Who in their right mind could be satisfied with the boards of Citigroup or Bank of America

TO BE NOTED: From Bloomberg:

"Bank of America Owners Declare War on Taxpayers: Jonathan Weil

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Commentary by Jonathan Weil

May 1 (Bloomberg) -- The votes are in at Bank of America Corp. And the message to America is unmistakable: It’s them versus us.

The big news from Bank of America’s annual meeting this week was that a majority of shareholders are content with the performance of the company’s directors. All 18 of them, including Chief Executive Officer Kenneth Lewis, were re-elected with at least 63 percent of the votes cast. All except Lewis and lead director Temple Sloan got more than 72 percent.

This outpouring of satisfaction leads to a question surely on many good citizens’ minds: What in heaven’s name could the geniuses who voted for these people have been thinking?

The same goes for the shareholders who cast their ballots last week to re-elect all of Citigroup Inc.’s directors, each with more than 70 percent of the vote. Even Citigroup’s CEO, Vikram Pandit, got a decisive majority.

Almost two years into America’s great financial fondue, we still haven’t tamed our nation’s systemically dangerous banks. That’s not just the fault of captive banking regulators, or cash-craving congressmen, or willfully blind credit-rating companies, or the people who run the banks. The shareholders who own the banks are just as much to blame.

Keep the Bums

Sure, Lewis is now out as chairman of Bank of America’s board, after a bare 50.3 percent of votes were cast in favor of splitting the bank’s chairman and CEO positions. Yet far from a revolt, this was more like throwing the bums in. Lewis’s replacement as chairman, Morehouse College President Emeritus Walter Massey, has been on the bank’s board since 1998. Doing what, exactly, is far from apparent.

These votes were the best chance we had for a taste of accountability at Citigroup or Bank of America, which together have received $90 billion of taxpayer bailout money. The banks’ shareholders rose to the challenge by flipping us all the bird.

It’s not as if anyone was asking them to place the country’s needs ahead of their own. No, the worst part is that so many of them were too lazy or stupid to vote in their own best interests.

Who in their right mind could be satisfied with the boards of Citigroup or Bank of America, which in the past year have destroyed most of their stock-market value, crawled like beggars in search of government rescue money, and turned their brand names into household curse words?

Don’t Rock Boat

There are some logical, if cynical, explanations. Perhaps some shareholders feel fortunate to have anything left of their stakes at all, and decided to reward the banks’ directors for driving such hard bargains with the taxpayers. Or maybe a bunch of institutional investors that do business with the banks, such as brokerage firms that vote their customers’ proxies, chose not to risk retaliation by rocking the boat.

The good-governance pundits say we should take note of all the votes withheld from the companies’ board members as a sign of restlessness. Charles Elson, the oft-quoted director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, told a Bloomberg News reporter that the size of the opposition to Lewis and Sloan “symbolizes the deep level of discontent with the management of the company” and that shareholder activists had “made their point.”

The main point I see, however, is that the majority of these banks’ shareholders need to have their heads examined.

They have to know they face even more dilution of their stakes because the banks probably don’t have enough capital to avoid returning to the bailout trough. And Bank of America’s shareholders must remember how Lewis’s board royally hosed them in December, by not disclosing the 11-figure losses at Merrill Lynch & Co. until after the purchase of Merrill was completed.

Or maybe not. I’m all for shareholder rights and protecting investors from wayward managers and boards. This time, however, the investors needing protection are the American people, who seem destined to become the majority owners of these banks.

The rest of the shareholders at Citigroup and Bank of America are lucky they haven’t been wiped out already. They certainly deserve to be now.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net"

We’re certainly not going to borrow from the federal government, because we’ve learned our lesson about that

TO BE NOTED: From the NY Times:

"April 29, 2009
Feeling More Secure, Some Banks Want to Be Left Alone

By GRAHAM BOWLEY and ERIC DASH

As Washington pushes banks to mend their finances, the banks are pushing back.

Emboldened by newfound profits and eager to shake off federal control, a growing number of banks are resisting the Obama administration’s proposals for fixing the financial system. Lenders that skirted disaster only months ago with the help of taxpayer dollars are now balking at government prescriptions.

Despite pressure from federal regulators, industry executives are taking issue with major elements of the president’s bank plan. Administration officials characterize each part of their three-pronged approach as crucial to bolstering banks and restarting the economy. But bankers are increasingly eager to extricate themselves from the government’s grasp, and worry that Washington will impose new restrictions on their businesses if the government’s already considerable role in the industry grows.

