2nd UPDATE: With Trading Gaffe,BofA Deals With New Black Eye
06 Mars 2009 - 11:34PM
Dow Jones News
Bank of America Corp. (BAC) Chief Executive Kenneth Lewis once
referred to the acquisition of Merrill Lynch as "the strategic
opportunity of a lifetime." He might now be reconsidering.
The Charlotte-based bank confirmed Friday it discovered a
trading irregularity during a recent probe into Merrill Lynch's
trading positions in London. BofA did not quantify how much money
might have been lost.
The disclosure is the latest black eye for Lewis since he agreed
to buy Merrill Lynch as the credit crisis flared last year. The
agreement rescued the troubled brokerage from the kind of collapse
that toppled Lehman Brothers (LEHMQ), but has caused Lewis one
headache after another since the Sept. 15 agreement was made.
Analysts believe the soap opera that has entangled BofA since
the merger shows no signs of ending. In fact, the culture clash
within America's biggest bank only seems to be heating up.
"Opportunity of a lifetime? This is turning into the nightmare
of a lifetime," said Nancy Bush, a banking analyst and founder of
NAB Research. "I don't think Lewis helps himself by not owning up
to responsibility for this. The Street is looking for a mea culpa
on his part."
The news has been nothing but negative since BofA completed its
acquisition of Merrill on Jan. 1. Shares have plunged 75% during
that time, and its market value has tumbled to about $20 billion
from $90 billion.
Investors were also stunned that Merrill reported a
wider-than-expected $15.8 billion loss during the fourth quarter.
Despite the loss, former Merrill Lynch CEO John Thain still made
eleventh-hour bonus payments of $3.6 billion to employees before
the BofA deal closed.
The bonuses not only have caused friction as the two banks have
integrated, but caused New York Attorney General Andrew Cuomo to
launch an investigation into the matter.
Both Lewis and Thain have been paraded into Cuomo's offices in
downtown Manhattan as part of a stream of subpoenas issued to
executives. Seven more executives are on tap to give depositions in
the coming weeks.
Among the executives being called into Cuomo's office is Dave
Gu, the head of Merrill's global rates division. His department is
being investigated for trading irregularities.
The trader was identified as Alexis Stenfors, according to two
people familiar with the matter who could not speak publicly. He
did not return e-mails sent to him.
Merrill Lynch also would not elaborate on the investigation
other than confirming the irregularities.
With an increasing amount of gaffes hovering over the firm,
dissatisfaction with BofA leadership has led the investment vehicle
for seven labor unions to demand Lewis' replacement. CtW Investment
Group, which manages 33 million shares for unions like the
International Brotherhood of Teamsters, is expected to address
Lewis personally at the bank's annual meeting on April 29 in
Charlotte.
"Recent events have fatally undermined investor confidence in
Bank of America," CtW Executive Director William Patterson wrote in
a letter.
There is no indication that Lewis, 61, would step down from the
company where he became CEO in 2001. Analysts believe Lewis still
has a chance to prove to investors he's helping the bank right
itself, especially when the company reports first-quarter results
next month.
Although his job seems safe for now, businesses within the
combined company have seen notable personnel departures in the
months following the acquisition. While the defection of bankers
and other professionals to rivals isn't unheard of on Wall Street,
recent exits from Bank of America only highlights potential
integration issues.
On Tuesday, for example, Merrill sued Deutsche Bank AG (DB) over
the hiring of former Treasurer Eric Heaton and 11 members of its
financial institutions group, claiming the rival bank "raided" the
business.
Merrill Lynch Global Wealth Management, or the "thundering herd"
of more than 16,000 financial advisers, has also taken hits.
Recruiters say the unit, the crown jewel of the BofA acquisition,
lost more brokers than it brought for a few weeks following the
exit of top Merrill executives, including Thain and former
brokerage chief Robert McCann.
A spokeswoman for Merrill Lynch's global wealth management
business declined to comment.
Bank of America shares closed Friday down 3 cents, or nearly 1%,
to $3.14 and are unchanged in recent late trading.
-By Joe Bel Bruno and Brett Philbin, Dow Jones Newswires;
201-938-4047; joe.belbruno@dowjones.com
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