House targets Fed in Bank of America investigation

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WASHINGTON (AP) — A House panel has subpoenaed documents that lawmakers say could shed new light on Federal Reserve Chairman Ben Bernanke’s role in Bank of America’s acquisition of Merrill Lynch.

The subpoena comes ahead of a hearing next week in which Bernanke is scheduled to testify.

Lawmakers have accused Bernanke and President Bush’s treasury secretary, Hank Paulson, of pressuring Bank of America Corp. Chief Executive Kenneth Lewis into the deal and urging him to keep quiet about Merrill’s financial problems.

Not divulging that information would have violated Lewis’ fiduciary duty to the bank’s shareholders.

Lawmakers also have questioned whether Lewis threatened not to go through with the merger in order to squeeze money from the government.

Bank of America ultimately received $45 billion from the government’s bank bailout program, $20 billion of which was tied to its acquisition of Merrill Lynch.

The subpoena is the second of its kind by the House Oversight and Government Reform Committee. Last week, chairman Rep. Ed Towns, D-N.Y., and ranking member Darrell Issa, R-Calif., said the panel had reviewed documents that proved the merger was a “shotgun wedding” that came at the expense of the taxpayer.

“The question may be … who was holding the shotgun?” Towns asked at a June 11 hearing.

In one e-mail reviewed by committee staff, Bernanke said he thought Lewis’ threat to pull out of the deal was a “bargaining chip” and “we do not see it as a very likely scenario at all.”

In testimony before the committee, Lewis said publicly for the first time that his job was threatened after he expressed second thoughts about the merger. Lewis said then-Treasury Secretary Hank Paulson and federal regulators made clear that if the bank reneged on its promise they would force his ouster and that of board members at the bank.

“What gave me concern is that they gave that threat to a bank in good standing,” Lewis told the House Oversight and Government Reform Committee. “So it showed the seriousness with which they thought that we should not” back out.

Paulson and Federal Reserve Chairman Ben Bernanke also pledged government aid to Bank of America to help absorb the losses, Lewis said.

The Associated Press: House targets Fed in Bank of America investigation

US House Panel Wants Bernanke To Testify On BofA, Merrill

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WASHINGTON -(Dow Jones)- U.S. lawmakers have heard from Bank of America Corp. (BAC) Chief Executive Kenneth Lewis. Now they want Federal Reserve Chairman Ben Bernanke’s side of the story.

The House Committee on Oversight and Government Reform on Tuesday invited Bernanke to testify before the panel on the government’s role in Bank of America’s acquisition of Merrill Lynch & Co. The panel, chaired by Rep. Edolphus Towns, D-N.Y., has invited Bernanke to testify June 25.

The request comes less than a week after the panel grilled Lewis on his decision not to disclose growing losses at Merrill to investors last December, as well as the decision to accept additional government aid to close the deal.

Bernanke will likely face questions regarding numerous emails between him and other Fed officials from last December, when officials were urging Bank of America not to abandon the deal in the face of mounting losses at Merrill Lynch. In the emails, Bernanke refers to Bank of America’s threat to step away from the deal as a “bargaining chip” and described it as a “foolish move” that regulators wouldn’t condone.

Bank of America originally agreed to acquire Merrill Lynch last September at the height of the tumult in world financial markets. The bank eventually received an additional $20 billion in government aid to cover some of the losses at the investment bank and to close the deal.

Lewis last week acknowledged publicly for the first time that government officials threatened to remove Bank of America management if the firm backed out of the Merrill Lynch acquisition, comments he had previously made in testimony to New York Attorney General Andrew Cuomo.

Lawmakers have raised concerns about Lewis’ testimony to Cuomo, questioning whether officials acted appropriately in pushing Bank of America to close the deal.

“Nowhere in the legislation did it suggest that [then Treasury Secretary] Henry Paulson, Ben Bernanke, or anyone else operating on behalf of the United States government was given the power to force shotgun weddings,” Rep. Darrell Issa, R-Calif., said during last week’s hearing with Lewis.

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

US House Panel Wants Bernanke To Testify On BofA, Merrill

Carlyle, TPG Said to Weigh Buying First Republic Bank

June 16 (Bloomberg) — Carlyle Group, Blackstone Group LP and TPG are leading a group of bidders in talks to buy Bank of America Corp.’s First Republic Bank, the San Francisco-based bank that caters to wealthy individuals, people familiar with the matter said.

Carlyle and Blackstone, the largest private-equity firms, and David Bonderman’s TPG may partner with First Republic Chairman James H. Herbert II, said one of the people, declining to be identified because the discussions are private. Bank of America, the biggest U.S. lender by assets, is selling businesses to raise capital after receiving $45 billion in government rescue funds.

