a “normal capital cushion?” 1:50?
This reminds me of the standard b.s. we hear from bank execs who complain they were “forced” to take TARP money. And of course, they’d all love to give it back, but they can’t because the big bad regulators are making them keep reserves on their balance sheet to protect from losses. Never mind that without taxpayer cash, all would have gone bust months ago…
Lewis also said he expects his Charlotte-based bank to be profitable this year “absent some unexpected meltdown” and to pass the government’s stress test.
Here again Lewis ducks responsibility for BofA’s financial misfortune. If for any reason the bank isn’t profitable, Lewis can chalk that up to The Fates, rather than his terrible management and acquisition strategy, which left the bank with a very weak and very vulnerable balance sheet. Oh, and did anyone actually think Timmy Geithner was going to fail any of the big banks when it comes to the stress test? Don’t count on it.
As for his biggest regret in recent months, Lewis said he made a mistake in taking so much TARP money. The bank could have accepted $5 billion to $10 billion in January, instead of $20 billion, and kept its capital ratios in reasonable shape, he said.
Wait a minute. Didn’t Lewis just say he didn’t need the TARP money to begin with? That he was doing us a favor by keeping it on hand?
[Taking $20 billion] “put us too far away from the mainstream, and it did lump us together with Citigroup,” he said, referring to the institution regarded as the most damaged of the big U.S. banks. “We did it in an abundance of caution because you just don’t know how bad things could get, but that was a mistake and that caused us to be painted with a broad brush in ways that we don’t deserve.”
Taxpayers have committed $45 billion in TARP money and agreed to backstop $118 billion of BofA’s toxic assets after the bank made two ridiculously ill-advised acquisitions. Yet Lewis argues his bank is being unfairly maligned. Unbelievable.
The article concludes with the ultimate softball:
Asked whether the bank has been unfairly criticized for anything in recent months, he said: “I would need some time to compile a list.”
We feel for you Ken. Really, we do.
What gets me so worked up is The Observer’s total lack of journalistic integrity in this case. The Fourth Estate has a responsibility to the general public to report the truth. To the extent it can enrich investors, corporate executives have a responsibility to obfuscate the truth. Selling 20 column inches on the front page directly to BofA’s PR dept. would be less harmful than what was done here. Calling this piece an “interview” suggests the reporters did their duty to ask tough questions and filter fact from corporate fiction. But they did nothing of the sort. The result is that readers are badly misled.
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Sadly I think it unfair for you to expect the Charlotte paper to be objective in evaluating Ken Lewis. Banking is just about everything to this town and with the newspaper business in worse shape than banking (incredible but true!), the last thing this paper can afford to do is get tough when everyone in that town is hanging by a thread waiting for the next shoe to drop.
The saddest thing is civic boosters will march on the paper’s offices and NOT the bankers’ towers, with pitchforks and torches to tar and feather journalists who had the temerity to force the truth out of these lying bankers. Remember these guys were willing to save slavery before they would accept a different economic paradigm. Same thing with the country club and banking plantation set today. They still think they own the world.
Let’s see… so, a newspaper’s journalists either don’t have the compunction or knowledge to ask tough questions of the CEO of a huge local company. And that’s news?
In fact, only the contrary would be newsworthy.
http://www.youtube.com/watch?v=zDAmPIq29ro
All is well!
Newspapers are totally bankrupt of journalistic integrity. This is why the world’s smallest violin plays as they crumble into dust.
It reminds me though of what people at Bear Stears/Lehman were saying about their company 1 yr/6 months ago. “Everything is fine.” We know how to parse that one!
On the other hand, the bailout money has been used to pick up some good bargains and to drive out the smaller competition, so with sufficient interest rate hikes, banking fees and so forth, it’s not inconceivable that B of A could turn a profit.
The reporters need to be exposed.
The looters too.
Expose them all. Make them…er, naked. Show all their nakedness.
Rolfe,
Thanks for the posting. It was direct, short and with the proper sense of disdain for our current reality.
The first anon commenter chided you for attacking the small newspaper in the city of BIG BofA. Ooooogagaaa Booogaaa!!! We are indeed sick to think that we need to bow down or be fearful of a corporation of any size.
Lets see what they taught me in school. The government is suppose to be by and for the people. Corporations are licensed to operate in the our country and states and those licenses can be revoked. As citizens, we should only have to entreat our elected officials to right wrong. A free press is suppose to be the neutral purveyor of facts to the populace so they can know how to best live and direct their government.
Unfortunately, what they taught in school is not our current reality. We live in a fascist theocratic empire instead of a republic and the press is the propoganda arm of the corporations.
The least they can give us is to allow our textual white noise to be accurate, right?
psychohistorian
We live in a Goddamned kakikleptoplutocracy.
The “fourth estate” is busy trying to avoid cremation fees and an estate sale – that’s its primary goal, whatever that takes. To prattle on about its responsibility to speak “the truth” is to tilt windmills, my dear.
Oh well, while we still have opinions we know we’re still alive. What the “truth” is about this mess remains elusive but everyone seems to know the “truth” of it.
Thanks again for the honesty, Yves. Whenever I get tired of the mendacity I read your blog and realize that there are others out there who get it and are still angry about it.
I am getting “incompetence fatigue”… the USA is seriously turning into a banana republic. Journalists are batting below 200 on the real questions side. US households are cash-strapped. Period. They have been living WAY beyond their normal means for at least a decade now. Everyone knows this – economists and non-economists. Anyone with common sense and more than 90 IQ. The IQ part is high in upper Administration, but the common sense is extremely hard to come by in Washington or Wall Street.
