from Summit Notebook:
Thain says put shareholders first
John Thain says he put shareholders first and his interests second in deciding to sell Merrill Lynch to Bank of America.
Thain, speaking at the Reuters Global Finance Summit in New York, said a deal to sell a partial stake in Merrill Lynch to Goldman Sachs would have been better for him, but the sale of the entire Wall Street firm to Bank of America was the best outcome for shareholders.
Over a fateful weekend in September 2008, as Lehman hurtled toward bankruptcy, AIG floundered and the financial system looked into the abyss, Merrill held discussions with Bank of America, Goldman Sachs and Morgan Stanley for various transactions, Thain said.
Initial discussions with Bank of America involved either the sale of the entire company or a 9.9 percent stake and a multibillion credit line, the former Merrill CEO said.
With Goldman, discussions only involved the stake sale and the credit line. Discussions with Morgan Stanley about a strategic transaction were brief, he said.
"When Bank of America offered $29 a share on Sunday afternoon, it was clear to me that was the best thing for our shareholders," Thain said.
Thain was fired by Bank of America soon after the deal closed, and is now considering a career in private equity and other jobs.
Reflections on B of A’s rough year
One public-relations lesson for Bank of America <BAC.N> after a year of crisis and a pummelling in the court of public opinion: Don’t always listen to the lawyers. That’s the word from James Mahoney, director of communication and public policy at the country’s largest bank. B of A has taken a beating over everything from its pay scale and lending practices to the fees it charges consumers. It’s humbling for the institution that a year ago was the country’s “leading bank,” Mahoney told a trade conference sponsored by by Financial Research Corp of Boston. “Two words emerged: bonus and bailout. It’s been all downhill ever since.” He said the bank’s lawyers barred it from offering a single narrative on the decisions leading up to its takeover of the investment bank Merrill Lynch at the height of the financial crisis just over a year ago. The lawyers fretted that executives might stray from the script during any future depositions to investigators, Mahoney said. But that left B of A exposed to a lot of attacks and with no easy way to protect its flank. The lesson? “Don’t listen to lawyers if you’re trying too manage the public reaction.” Mahoney had a receptive audience for a rare peek under the hood at the bank’s rough year. While B of A sorts out its leadership with the pending departure of longtime chief executive Ken Lewis, Mahoney’s said the bank has taken more than its share of PR black eyes because of its size. “I think we really became the target of a lot of the anger that’s out there because (the bank) is a highly visible, convenient place to vent,” he said. (Reporting by Ross Kerber)
One thing, and one thing only, saves companies’ reputations during times of crisis: total honesty. Why no one seems ever to learn this simple and powerful lesson is absolutely beyond me, but there you have it.
Bank of America’s Chalice: Poison or Red Bull?
For months, as he endured hearings on Capitol Hill and fought off a series of lawsuits, Bank of America CEO Ken Lewis trudged through a post-apocalyptic financial landscape against a steady drumbeat of questions about his future. The deal he had called “the strategic opportunity of a lifetime” — his purchase/salvage of Merrill Lynch — had swung from an act of patriotism, keeping the American way of banking from utter ruin, to a scandal over Merrill losses and bonuses.
Perhaps he should have seen the writing on the walls of the vacant houses financed by Countrywide, the mortgage lender Lewis purchased/salvaged just six months before the Merrill deal. The two transactions may have been strategic gems, but they were laced with political poison as the economy floundered toward its dramatic deleveraging and taxpayers pumped $20 billion into Bank of America to fund the Merrill deal.
“It was only a matter of time,” Campbell Harvey, a professor at Duke University’s business school, told Jon Stempel. “There is too much collateral damage.” As Stempel reports, Lewis spent north of $130 billion on acquisitions, including FleetBoston Financial Corp, the credit card issuer MBNA Corp, LaSalle Bank Corp, Countrywide, Charles Schwab Corp’s U.S. Trust private banking unit, and Merrill. In buying Merrill, he added a giant investment bank to what was already the largest U.S. retail bank, credit card issuer and mortgage provider. (Wells Fargo & Co has since become No. 1 in mortgages.)
Lewis plans to be gone by the end of the year and leaves no immediate successor, so Bank of America has only a few months to figure out who to anoint. Though his demise is a cautionary tale, odds are good that the bank’s worst days are behind it. An incoming chief can blame Lewis for any ill-conceived agreements surrounding Merrill. More importantly, with economic recovery apparently at hand, Lewis’ deals of a lifetime have a better chance than ever of paying off.