First Republic, inherited by Charlotte, North Carolina- based Bank of America through its takeover of Merrill Lynch & Co., may fetch $700 million, according to CreditSights Inc. analyst David Hendler. Merrill Lynch bought the bank, which had assets of $15.3 billion at the end of 2007, for $1.8 billion that same year.

Buyout firms invested more than $1 billion in U.S. banks in May after financial companies worldwide racked up almost $1.5 trillion in writedowns and credit losses in the past two years. Washington, D.C.-based Carlyle is pursuing bank deals through a team headed by former U.S. Treasury Undersecretary Randal Quarles and former UBS AG banker Olivier Sarkozy. Carlyle and Blackstone are part of a group that agreed to buy BankUnited Financial Corp. last month.

Columbia Management

Representatives of Carlyle, Blackstone and TPG declined to comment, as did spokesmen at Bank of America and First Republic, which has banking or trust offices in 10 cities including New York, Las Vegas and Los Angeles. Blackstone is based in New York, while TPG is based in Fort Worth, Texas.

Bank of America is considering selling businesses including First Republic and Columbia Management Group as it seeks to raise capital, Chief Financial Officer Joe Price said on a conference call last month. Chief Executive Officer Kenneth Lewis was called before Congress last week to testify about the circumstances of his purchase of Merrill Lynch.

Carlyle has $85.5 billion of assets, trailing only New York-based Blackstone. Carlyle last July invested $75 million in Boston Private Financial Holdings Inc., the owner of private- banking companies.

Carlyle, TPG Said to Weigh Buying First Republic Bank (Update1) - Bloomberg.com

Bank of America getting into the luxury hotel business

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As Bank of America (BAC) prepares to start repaying TARP dollars, it’s also gearing up to open a new hotel across the street from its corporate headquarters. And it’s not a Holiday Inn.

Five months from now, the nation’s largest bank is scheduled to open a new, eco-friendly Ritz-Carlton in a sleek 18-story building. It will have bi-level, penthouse “wellness center” - in other words, a spa - and enough meeting space to accommodate 480 dinner guests, the hotel press release says.

Bank of America started planning the Ritz-Carlton about four years ago, said Scott Silvestri, a spokesman for Bank of America. Back then, the economy looked healthy enough to support luxury hotels in places that never had them, and companies weren’t afraid of being associated with five-star lodging.

But when the luxury hotel opens in October, it will greet guests in a vastly different environment. Silvestri says that Bank of America did not use TARP money to finance the hotel, still the bank does owe taxpayers $45 billion in TARP money. Had that not been the case perhaps the hotel - instead of the owner - would make the headlines.

“I would think there would be a lot of questions about that connection, unless they’re planning on giving TARP money back real quick,” said Paul Hebert, a consultant who’s written about how public perceptions have changed corporate travel and rewards decisions.

“It’s again about the whole idea of excess and not spending money wisely,” Hebert said. “Somebody in those mahogany coated rooms should have said, ‘Come on guys’.”

The hotel opening also comes as Bank of America scraps other business with Ritz-Carlton hotels. Just last month, for instance, the company dropped its 38-year-old, annual investment conference in San Francisco, according to the San Francisco Business Times. The event was traditionally held at the Ritz-Carlton.

In the hotel world and in Charlotte, however, the 147-room Ritz-Carlton is a notable one.

It will be Charlotte’s first luxury hotel.

It will also be Charlotte’s - and the Ritz-Carlton chain’s - greenest hotel.

The Ritz-Carlton was built to comply with strict environmental standards set by the Green Building Council, including water and energy efficiency, sustainability and indoor air quality goals. The hotel will be so green that the custom-designed employee uniforms consist of fabric made from regenerated plastic bottles.

The officially named Ritz-Carlton, Charlotte at Bank of America Center will begin accepting reservations this summer.

Bank of America getting into the luxury hotel business - Hotel Check-in: A road warrior’s guide to the lodging landscape - USATODAY.com

What’s behind a union’s full-court press to take down BofA’s Kenneth Lewis?

NOT!