This excessive consumption has been made possible by the miracles of loose credit standards and free Fed money always bailing out the economy beyond normal macro stabilization. The whole racket stemming from loose monetary policy and the ability to borrow from Asia, whose househods actually save and whose Central Banks add to the party by pegging their currencies with the fortunate byproduct (due to past pressures to appreciation) of financing US Govt deficits at low rates and US trade deficits. Again, everyone knows this.
So this brings us to the typical talk like BoA and City-AIG people, as in this “interview”. What is to be expected in the coming years?
1) real growth forecasts will NOT materialize because there is simply no way insolvent households, firms, and governments will rebuild their budget health within such a short time frame and have the ability to buy goods and services at the rate they were before. That would be magic, and I keep telling my students that if there seems to be magic in economics, then something is wrong or missing in the picture.
2) “Too Big To Fail” institutions will thus continue sucking the life out of everything they can while making it LOOK like “it’s not their fault, they would really love to give all that taxpayer cash back, but “the situation” is beyond their control and requires exceptional measures” (looting).
3) Obama, Geithner, Bernanke, Summers and co will continue being extremely intelligent people giving great speeches and saying they are “acting boldly”, while actually avoiding what would be bold in these extreme times – full public control/takeover of financial firms, MAJOR overhaul of financial regulation, and a return to sane capitalism based on value added production and innovation in tradeable (market-desired) goods and services. Remember, the BASIC law of free markets is shared risk = shared potential profits. Right now we have “dump all risk on taxpayers without anything in return” type of policies. It can’t work. When common sense is out the window, something has to give. I don’t care how sophisticated the DSGE models behind the arguments are.
4) All top ranked officials will be “shocked shocked” that the stagnation is continuing unabated and will call for MORE credit and messy taxpayer-to-Big-Finance transfers. Give the alcoholic more alcohol to get through his “cold turkey” and don’t mind the fundamentals of purchasing power.
5) Renewed calls that the end is near will come and new (“updated”) forecasts will come out.
6) All this time, while the Crazy House (White House, WS, etc.) continues with its nonsense, normal people with down-to-earth common sense will deleverage, firms will deleverage against their will, and MUCH later, normal times will come back.
7) Officials will say “see we told you the end of the slump was coming soon” and will all inter-congratulate themselves on a fine job.
Hopefully, what will have been lost in the process will be Disconnected-From-Reality capitalism. The capitalism that pads excessive mega risk takers and irresponsible policies. Free credit capitalism. Freen Lunch capitalism. Looting and in-your-face nonsense public policies.
Hopefully what will emerge down the road is a return to sane capitalism. The one based on private initiative, innovation and sane, calculated risk taking. A system that will penalize poor business judgement without mercy and will NOT transfer all risk to taxpayers when the going gets tough. A system that will provide profits to value adders and good business positioning. A system in which bondholders will understand that default is possible and will not be “bailed out”, where shareholders will understand that returns are not guaranteed and risk is real. A system which will internalize externalities and market imperfections such as information assymetries, near rationality and bubble psychology. A system that will get back to at least trying to bring equality of chance for as many as possible, while letting life takes its course, efforts bring rewards, and differences bring different outcomes. A system that will heavily regulate and oversee “too big to fail” firms, since they are all implicitly insured by the taxpayer. A world where consumers will buy stuff mostly with… money they HAVE in their bank account, mostly from their labour income! A return to sanity with sane leverage ratios, risk assessment and clear frontiers between the various players in the economy. Yes We Can!
PascalB
I canceled my subscription to this joke of a newspaper 7 years ago. The only regular “business” column is “the next big thing” written by a shill for the real estate development industry.
It has always been pro- B of A, Anti First Union / Wachovia, with a liberal democratic editorial page.
Complete waste of print.
If it wasn’t for that $100 billion backstop provided by that Hank Paulson and George W. Bush, B of A would most likely be bankrupt.
Knowing that venal incompetents like Lewis still run banks only guarantees that the taxpayer will be on the hook for trillions in losses.
Lewis is a goddamned liar. He can say he doesn’t need TARP money or any more bailout money because he is getting all he needs secretly from the AIG bailout.
I want him to testify under oath how much money he got from AIG on top of the up-front bailout money. I then want him to be forced, given his statements, TO GIVE IT ALL BACK.
Rolfe — Good article, but on a side note, last night there was a guest post from you called “Just Let It Go” or something similar on this blog, which seems to have disappeared (and I didn’t get a chance to finish reading it). Not sure if that was intentional or just a glitch?
Rolfe, Yves,
In honor of this post by Rolfe, I would like to send out a complementary copy of my new book discussing how Ken Lewis managed to rope two bum steers in one year (CFC and MER). Lewis is still bullish on America, CFC and MER. What a dingbat Lewis is! I sent copies of my book out to some 40 different national newspapers. I purposefully did not send one to the Charlotte Observer, because of hometown bias. Send a mailing addy to my email at jb2@structurallogic.com
Grazie!
Same BS as with Bear Stearns, Lehman, etc. The “rational” markets ate it up.
Another dull, content-free, dime-a-dozen rant from Rolfe. If you like this kind of junk there is an infinite supply over at seekingalpha or marketwatch. Yves, your blog is too good for this tripe.
More by accident than design Lewis was allowed to skewer himself in the interview. He came across as frightening delusional for someone in that position. Maybe he should take up bridge and get out of the office more.
The reporter seems to be completely unprepared. Could have asked some far more pointed questions without having to go into attack mode. Like: Will the composition of your profits change in the new banking environment? Or- How much of that profit will come from Merrill or from Countrywide.
See you don’t have to scream at them to force them to put up some numbers and assumptions.