BofA: Bank of America chief Ken Lewis has wriggled out of yet another tight corner. The bank is paying just $425 million to the US government as compensation for the few months it benefited from the appearance of having Uncle Sam’s protection for some $118 billion of questionable assets picked up in the acquisition of Merrill Lynch. Relative to the benefits that accrued from this semblance of safety, that’s a pretty small price to pay. But make no mistake — this adds more marks to the chief executive’s rap sheet.
In January the bank agreed to pay $4 billion in preferred stock and warrants for government insurance against losses on the assets. The deal was never inked, but BofA didn’t make that public until May, well after the most dangerous phase of the financial crisis had passed — and BofA shares had more than doubled. Moreover, the bank then had the tin ear to argue that it didn’t owe the government money because it never signed the deal.
While it would have been unfair to force the bank’s shareholders to shoulder the full fee originally envisaged, defensible arguments could be made for paying the government up to a third of the original fee, or $1.3 billion. So $425 million looks like a bargain. But make no mistake. While shareholders may have escaped lightly, reputational damage to the bank has been done by Lewis’ shifty attempt to benefit from taxpayer largesse without paying a nickel. Regulators and shareholders should add this to the brimming dossier of reasons to encourage the chief executive’s departure.
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