Once upon a time, there were two giant banks in Dallas called RepublicBank, where I was and still am a customer though not a shareholder, thank heaven, and Interfirst. They were bitter rivals, but, in the end, they also became shotgun mates, married in a desperate move to stave off a final and fatal tumble down the beanstalk. Nonetheless, down they went, into the waiting arms of an unlikely Jack, also known as Hugh McColl.
Hugh McColl ran the North Carolina National Bank in Charlotte. In Dallas, NCNB was soon to be called No Cash for Nobody. But that name didn’t last long because McColl required a loftier moniker. Ever on the alert for new acquisitions, he renamed his business NationsBank. But that was just a prelude to his crowning purchase of 1998 — Bank of America.
Three years later, McColl retired, leaving his empire to Ken Lewis, who had spent some time running the show in Dallas. Here he was known, according to one observer, as a “politician,” and to another as one who learned well how to use the carry-forward losses of unrewarding banks to curb taxes owed by better properties. Ken Lewis was masterful at keeping whatever regime was in Washington on his side, so there could have been nobody better for the crisis of 2008, when federal bailouts were the order of the hour. He collected not one basket of millions, but two, the second when BofA closed on the Merrill Lynch deal, a merger forced on him, apparently, by then Secretary of Treasury Hank Paulson, egged on the Federal Reserve Chairman Ben Bernanke.
According to the Financial Times, Ken Lewis told investigators for New York attorney general Andrew Cuomo in sworn testimony that Paulson threatened to fire him and his board if he did not go through with the Merrill Lynch merger despite dismal figures that were not disclosed to shareholders because Paulson pressed him, said Lewis, to keep them secret. I will always wonder what would have happened if Ken Lewis had countered with a threat of his own — to make the whole thing public and refuse to finalize a potentially ruinous arrangement for his shareholders, though he now argues that Merrill Lynch in time will be an asset for the bank.
Paulson does not deny the threat to fire Lewis, but does insist that Bernanke had nothing to do with it, and both of them dispute the allegation that they directed the withholding of the mess at Merrill Lynch until the deal was done.
Now, angry shareholders have forced Ken Lewis out as chairman of Bank of America, but he is staying on as CEO. Chances are, however, that the Obama administration will replace him before long, just as it is moving against the top managers of other companies in which it is, in effect, a big investor. Rick Wagoner was dumped abruptly as CEO of General Motors, and there’s talk that Vikram Pandit may be pushed out at Citigroup. Bob Nardelli has announced that when Chrysler gets out of bankruptcy he will withdraw from the company, not waiting for notice from Washington.
This flies in the face of all that we have believed, most of us, at least since Ronald Reagan, about government staying out of business. But when business cannot manage itself, there seems to be no alterative to federal intervention. I hope the current administration will behave with more thought for the total situation than Hank Paulson did when he bullied Ken Lewis in the case of Merrill Lynch, and that it will follow the graceful example of Bob Nardelli and seek an early exit, when the job is done.