“The pushback has been pretty hard,” said Frederick Cannon, the chief equity strategist of Keefe, Bruyette & Woods and a specialist in banking stocks. “If we don’t address these issues, that could have a negative effect on economic growth, which in turn makes the banks’ problems worse.”

As the Obama administration marks its first 100 days, the banks’ resistance is complicating the government’s effort to solve some of the thorniest problems of the financial crisis. Opposition is building on several fronts.

Citigroup, Bank of America and other big banks are disputing so-called stress tests being conducted by federal examiners to determine how these institutions would withstand a deep, prolonged recession. The banks contend they are in better shape than the early findings suggest, although it is likely several will need to raise capital.

A Treasury plan to purge banks of their troublesome assets — a seemingly intractable problem — has received a lukewarm response in banking circles. Several big banks have declared they have no intention of participating in the program. Another major effort, one to revive credit for everything from car loans to equipment leases, has also gotten off to a slow start.

Administration officials said Tuesday that their efforts were going according to plan. They said that more than 100 private money managers had signed up for the program to buy troubled assets. “We are not flipping a switch here,” said one official, calling for patience. “These are intricate programs.”

But the disputes over the stress tests, which have been administered to 19 big banks, and a lackluster reception to the third effort, the Term Asset-Backed Securities Loan Facility, or TALF, are also potential worries.

Large banks are being put through a battery of tests to see whether they will hold up under pressure in the worst-case economic assumptions over the next two years. Big banks like Citigroup, Bank of America, PNC Financial and Wells Fargo are disputing some of the early findings, which suggest some banks may need to raise capital, according to people briefed on the exams. Because of the protracted negotiations with the banks and regulator infighting over how much information to disclose, officials now plan to announce the results on May 5 or 6, the third time the date has been postponed.

“There is concern among the banks that the stress test has led to uncertainty, the opposite of what is intended, and they would be diluting their shareholders based on a scenario that the regulators say themselves are unlikely to happen,” said Edward L. Yingling, the head of the American Bankers Association.

According to people briefed on the situation, the disputes center on several assumptions that regulators made in administering the tests. These include the severity of losses on assets like mortgages, credit card loans and commercial real estate loans, as well as the banks’ potential to generate earnings.

In a further challenge, the banks are also pushing regulators to relax the timetable for them to obtain new capital.

Some investors are prepared to buy problem assets from banks. What is less certain is whether banks will be willing to sell. Big money managers like BlackRock and Bank of New York Mellon said they had applied to raise money for the troubled-asset funds. While administration officials say they never expected every bank to participate, large banks whose involvement was regarded as vital to the plan’s success have said they will not be involved. Executives worry that whatever assurances the White House gives them, an angry Congress might impose new rules on banks that participate, particularly on pay.

Officials from Citigroup, Morgan Stanley, PNC Financial and a number of other big lenders that have received multibillion-dollar government bailouts are reluctant to participate or have refused so far to commit until more details are offered. Jamie Dimon, JPMorgan Chase’s chief executive, has said he believes that the Public-Private Investment Program — which depends on loans from the Federal Deposit Insurance Corporation — could be “good for the system” but that his bank has no intention of being either a seller or buyer. “We’re certainly not going to borrow from the federal government, because we’ve learned our lesson about that,” he said earlier this month in a conference about earnings.

Many banks are reluctant to sell their nonperforming loans because they could suffer big losses, forcing them to raise more capital. Others want to avoid the stigma of latching on to another federal program.

“Never mind the price,” James E. Rohr, PNC’s chief, said in a recent interview. “I wouldn’t want to be the first person and be perceived as a weak bank.”

D. Bryan Jordan, the chief executive of First Horizon, a big lender based in Tennessee, said the likelihood that his bank would participate was somewhat low. “We think we can get a lot more value out of them by working them out ourselves,” he said earlier this month in a conference call about first-quarter results.

Art Murton, an official at the F.D.I.C. who is helping to devise the troubled-loan program, said there had been “encouraging” levels of interest. To test the investor waters, the F.D.I.C. is planning a pilot auction in June.

The TALF program has also struck some as underwhelming. It was to ignite the market for securities backed by consumer and small-business loans, which dried up last year.

Policy makers said they planned to lend up to $1 trillion under the program. But investors took only $4.7 billion in loans in the first installment in March, and a further $1.7 billion in April, according to the Federal Reserve Bank of New York. Administration officials said, however, that the plan was restarting lending and would grow in coming months.