But observers and even competing bankers say the attack has a broader goal: to push labor reforms that would help unions form at BofA and other banks. “They’re after blood. They’re chumming the waters for sharks,” UNC Charlotte finance professor Tony Plath says of the union’s campaign. “I’m not a cheerleader for BofA. But let’s be objective about this: These attacks are all about card check.” Taking the fight to BofA, Plath and others suggest, allows the union to build support for proposed federal legislation called the Employee Free Choice Act, commonly called “card check.” It would allow unions to form by way of a majority, public vote. Secret ballots would no longer be required. BofA officials say the bank hasn’t taken a position on the legislation. A spokesman declines to speculate on the union’s motives for its campaign, but he does say some of its materials are misleading. “We’re not trying to pick a fight with SEIU. Some of their members are loyal customers,” BofA spokesman Robert Stickler says. “On the other hand, we’re trying to set the record straight. A lot of their information is inaccurate.” (See related story.) Plath believes the SEIU is seizing the opportunity to raise the profile of its agenda. BofA is an easy target, he says, because it has been embroiled in controversy. By accusing a major company such as BofA of abusing consumers and workers, labor groups stand to gain support in Congress for changes, Plath says. “It’s not a coincidence that one of the unions that would benefit most from some changes (to labor laws) is going after Bank of America,” he says. Bert Ely, a banking consultant based in Washington, says banks historically have resisted union organization. There are no unionized banks in the United States. But he expects recent government intervention in the financial sector to fuel union attempts to gain influence. “I wouldn’t be surprised if this is to try and create a political climate where Congress will mandate banks have some form of community or union representation on their boards,” Ely says. “There are certainly broader agendas at play.”

AIG sues Countrywide

“As a result of the unprecedented number of defaults in the mortgage loans, United Guaranty has already paid out insurance claims totaling over $30 million and is exposed to additional claims of several hundred million dollars more,” AIG’s United Guaranty Mortgage Indemnity Co. said today in a complaint filed in federal court in Los Angeles. Countrywide, bought last year by Bank of America Corp. (BAC), sought insurance for the subprime mortgage loans to increase the credit ratings of mortgage-backed securities in which the loans were bundled, according to the complaint. Countrywide falsely claimed the loans were originated in strict compliance with its underwriting standards, the AIG unit said. United Guaranty said in the complaint that it had reviewed loan files that showed that most mortgages covered by 11 policies for asset-backed securities were either underwritten in violation of Countrywide’s own guidelines or contained defects, such as missing documents, misrepresented credit scores or false social security numbers.

BofA extends $600B in credit in 2008

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Bank of America Corp. Chief Executive Kenneth Lewis says the Charlotte-based bank extended $600 billion in credit last year.

“We’re out there in the marketplace making every good loan we can, growing our relationships with existing customers and creating new ones,” Lewis says in a letter to shareholders in the company’s annual report. BofA declines to disclose how much credit it extended in 2007.

Lewis says lending volume is not what it was “at the height of the boom.” “And it shouldn’t be,” he adds. “We’re in a recession, which means that demand for credit is lower, and credit standards are tighter.” The bank has received a total of $45 billion in federal funds from the Troubled Asset Relief Program, which is designed to thaw the credit markets.

Some $20 billion of that total came as part of BofA’s acquisition of troubled brokerage Merrill Lynch & Co. Inc. Regarding the Jan. 1 purchase, Lewis says in the letter that Merrill is a “tremendous long-term strategic fit for our company, notwithstanding the large losses they reported in the fourth quarter largely due to sharp writedowns in various capital markets instruments.”

BofA (NYSE:BAC) paid $29.1 billion for Merrill, including $8.6 billion in preferred stock. Merrill lost $15.3 billion in the fourth quarter. State and federal regulators have launched a probe into the deal, seeking information regarding $3.6 billion in bonuses paid to Merrill executives late last year.

On Wednesday, a New York state judge ruled that BofA must provide the names of those employees, which it had declined to do. That bank had said public disclosure might hurt its ability to retain talent.

According to Lewis’ letter to shareholders, BofA extended $932 billion in loans and leases in 2008, the year it bought Countrywide Financial Corp. That’s up from $876 billion in 2007. Total deposits rose to $883 billion last year from $805.2 billion in 2007.

This story originally appeared on the Charlotte Business Journal’s Web site.

BofA extends $600B in credit in 2008

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I’m meeting Bank of America CEO Ken Lewis tomorrow!

Bank Of America Seeks To Sell First Republic Bank: WSJ

Bank of America Corp. hopes to sell First Republic Bank, a private bank it inherited from Merrill Lynch, The Wall Street Journal reported late Wednesday. Merrill acquired First Republic $1.8 billion in 2007. Bank of America is also looking to preserve capital and possibly shed noncore assets, according to the Journal.