If BofA can harvest 45 billion of operating profit per year post 2011 as Mr. Lewis suggests- these aquisitions of distressed brands could make Mr. Lewis one of the shrewdest dealmakers ever.
Who belongs in the Financial Crisis Undersung Hall of Fame?
Breakingviews.com has compiled a list of unappreciated heroes of the financial crisis: “Some Good Names in a Year Gone Bad.”
Can you match up the undersung HOFers with their acts of contrarian bravery, as selected by breakingviews’ Antony Currie, Rob Cox and (formerly of Reuters) Jeffrey Goldfarb?
1. Tom Scholar
2. Jeff Kronthal
3. Harry Markopolos
4. Peter Wuffli
5. Greg Fleming
Lending CIT a hand
An almost heart-warming effort is being mustered by CIT bondholders to keep the troubled lender from getting put under the TARP or stumbling into a much-anticipated bankruptcy. Some $3 billion in survival cash is seen in the pipeline — money that could strengthen CIT’s finances and allow it more time for a debt restructuring. An announcement is expected before the markets open this morning.
What kind of terms might bondholders extract from CIT? Before TARP was modified to target executive pay for those who sought its shelter, banks such as Citigroup and then-independent investment house Merrill Lynch paid what were seen as shockingly high terms on mandatory convertible debt. They were the kind of rates Citi customers paid on credit cards; nothing like traditional bank funding rates.
So, a CIT deal could, and perhaps should, come with a variety of stringent terms. If these are effectively passed on to desperate small and medium-sized businesses that CIT serves, the cost of this rescue could be blamed for stifling the recovery.
I am glad to see no taxpayer money. We dont have any money left.
BoA hearing: class-action fodder?
Dennis Kucinich pointed out at a Congressional hearing Thursday that Merrill’s weekly losses in mid-November were greater than the losses in mid-December, and that Bank of America boss Ken Lewis got weekly updates on the investment bank’s losses. Lawmakers repeatedly said Lewis must have known much earlier than he claims about the heavy losses at Merrill, which lost $15.84 billion in the fourth quarter of last year.
That’s something that class action lawyers may latch on to, as they push their case over the Bank of America-Merrill Lynch deal, which hinges on what the bank disclosed and when.
Shareholders OK’d the deal on Dec. 5. Bank of America disclosed Merrill’s losses in January, after the deal closed. If shareholders knew of the losses before, the outcome could have been different.
Even just days before voting on the deal in December, shareholders appeared to doubt the likelihood of the merger going through on the original terms set in September. As of the close on Dec. 1, Merrill shares were still trading at an 8.3 percent discount to the Bank of America offer.
At the Congressional hearing Thursday, Lewis said Ben Bernanke and Hank Paulson did not tell him what to tell shareholders. He said decisions on what to disclose to shareholders is made by “our securities lawyers and our outside counsel.”
But under questioning he also agreed with lawmakers that there was pressure from the government to complete the deal despite growing losses at Merrill.
Clearly, Lewis was in a tough spot. But how would that play out in court?
Temasek’s long China play gets short U.S.
Singapore investment vehicle Temasek cut its losses in Bank of America and ran in the first quarter, dumping a 3 percent stake, for which it took a $3 billion hair cut. Having watched its relatively high-risk investment in Merrill Lynch turn to dust, the Singapore state agency turned to firmer ground: China.
Temasek was among the investors to gobble up a stake in China Construction Bank that Bank of America sold earlier this week as it further drew in its horns from the global recovery story. Sources say the move fits with Temasek’s focus on global companies that aim to grow in Asia, noting that Bank of America is losing whatever global allure it may have bought along with Merrill’s bad assets. Getting a “gentleman’s C” in the stress test doesn’t inspire much confidence either.
However bad things get for Bank of America, it’s hard to dispel the ghosts of China’s policy banking bedrock. Though they will tell you they have been shedding dud assets from their balance sheets for years, nobody is under any illusions about either transparency or solvency of the People’s banking system. That’s not to say such investments won’t pay off. After all, as the axiom goes, no risk, no gain.
Deals of the Day:
* British bank Barclays is in talks to sell its asset management business, Barclays Global Investors, a source familiar with the matter said.