Citigroup, meanwhile, has been in discussions with the Treasury over overhauling its compensation system for traders and other employees, a person close to the talks said, as the bank awaits the government’s new compensation rules. Among the ideas discussed have been issuing warrants, permitting employees to buy stock rights at steep discounts and exempting traders from the new rules.

Louise Story contributed reporting."

top banking regulators feared a systemic risk if the deal was not completed, and even threatened to remove management if it balked

TO BE NOTED: From the NY Times:

"U.S. Role Questioned on Merrill

By ZACHERY KOUWE

Newly revealed testimony about federal involvement in the Bank of America acquisition of Merrill Lynch is raising questions about whether bank regulators may have overstepped during a period of extreme stress in the financial system.

Kenneth D. Lewis, the chairman of Bank of America, told investigators that he was pressured by the government to complete the acquisition of Merrill Lynch at the end of last year and to withhold material information about government assistance from shareholders, according to a letter released Thursday by Attorney General Andrew Cuomo of New York.

According to Mr. Lewis’s testimony, top banking regulators feared a systemic risk if the deal was not completed, and even threatened to remove management if it balked.

In his letter to Congressional leaders and federal securities regulators questioning the role of the government in the deal, Mr. Cuomo said he was concerned about the lack of transparency into the program to shore up the nation’s banking system. While protecting taxpayers’ interests, “it is equally important that investor interests are protected and respected,” he wrote.

He also raised the possibility that Bank of America broke federal securities regulations by not disclosing Merrill’s staggering fourth-quarter losses to shareholders.

Federal laws require public companies to disclose any “material” event that could affect the company’s value. Whether Mr. Lewis should have disclosed the deterioration at Merrill is the subject of shareholder lawsuits. Though Mr. Cuomo said in his letter that testimony from federal officials largely supported Mr. Lewis’s testimony, a full account of the events is not clear. Mr. Cuomo did not release other testimony.

Representatives for Federal Reserve Chairman Ben S. Bernanke and Henry M. Paulson Jr., who was secretary of the Treasury at the time, denied that they ever advised Mr. Lewis on disclosure issues. A representative for Mr. Paulson said he did not dispute any of the attorney general’s characterizations of his conversations with Mr. Lewis. Mr. Bernanke has invoked the bank examination privilege and declined to testify about the Fed’s role.

According to Mr. Lewis’s testimony, Mr. Paulson and Mr. Bernanke strongly advised the banker to complete the purchase of Merrill even after he learned in mid-December that losses at the brokerage firm were $7 billion more than expected.

Mr. Lewis also testified that Mr. Paulson told him “we do not want public disclosure” about possible government financing for Bank of America to help it complete the Merrill deal. Asked by the attorney general’s office whether he discussed disclosing Merrill’s greater losses to shareholders, Mr. Lewis said the issue never came up.

After learning that Merrill’s financial condition “had seriously deteriorated at an alarming rate,” Mr. Lewis said he sought to back out of the deal. On Dec. 17, he told Mr. Paulson and Mr. Bernanke that he was planning to invoke a clause in the merger agreement that allowed him to walk away from the transaction.

Based on the information he has collected, Mr. Cuomo said Mr. Paulson then told Mr. Lewis that walking away from the takeover of Merrill would create a systemic risk to the financial system and that he had no legal basis for terminating the deal. The two federal officials threatened that they “could or would” seek to remove Mr. Lewis and the company’s board if he refused to complete the merger.

“Lewis admits that Secretary Paulson’s threat changed his mind about invoking the MAC clause and terminating the deal,” Mr. Cuomo said in the letter, noting so-called material adverse change.

Mr. Cuomo’s letter further confirms that his investigation includes whether securities laws were violated and whether government programs to shore up the banks have been transparent.

In a statement, a Bank of America spokesman said, “We believe we acted legally and appropriately with regard to the Merrill Lynch transaction.”

Bank of America agreed to buy Merrill Lynch in a hastily arranged deal in September, as financial markets were seizing up and Lehman Brothers, another big Wall Street firm, was slumping into bankruptcy protection.

“Despite the fact that Bank of America had determined that Merrill Lynch’s financial condition was so grave it justified termination,” Mr. Cuomo wrote, “Bank of America did not publicly disclose Merrill Lynch’s devastating losses.”

Legal experts noted that the testimony would most likely benefit shareholder suits against Bank of America.