Bank Of America Seeks To Sell First Republic Bank: WSJ - FOXBusiness.com

Bernanke Cites Drawbacks to Nationalizing Banks

Ben Bernanke, the chairman of the Federal Reserve, expressed skepticism Wednesday about the prospect of nationalizing troubled banks and suggested that President Obama’s administration would much prefer to keep financial institutions in private hands.

His comments, at a luncheon at the National Press Club, came shortly after his predecessor, Alan Greenspan, told The Financial Times that temporary nationalization of some banks might be the “least bad solution” to the current banking crisis. Many were surprised that Mr. Greenspan, long a fan of self-regulation in the financial sphere, would even suggest such a move.

“As a general rule, it’s very challenging for governments to manage banks for a protracted period,” Mr. Bernanke said Wednesday after being asked about Mr. Greenspan’s comments, The Charlotte Observer reported.

Later, he added: “Whatever action would need to be taken at one point or another, there’s a very strong commitment on the part of the administration to keep banks private and return them to private hands as quickly as possible.”

The notion of putting ailing banks under government control has been popping up more often lately among analysts and economists.

Fears of a potential government takeover have weighed on shares of Bank of America, which is based in Charlotte, N.C. The bank’s chief executive, Kenneth D. Lewis, has dismissed such speculation as “absurd.”

The new Treasury secretary, Timothy F. Geithner, has given little indication that any such thing is under consideration. “Governments are terrible managers of bad assets,” he recently said.

Bernanke Cites Drawbacks to Nationalizing Banks - DealBook Blog - NYTimes.com

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Bank of America makes $402 mln TARP dividend payment

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Bank of America Corp.(BAC 4.90, -0.67, -12.0%) on Tuesday made its first dividend payment of $402 million to the U.S. government under the Troubled Asset Relief Program, the financial firm said. The payment represents the dividend on the Fixed-Rate Cumulative Perpetual Preferred Stock issued in connection with the $45 billion in government investments that Bank of America received in late 2008 and early 2009. Bank of America is expected to pay about $2.8 billion in cash dividends to the government in 2009.

Bank of America makes $402 mln TARP dividend payment - MarketWatch

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Infamous Corporate Bankruptcies

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The September 15, 2008 bankruptcy filing by Lehman Brothers is the biggest in corporate history in terms of assets held.

Lehman’s slow collapse began as the mortgage market crisis unfolded in the summer of 2007, when its stock began a steady fall from a peak of $82 a share. Crushed by debt and losses tied to mortgage-backed securities, the 158-year-old investment bank entered into bankruptcy after Bank of America Corp. and Barclays plc., which were considered potential suitors for Lehman, walked out of the deal.

One day after the filing, Barclays said it would buy Lehman’s United States capital markets division for $1.75 billion, a bargain price. Nomura Holdings of Japan agreed to buy many of Lehman’s foreign assets. Lehman also said it would sell much of its money management business to Bain Capital and Hellman & Friedman for $2.15 billion.

Driven by mark-to-market adjustments stemming from write-downs on commercial and residential mortgage and real estate assets, Lehman had forecast a net loss of about $3.9 billion or $5.92 per share for the third quarter ended August 31, 2008, compared to a net loss of $2.8 billion for the second quarter of fiscal 2008 and net income of $887 million or $1.54 per share for the third quarter of fiscal 2007.

But while Lehman’s collapse may have been the biggest to date, it’s not the first company to file for bankruptcy protection after making unwise–or illegal–investments. Here’s a look at some earlier collapses.

WorldCom Inc.
Telecommunications giant WorldCom Inc. filed for bankruptcy protection in July 2002, about a month after disclosing it had inflated profits by nearly $4 billion through deceptive accounting.

At the time of the Chapter 11 filing, WorldCom had $103.9 billion in assets and over $41 billion in liabilities. As part of reorganization, WorldCom changed its name to MCI Inc. in 2003. The debt load of the newly reorganized company was reduced to $5.7 billion, while its cash totaled $6 billion. The following year, on April 20, WorldCom exited bankruptcy protection under the name of MCI Inc.

In February of 2005, MCI agreed to be acquired by Verizon Communications Inc. for about $6.6 billion but a bidding war between Qwest Communications and Verizon, made Verizon to raise its offer price for MCI to $8.6 billion; the transaction was finalized in January 2006.

WorldCom CEO Bernard Ebbers was sentenced to 25 years in prison for his role in the accounting scandal.

Enron
Enron is best known for abusing Special Purpose Entities, a form of off-balance sheet financing that helped the company raise debt while hiding debt exposure. When the extent of the accounting abuses became public, Enron shares dropped from over $90 to 61 cents a share.

