The Bank Of Americas Most Toxic Asset Finance Essay

Founded in 1998 ( antecedently known as Bank of Italy,1904 ) , Bank of America is an American multinational banking and fiscal services corporation, and the 2nd largest bank keeping in the United States by assets. Kenneth D. “ Ken ” Lewis ( April 9, 1947 ) was the former CEO, President, and Chair of Bank of America. While CEO of Bank of America, he was appointed as American Banker ‘s “ banker of the twelvemonth “ after buying Countrywide Financial and Merrill Lynch. The bank acquisition of Merrill Lynch in 2008 made Bank of America the universe ‘s largest wealth direction Corporation and a major participant in the investing banking market. The trades were applauded but the first hebdomad of January 2009 both Countrywide Financial and Merrill Lynch were belly-up with assets in their balance sheet which set a new criterion for toxicity in fiscal market, ensuing in forfeiture for the bank and necessitating fiscal aid from the Federal Government. Bank of America was forced to welcoming U.S. taxpayers as the company ‘s largest stockholder. Following this month Bank of America stock was down 65 per centum. In April 2009, the stockholders decided to take Ken Lewis as Chair and leting him to stay CEO for a limited clip he was replaced in 2010 by Brian Thomas Moynihan.

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Keywords: Ken Lewis, Countrywide Financial, Merrill Lynch, insolvent, toxicity, fiscal market, stockholder, U.S. taxpayers.

The determination by the Obama disposal to present a $ 500,000 salary cap for all executives of Bankss having bailout dollars could motivate forces to go forth for other Bankss which did non have bailout dollars. The alternate option for CEOs affected by the salary cap would be foreign Bankss non affected by the 2008 US fiscal meltdown and willing to pay CEOs more than $ 500,000 which were non affected by the 2008 US fiscal meltdown. The motivation behind these CEOs company switch would be the fright to lose their extremely styled life.

In April 2009, the determination from the stockholders to take Mr. Lewis from his Chairman responsibility is non a important move, since he was remains as CEO. Mr. Lewis make fiscal ethic error when buying the both company. He failed to put an accurate fiscal statements that present Merrill Lynch and Countrywide Financial as financially stable, operationally efficient, and positioned for strong hereafter growing because few month after this acquisition both companies were bankrupt. A important gesture of stockholders would hold been to disregard Mr. Lewis from all his responsibilities within the company.

The fact that Mr. Thain passing $ 1.2 million on his office when Merrill Lynch was on the brink of bankruptcy he ca n’t warrant it. This is an unethical behaviour, as Merrill Lynch director, he has an duty to pull off his endeavor in good religion, guarding against determination and behaviour that advance his ain narrow aspirations. He made this disbursal for his ain narrow.

Kenneth Lewis testified before Congress that he had apprehensivenesss about the purchase of Merrill Lynch, and was pressured by federal functionaries to continue with the trade or face losing his occupation and jeopardizing the bank ‘s relationship with federal regulators. His statement was backed up by internal electronic mails. I think we do n’t hold all information about what truly happened with the acquisition of Countrywide Financial and Merrill Lynch. Shareholders were good cognizant of the company ‘s looming bankruptcy and accordingly approved the purchase. I think Mr. Lewis by claiming it was pressured possibly merely state the truth about what was truly happen or looking for the public understanding.

Of all the determinations made by Ken Lewis in this instance survey, I think the most harm for his repute was his statement about federal functionary ‘s force per unit area on him. As Manager, I believe he broke all the 8 MBA curses on the purchase of Countrywide Financial and Merrill Lynch. His statement is a cogent evidence of his inability to execute the director ‘s responsibility. With this statement he fails to take duty for his action.

Before doing these purchases, it would hold been more responsible from Mr. Lewis to carry on a good survey about the both company, which straight involved in future growing. This will forestall him from money losingss for Bank of America and this instance protected the stockholders investings. His failure to supply a good and accurate fiscal statements harmed both his occupation place and his calling. When the dirt arrived, he should hold resign from his place and avoid do a statement impeaching other people. It was his duty as Manager to make the right thing to protect the stockholders and the company.

Drumhead

On August 23, 2007, the Bank of America announced a purchasing back understanding for Countrywide Financial. The purchase was arranged to supply a return on investing of 7.25 % per twelvemonth and provided the option to buy common stock at $ 18 per portion. On January 11, 2008, Bank of America reported that it would purchase Countrywide Financial for $ 4.1 billion. The acquisition was seen as forestalling a possible bankruptcy for Countrywide. In the same clip the purchase made Bank of America Corporation the prima mortgage conceiver and servicer in the U.S. , commanding 20-25 % of the place loan market. Countrywide Financial has changed its name to Bank of America Home Loans. On September 14, 2008, Bank of America announced its purpose to buy Merrill Lynch & A ; Co. , Inc. in an all-stock trade worth about $ 50 billion. Merrill Lynch was at the clip within yearss to prostration, and the acquisition efficaciously saved Merrill from bankruptcy. This acquisition made Bank of America the largest fiscal services company in the universe. Stockholders of both companies approved the acquisition on December 5, 2008, and the trade sealed January 1, 2009. In January 16, 2009 when describing its net incomes release, Bank of America revealed monolithic losingss at Merrill Lynch, therefore necessitating an extract of money antecedently negotiated with the authorities as portion of the government-persuaded trade for the bank to get Merrill Lynch. The company recorded an operating loss of $ 21.5 billion in the one-fourth, chiefly in its gross revenues and trading operations. The bank besides revealed it tried to drop the trade in December after the extent of Merrill ‘s trading losingss surfaced, but was compelled to finish the amalgamation by the U.S. authorities. The bank ‘s stock monetary value lowered to $ 7.18, its lowest degree in 17 old ages, after denoting net incomes and the Merrill bad luck. The market capitalisation of Bank of America, including Merrill Lynch, was so $ 45 billion, less than the $ 50 billion offered for Merrill merely four months before, and down $ 108 billion from the amalgamation proclamation. The acquisition put Bank of America at the first topographic point of investment banker of planetary high-yield debt, the 3rd largest investment banker of planetary equity and the 9th largest advisor on planetary amalgamations and acquisitions. As the recognition crisis relieved, losingss at Merrill Lynch settle down, and the subordinate generated $ 3.7 billion of Bank of America ‘s $ 4.2 billion in net income by the terminal of one-fourth one in 2009, and over 25 % in one-fourth 3 2009.

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