Examples include the stock market decline of , which induced the Great Depression, and the Panic of During the weekend of the Sept. On Dec. They said that pulling out of the deal would create systemic risk to the U. The officials also suggested that if Bank of America backed out then any further government assistance would be difficult to obtain. The idea behind this was to demonstrate to the market that even though Lehman had failed, the big banks of Wall Street were cooperating to keep the system running.
None of the above-mentioned communications between the government and Lewis were conducted in an official manner. The government did not want public disclosure at the risk of creating systemic issues in the overall financial system.
Lewis and the Board of Directors did not disclose the additional losses to the shareholders. According to Lewis, this decision was not his to make; instead, the government had directed Lewis to keep the information private.
Perhaps indicating how these bank executives live in an elite bubble of their own making, neither Lewis nor Thain realized that this small amendment to the contract would eventually spark a state investigation. With this deal, Merrill Lynch employees would emerge as winners, with thousands of Bank of America staffers laid off and replaced by their Merrill Lynch counterparts.
After word of the acquisition got out and the bonuses were paid, criticism focused on the price and potential risks, both of which were very high. Some argued that regardless of pressure from the U.
As chairman and CEO of Bank of America, Lewis has a responsibility to inform the shareholders of the adverse conditions that were present in the Merrill Lynch merger. The same applies to CEO John Thain, who misled shareholders by not being transparent about the losses at Merrill Lynch and the bonuses paid. Another issue for both the CEOs is paying out bonuses right before the acquisition.
On the other hand, Lewis was also responsible for the overall wellbeing of the U. Another major crisis to the financial system would have had adverse impacts on Bank of America shareholders and customers. Millions of shareholders clearly had a major stake in the decisions facing Lewis. The CEO must also take into account the interests of nearly , employees and contractors. The short-term consequences are more easily identified.
Lewis and Thain had to consider that if the deal fell through, the overall economy would be adversely impacted. On the other hand, if the deal went through, the shareholders would take an economic blow in terms of diluted share value.
Lewis estimated that it would take two to three years for the deal to bring economic value to the corporation, so any shareholders on a short-term horizon would suffer. The long-term impacts are more difficult to predict.
One could argue that letting Merrill Lynch fail would result in a total collapse; on the other hand, allowing the market to take its natural path would be in the best interest of the public and the shareholders. Nov 8, , am EST. May 19, , pm EDT.
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Why Joe Biden and climate hawks are not responsible for soaring fossil-fuel costs. Instead, the giant bank set its sights on Merrill Lynch. The deal was a preventive measure, aiming at shoring up Merrill and stripping any doubt about the firm's heath or future. Lewis also said that Merrill would have been able to continue independently but that his bank decided to act before somebody else decided to make a bid for Merrill.
Bank of America has more deposits than any other U. Together, they will form a massive banking empire, offering a wide range of products and challenging Citigroup's dominance as king of the U. The demise of Bear, Lehman and Merrill also leaves just J. The nation's financial turmoil extends well beyond Wall Street, and all eyes are now on insurance giant AIG.
Like nearly every other corner of the economy, AIG is also suffering from the subprime housing meltdown. It sold numerous contracts insuring others against subprime losses.
When those losses became a reality, AIG had to pay out more than expected. Its stock has sunk nearly 80 percent since January. All of this is aimed at preventing a credit-rating downgrade that would make it more costly to borrow and only compound the already-weakened firm's health.
It has not been a good year for banks. So far, 11 banks have failed and had to be taken over by the Federal Deposit Insurance Corp. But all it takes is one big failure to throw the system into turmoil.
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