The company’s auditor, Arthur Anderson, went down with it. One of the world’s top accounting firms, Arthur Anderson was eventually found guilty of obstruction of justice in 2002 for destroying documents related to the Enron audit and was forced to stop auditing public companies. Although the conviction was thrown out by the Supreme Court in 2005, the damage to the company was fatal.

With assets of $65.5 billion, Enron’s December 2001 Chapter 11 filing is the third-largest bankruptcy in history. As part of a reorganization plan, Enron changed its name to Enron Creditors Recovery Corp., to reflect its mission of obtaining the highest value from the remaining assets and distribute the proceeds to its creditors. The company will cease to exit once it has completed all outstanding litigation, monetized all assets and made a final distribution to creditors.

The day Enron filed for bankruptcy, employees were told to pack up their belongings and were given 30 minutes to vacate the building. In May 2006, the company’s former CEOs Kenneth Lay and Jeffrey Skilling were convicted on charges including securities fraud, making false statements, and conspiracy that brought about the downfall of Enron.

Texaco
Texaco filed for bankruptcy protection on April 12, 1987, following an unfavorable court ruling awarded in a suit filed brought by Pennzoil in 1984.

Pennzoil was trying to buy Getty Oil when Texaco outbid the company and walked away with the prize. Pennzoil then filed suit, arguing that Texaco had illegally interfered with a completed deal.
In 1985, a Texas jury ruled in favor of Pennzoil, granting $10.53 billion, plus interest in damages. The following year, a Texas Appeals court reduced the verdict to $1 billion. But the Supreme Court on April 6, 1987, invalidated the Texas Appeals ruling. When it couldn’t make the payout, Texaco collapsed into bankruptcy. The company had $34.9 billion in assets at the time.

After the court ruling, Texaco executives found themselves facing multiple suits from shareholders for botching the Getty deal. Eventually, Texaco and Pennzoil later agreed to a $3 billion settlement and a bankruptcy judge voided the shareholder suits. On April 8, 1988, Texaco emerged from bankruptcy. Texaco was acquired by Chevron for $39 billion in 2000 and the combined company was named Chevron Texaco. In May 2005, Chevron Texaco renamed itself Chevron Corp. photo credit: Mykl Roventine

Refco
Refco filed for bankruptcy in October 2005, just days after it announced that its chief executive officer and chairman, Phillip R. Bennett had hidden $430 million in bad debts from the company’s auditors and investors. The company had been under the scrutiny of the SEC for accounting irregularities.

The commodities and financial-markets broker’s assets were valued at $33.3 billion and the amount owed to creditors totaled $16.8 billion.

In November 2005, Refco’s futures subsidiary, Refco LLC was acquired by UK-based hedge fund manager Man Group. In June 2006, Austria’s BAWAG bank, which owned a 10 percent stake in the company from 1999 to 2004, admitted to playing a role in the company’s shady deals and agreed to pay $675 million in settlement to creditors and shareholders.

Bennett was indicted on several counts of securities fraud; he was sentenced to 16 years in prison on July 3, 2008.

Global Crossing
Hurt by a sluggish demand and declining prices for bandwidth capacity, and burdened by a heavy debt load, the telecom company filed for Chapter 11 bankruptcy in January 2002 claiming $30 billion in assets and $12 billion in debts.

Singapore Technologies Telemedia acquired a 61.5 percent equity stake in Global Crossing for $250 million in December 2003, a deal that allowed the telecom company to exit Chapter 11. In addition, Singapore Technologies Telemedia agreed to purchase $200 million in senior secured notes that were meant to be distributed to former creditors. Global Crossing used the $200 million cash to pay off its creditors.

United Airlines
The airline’s 2002 bankruptcy filing bit the carrier in the behind once again in September of this year when a six-year-old news story covering that event was recycled and published as current. The error drove stock prices down 75 percent.

The original bankruptcy was far worse. Hurt by a slumping economy and the 9/11 attacks, United Airlines filed for Chapter 11 bankruptcy protection on December 9, 2002 when it was unable to make a debt repayment of $920 million.

The airline was reeling under a loss since 9/11. Among the four planes that were involved in September 11 attacks, two were United Airlines’ planes. One crashed in Shanksville, Pennsylvania and the other hit the World Trade Center. That year, the company lost $2.14 billion and rose to $3.21 billion in 2002.

After spending more than three years under bankruptcy protection, United Airlines exited Chapter 11 in February 2006. As part of the reorganization plan, United Airlines reduced its workforce from 83,000 to 58,000. The company also terminated employee pensions, reduced its debt to $17 billion from $30 billion and lowered its average annual costs by $7 billion.

-National payday