“ ‘The government made me do it’ is not really a valid legal defense,” said Randall W. Bonder, a lawyer at the firm Ropes & Gray.

But Mr. Lewis may benefit in the court of public opinion by claiming the government pressured him to do the deal to save the financial system. Mr. Lewis admitted in the testimony that he believed going through with the takeover would hurt shareholders in the short term, but had to be done to “stem a financial disaster in the financial markets.” He defined short term as “two to three years.”

Another issue raised in the testimony is whether Bank of America’s shareholders were being asked to take a loss to save the rest of the financial system.

“We shouldn’t lose sight of the fact that this was an extraordinary time, and every action these men were making had extraordinary ramifications that went well beyond the health and well-being of Bank of America shareholders,” Mr. Bonder said."

an excellent article about the dangers and advantages of nationalization

From Clusterstock:

"Faster, Please: Four Lessons From Sweden's Bank Rescue

John Carney|Feb. 28, 2009, 1:55 PM|3

Tags: Wall Street, Citi, Bailout, Banks, Financial Services, Bank of America, Credit Crisis, Tim Geithner, Barack Obama

Matthew Richardson, who teaches applied economics at NYU's Stern business school, has written an excellent article about the dangers and advantages of nationalization. Most important, he says, are that we learn the four central lessons of the example of Sweden.

What are those? Here you go:

1. Decisive action in terms of evaluating the solvency of the financial institutions.
2. Some form of “nationalisation” of the insolvent firms.
3. Separation of these insolvent firms into good and bad ones with the idea of reprivatising them.
4. The management of the process was delegated to professionals, as opposed to government regulators.

But go read the whole thing."

Me:

Don the libertarian Democrat (URL) said:

Feb. 28, 3:02 PM

The whole point, from the beginning, was to have a modus operandi in place to handle the big banks. In other words, some people saw that:
1) The FDIC couldn't just swoop in and take the big banks over.
2) That meant that we needed a special FDIC entity or a separate entity to take care of the big banks.
3) We needed to begin to work out how to break them apart.
If the FDIC could have handled them, then there would have been no need of a Swedish Plan. By the way, I believe that the Swedish Plan was partly based on the RTC. The only reason the RTC wasn't mentioned is because, at least from my point of view, that's where I first heard the phrase "Too Big To Fail". We didn't need a little bank fix.

Of course, I was assuming that we didn't want to, once again, show by our actions that some banks are too big to fail. Silly me. Also, the idea that these businesses can unwind themselves is belied by the fact that nobody wants to buy anything from them for any real money, because nobody trusts them. Joe Isuzu would be a better bet to sell theses assets.

As for the people who will take losses here, it's in their interest to predict the end of our way of life. We're going to take a big gamble whatever we do. I'd prefer a road that doesn't keep us subservient to these bank's interests, but that's just me.

Update on the government's state of denial: Improving

From Clusterstock:

"US Finally Admits It May Have To Take Over Banks

Henry Blodget|Feb. 24, 2009, 7:22 AM|4

Tags: Wall Street, Bailout, Banks, Financial Services, Citi, Bank of America, Credit Crisis, AIG, Tim Geithner, Barack Obama, Alan Greenspan

Update on the government's state of denial: Improving!

NYT: “We absolutely believe that our private banking system is best off being in private hands and we are trying our best to keep it that way,” said one senior administration official, who spoke on condition of anonymity. But, he continued, the government is already deeply involved in propping up the banking system and may have no choice.

Officials said they were bracing for the possibility of new problems that might indeed require the government to take a more aggressive stance.

“Given our involvement at this particular stage, there is an element, a possibility over time, that we will end up with some ownership of these institutions,” the official said. “This is really about aggressive anticipatory action. It is an acceptance that the future is uncertain, but that we can plan on a certain basis for it.”

(The rest of the article, meanwhile, is too depressing to read. Among other things, it contemplates what the government will do once it actually takes over all these companies.)"

Me:

Don the libertarian Democrat (URL) said:

Feb. 24, 9:25 AM

“They are desperate to not nationalize the banks,” said Robert J. Barbera, chief economist at ITG. “They know what happened when they took Iraq and they would just as soon not take over the banks, because if you own it, you gotta fix it.”

I hate to tell Mr. Barbera this, but it's our country, and we do have to fix it. This is the second "Can Do" American Spirit post of the morning. Maybe I'll start collecting them, for a wreath.