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.