* Miner Rio Tinto remains committed to a planned $19.5 billion tie-up with Chinese metals firm Chinalco, it said, responding to talk that the deal may be revised to let more shareholders take part in a rights issue.
* German cement maker HeidelbergCement may sell up to a 14 percent stake in Indonesian unit PT Indocement Tunggal Prakarsa, worth around $270 million, to help pay down debt, sources familiar with the deal said.
Temasek is currently 40% in financials (even after the BofA sale). That has got to raise some questions at the government level. And that may be the reason for the CEO replacement.
SoberLook.com
OpenTable will try to revive VC-backed IPOs
Venture capitalists wanting to take portfolio companies public have fallen on hard times. So they will be watching closely when online restaurant reservation service OpenTable, which filed for a small $40 million IPO last week, attempts to price its deal.
Last year only six companies backed by venture capitalists went public, according to Thomson Reuters data, a far cry from the 86 in 2007. And none has performed well in the aftermarket.
But San Francisco-based OpenTable, whose IPO will be led by Merrill Lynch and whose backers include VC firms Benchmark Capital and Impact Venture Partners, is betting that its recently growing business will lure investors.
It also has an A-list of directors. Its CEO is former PayPal president Jeffrey Jordan, and one of its directors is Danny Meyer, the restaurateur behind New York eateries such as Union Square Café and burger joint Shake Shack.
According to its SEC filing, revenues totaled $41.3 million in the nine months ended Sept. 30, 2008, up 41 percent over the same period in 2007. It has now seated 90 million diners since it began in 1998 (then known as easyeats.com) in the 10,000 restaurants in foodie-populated cities like New York, San Francisco and Toronto that use its service.
So far, so good. But in its filing it bluntly cautions, “Our recent growth will likely not be sustainable.” Culprit number one: the recession.
Evercore gets league table boost; Lazard left in the cold
Pfizer Inc’s $68 billion deal to buy Wyeth gave boutique investment banking firm Evercore Partners a huge jump in the rankings of merger advisers, while Lazard Ltd got left on the sidelines.
One mega-deal was enough to catapult Evercore, which advised Wyeth along with Morgan Stanley, into the list of Top 10 advisers. Evercore now stands at No. 7 for the global and U.S. rankings, up from No. 24 and No. 16 in 2008, according to data from Thomson Reuters.
Morgan Stanley stands at No. 2 globally with 15 deals, and No. 3 in the United States with 10 deals, according to Thomson Reuters.
Pfizer had an army of advisers that included Bank of America, Merrill Lynch, Goldman Sachs, JP Morgan, Barclays and Citigroup. Bank of America Merrill Lynch leads the global league tables, while Barclays Capital leads in the United States, according to Thomson Reuters.
One name missing from today’s news was Lazard, which has been Pfizer’s most active adviser going back to the early 1990s, according Thomson Reuters.
Lazard has advised Pfizer on 15 deals, including its $89 billion purchase of Warner-Lambert Co in 1999 and $61 billion acquisition of Pharmacia Corp in 2002, the data showed.
Lazard did not immediately return calls seeking comment.
Thain, Lewis part ways
John Thain’s out of the door as well. And one wonders if Ken Lewis could have saved himself a lot of heartache if only he had watched the action movie “Speed”.
Sandra Bullock called it more than a decade ago. As her character says in the movie: You know, relationships that start under intense circumstances — they never last.
Thain’s departure leaves Lewis without several top executives at Merrill, which it acquired on Jan. 1 for $19.4 billion. Other top Merrill executives to recently leave include Robert McCann, who was to lead the combined brokerage, and investment banking chief Greg Fleming.
The acquisition has cost Bank of America dearly. It said Merrill lost $15.31 billion in the fourth quarter, separate from its own $1.79 billion quarterly loss — its first in 17 years.
Just a week ago, Lewis told investors he was happy that Thain was staying on. But the situation changed rapidly.
“Ken Lewis flew to New York today, met with John Thain, and it was mutually agreed that his situation was not working out, and he would resign,” Bank of America spokesman Robert Stickler said.
Thain’s departure came as CNBC separately reported the former Merrill chief had hired well-known Los Angeles interior designer Michael Smith to redecorate his office a year ago. CNBC said Thain ran up a bill of $1.22 million that included $35,115 for a “commode on legs” and $1,405 for a parchment waste can.
