Bank of America Corp Chief Executive Officer Kenneth Lewis, under siege from investors on concern the company may be taken over by the US government, said he doesn’t need any more federal assistance and can “make it through this downturn on our own.”
Lewis, speaking in a memorandum to employees yesterday as his stock price plummeted as much as 36 per cent, said he aimed to “prove cynics and critics wrong” by spurning attempts at nationalisation. Bank of America, the biggest US bank by assets, has already received $45 billion in bank rescue funds.
The 61-year-old banker defended the independence of his Charlotte, North Carolina-based lender as concern mounted that takeovers will wipe out shareholders of financial companies. New York-based Citigroup Inc, the third ranking bank by assets, also slid as much as 36 per cent on Saturday.
Treasury Secretary Timothy Geithner’s refusal to clarify his intentions regarding either bank “is allowing for the absolute decimation of the values of Bank of America and Citigroup on a daily basis,” said William Smith of Smith Asset Management in New York. “All he has to do is come out and say there is no nationalisation.”
US Senator Christopher Dodd, chairman of the Banking Committee, also weighed in on the debate, saying in a Bloomberg Television interview yesterday that some banks may have to be nationalised “for a short time” to survive the worst economic slump in 75 years. Former Federal Reserve Chairman Alan Greenspan told the Financial Times last week that the US may have to temporarily nationalise some banks.
Treasury Addresses ‘Rumours’
Bank stocks pared some of their losses yesterday after US Treasury spokesman Isaac Baker said “rumours” about bank nationalization shouldn’t be interpreted as policy. He also reiterated Geithner’s view that the nation’s private financial system should be maintained. Bank of America ended the day down 3.6 per cent. Citigroup fell 22 per cent.
“Fears of nationalisation are incredibly exaggerated,” said Christopher Marshall, a former chief financial officer at Fifth Third Bancorp who previously worked at Bank of America. “Treasury wants to keep it afloat as a public industry, not government-owned.”
Any attempt at nationalisation would probably have to wait until regulators conduct so-called stress tests to determine whether they can weather future shocks. While officials haven’t said how the tests will be conducted, Lawrence Summers, President Barack Obama’s top economic adviser, said on February 13 that it’s possible some banks may be shut as a result of the tests.
Few ‘Clear Signposts’
“Every investor wants to know where are we going, how are we getting there, and again the government is not giving us clear signposts,” Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc, which oversees $2.5 billion, said in a Bloomberg TV interview. “They are being, I would say, almost tone deaf to the calls for clarity.”
In Mexico City on Saturday, Citigroup CEO Vikram Pandit, 51, said his bank is committed to its Mexican unit, Grupo Financiero Banamex SA. Speculation has mounted in recent weeks that Citigroup, also the recipient of $45 billion in US government funds, may sell Banamex to raise cash and shore up capital amid the global financial crisis. Pandit didn’t address the debate over nationalisation.
In his memo on Saturday, Lewis also pointed to signs that his business is on an upswing.
Bank of America’s trading businesses is “vastly improved” over the fourth quarter as both high-yield and high-grade corporate debt markets thaw, Lewis said. The Merrill Lynch & Co acquisition, completed on January 1, is leading to mandates to raise capital for clients, while the mortgage unit is processing record levels of loans, he said.
Bank of America’s brand “took a beating in January,” then strengthened this month based on customer satisfaction scores, Lewis said. Several senior Merrill Lynch executives left the bank in January, including former CEO John Thain and Greg Fleming, head of investment banking.
