Not exactly a surprise: Bank of America shareholders have stripped him of his chairmanship. I don't find it hard to believe that Ken Lewis genuinely believed that he was singlehandedly saving the US financial system--though it is also true that he probably couldn't have gotten out of the merger agreement by the time he (and Merrill) knew about the losses, even if he wanted to. But that doesn't really matter. If my husband sacrificed our child to save thousands of people, I might recognize, at some abstract level, that he had done the right thing. But we wouldn't stay married.
Right now, Ken Lewis remains CEO--the board expressed unanimous support. But at this point, it seems likely that it's only a matter of time. (If it isn't, it will become a famous business school case on the Principal-Agent problem.)
It's hard to imagine that it wasn't long ago that Ken Lewis was the guy who was celebrated for transforming BofA into the 800 pound gorilla in the banking market. Every time I read one of those glossy CEO profiles, I remember how many of them end this way.
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"Every time I read one of those glossy CEO profiles, I remember how many of them end this way."
It would be useful to drill down a little more here. There are reasons why the best bankers in America didn't become the biggest bankers in recent years.
In other news, it appears the Chrysler secured creditors are now refusing to take one for the team.
I thought that I had read in Forbes that the bondholders were unsecured lenders. Can someone please clarify?
Either way though, I hope they do better than 0.46 cents on the dollar in bankruptcy court.
Thorley,
Unsecured creditors may be (probably are) part of the block refusing to play, but my understanding is that some of the secured creditors, that are not the big banks under the government thumb at the moment, are balking at their portion of the cash buyout (I have read that they are hedge funds for the most part, and hold about 30% of the secured debt).
In my opinion, the unsecured creditors (at least those not called the UAW or the Federal Government) are toast either way, but they are probably looking for a bribe not to drag out a bankruptcy proceeding.
In any case, I would really like to see this play out in a fair court of law, but my expectation is that the judge this comes before will simply rubberstamp whatever plan the Obama Administration puts before him/her. The balky secured creditors are playing a risky game- one in which the actual rules will almost certainly not be adjudicated in their favor.
Maybe taking one for the team in this case is actually going through the process and making a judge issue a ruling, even if they do end up getting screwed. It would be a good thing to at least have a judge apply our laws and see his/her reasoning, because it seems like the rule of law is very low on the list of this administration's priorities in all this.
Why should they? They have insurance in the form of CDSs from AIG. They know the government isn't gonna let AIG go out of business, so the best outcome for them is bankruptcy for Chrysler. The same is true for GM bondholders, but it looks like the administration is just going to screw them by fiat.
tsotha,
Considering how decrepit Chrysler has been for a decade, I doubt that many bondholders could even afford to purchase CDS on the bonds, but secured creditors wouldn't seem to be the type to do so even if it had been cheap.
CDS will probably play a bigger role in the GM battle that is coming later this Spring.
CDS's cover only 10% of the 27b worth of bonds
"If my husband sacrificed our child to save thousands of people, I might recognize, at some abstract level, that he had done the right thing. But we wouldn't stay married."
I didn't realize things had progressed so far so quickly!
Mazel-tov to you and Peter!
By the way, Megan, congrats on making it onto RealClearPolitics!
She's been there before.
Lewis interpreted BofA's status as a federally regulated entity as license to throw his shareholders under the bus. The de facto situation is that this crop of bank executives just do whatever they are asked to by the Fed. Not one of these illustrious gentlemen stood up to the diktat of Mr. Bernanke. The significance to shareholders: you can no longer invest in banks. Now add the American auto companies. You can't invest in them, and do you want to buy a PeoplesCar (Volkswagen) from the National Socialists?
Dave,
I know she probably has, but it is the first time I have seen her there.
Corporate law should be rewritten so that in public companies the President and CEO can not sit on the board or be the Chairman of the Board. If you stop and look at it, it's a blatant conflict of interest and a recipe for management looting of the company and the shareholders. Which is why it has not been outlawed.
Interestingly, the Canadian Banks practice separate CEOs and Chariman's of the board. Hummmmmmm.
But the shareholders elect the board members. And since they own the company, it's their business. I don't understand why you think the government should step in there.