--He gorged on too many deals. Weeks after he closed on the $3.3 billion buy of U.S. Trust Corp. in July 2007, he pumped $2 billion into the poster child for mortgage-lending excess—Countrywide Financial—and then doubled up on his bet, agreeing to buy the whole shambles for $4 billion more in January 2008. That deal closed last July, and two months later he bids for Merrill, in a hasty merger valued at a daunting $50 billion.
--He was prideful to a fault, bragging on “60 Minutes” that he didn’t need no stinkin’ bailout. Only to learn later that, ahem, oh yes he did.
I take no pleasure in this litany (even though my “9 for ’09” predictionssaid Lewis would go from hero to goat when the Countrywide and Merrill deals blow up on him). And Lewis protected his shareholders by avoiding any “collar” on the Merrill deal: By the time it closed a few weeks ago, BAC shares had fallen 60% and the price had gone from $50 billion to just $20 billion. B of A didn’t have to pony up any extra shares.
Plus, in capitalism you don’t succeed unless you are willing to fail, to take risk, and Ken Lewis deserves kudos for doing just that.
But moderation is just as important as boldness in these stressful times, and Lewis showed none of it. Like a third-generation scion inheriting the family business, Lewis took over Bank of America after the giant was assembled by David Coulter, the longtime CEO of the old BankAmerica, and Hugh McColl, the driven builder of NationsBank, which acquired Coulter’s company in 1998.
Everyone knows what happens to the family wealth by the third generation: It dissipates. Lewis took over as CEO in early 2001 and continued on the growth-by-acquisition path, doubling sales and earnings, almost tripling assets and lifting market cap from $74 billion to the $200 billion range. (BAC shares now are worth $30 billion and change. Ouch.)
But Lewis ran out of room to maneuver. As B of A smacked up against federal limits capping how big a share of the nation’s bank deposits any one bank can hold, Lewis had to turn from consumer banks—his forte—to other types of institutions. Enter U.S. Trust, Countrywide (an S&L, not a bank, technically) and Mother Merrill.
He and his lieutenants have had a harder time integrating these latest trinkets. That is why, some on Wall Street say, you should look for Bank of America to start shedding some pieces. U.S. Trust seems superfluous in wealth management now that Merrill’s thundering herd of brokers is at work. Merrill’s own First Republic Bank, bought for $1.8 billion in early 2007, seems redundant now.
Just watch: Soon traders will start speculating on who might replace Lewis. One thought: Alvaro G. de Molina, who was B of A’s beloved chief financial officer until he resigned in late 2006. Now chief at GMAC, he knows B of A intimately. He is said to have been well-liked by the board and is respected on the Street. Those two qualities, sadly, may be on the wane for the now-struggling Ken Lewis.
— Courtney Reagan contributed reporting for this column.