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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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January 19, 2009 12:01 AM ET
BLOOMBERG
OPPORTUNITY KNOCKED Lewis still sees Merrill as a longterm money-spinner, but right now the i-bank is gutting Bank of America's earnings (Bloomberg)
Indeed, Mr. Lewis, who has spent more than $130 billion on mostly successful acquisitions, is having a devil of a time with his latest pick-up: Merrill Lynch. On Friday, Bank of America reported that Merrill posted a stunning $15.3 billion fourth-quarter loss. The shock result at the i-bank dragged the mother ship down with it, as B of A reported a nearly $1.8 billion Q4 loss—its first quarterly loss in 17 years. What's more, the bank reckons the Merrill purchase will reduce earnings per share for two years. The troubles at the investment bank forced Mr. Lewis to once again go to the U.S. government, cup in hand. Before management released the dismal results, it announced that the bank had received a $20 billion cash injection from the U.S. government. That hefty sum is on top of the $25 billion of funds the bank got from the Treasury Department’s Troubled Asset Relief Plan earlier. Uncle Sam also agreed to guarantee close to $100 billion of B of A’s—read Merrill’s—toxic debt. It appears the bailout was cemented in mid-December, when Mr. Lewis warned government officials that he might scotch the Merrill acquisition if B of A didn’t receive some government assistance. Even with the taxpayer’s cash, Bank of America indicated it is also cutting its quarterly dividend to a penny from 32 cents. It also predicted that net losses may be at or above the fourth-quarter level for several quarters. “It is difficult to focus on what is going right at this time,” Mr. Lewis said on a conference call on Friday. The economy and subsequently the credit markets literally hit a wall starting in September and culminating late in December, with the greatest impact of my almost 40 years in banking.” Granted, B of A may have felt some government pressure to buy Merrill Lynch, coming as it did on the heels of the Lehman Brothers implosion. And Bank of America isn’t the only bank in America struggling with bad debt. Rival Citigroup reported an $8.3 billion fourth-quarter loss on Friday as well. “It’s not reassuring,” said Kenneth Scott, a professor of law and business at Stanford Law School and former general counsel of the Federal Savings and Loan Insurance Corp, told Reuters. “There are more losses to be realized, but the question is the extent to which they are already reflected in values that banks are recording on their books.” For B of A, the source of many of those losses can be traced back to Sept. 15. That’s when the bank agreed to purchase Merrill after less than two days of negotiations. At the time, the light-speed acquisition was hailed as a coup for the Bank of America CEO. Indeed, after buying FleetBoston Financial, MBNA and LaSalle Bank—plus Countrywide in July—the Merrill takeover cemented Mr. Lewis’ reputation as an astute acquirer. To be sure, adding Merrill did give B of A a marquee investment bank. It also netted the bank a brokerage operation that Mr. Lewis hailed as the “crown jewel” of the deal. But the purchase of the i-bank has severely hamstrung B of A, leaving it with tens of billions of dollars of troubled debt. And that debt appears to be proving more nettlesome than Mr. Lewis anticipated. In its fourth-quarter announcement, B of A noted it was setting aside around $8.5 billion for bad loans, close to three times what it set aside a year earlier. Net charge-offs nearly tripled from a year earlier to $5.54 billion. “They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal,” Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania, told Reuters. (Bell Rock owns shares in the bank). Indeed, the rising losses at Merrill had Mr. Lewis contemplating scuttling the deal in mid-December. That was a big turnaround from what he was seeing just three months earlier. In at a Sept. 15 press conference discussing Merrill, Mr. Lewis sounded almost giddy about the merger. “We thought this was the strategic opportunity of a lifetime.” Right now, investors are probably wishing it was one opportunity the Bank of Opportunity had passed up. (Reuters contributed to this article)
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