Nie tylko na GPW art. z The Wall Street Journal
Success has many fathers; failure is an orphan.
Then there is Bank of America’s acquisition of Merrill Lynch, a deal skating dangerously close to the definition of failure after last week’s announcement that BofA would take $24 billion more in government support from the U.S. Treasury and Federal Deposit Insurance Corp., in addition to a $118 billion backstop for bad debts. The core problem remains unexplained and inexplicable: How did Merrill’s troubled assets plummet in value so quickly that the firm posted a $15 billion loss in just three months? And why did neither BofA nor Merrill provide any word?
Traffic passes a Bank of America branch in New York
And now the deal’s fathers are stepping back.
This Wall Street Journal article shows that cracks are starting to show in the already-tenuous alliance between Merrill and BofA. Merrill directors complain that Chief Executive John Thain never informed them of steep losses before government intervention. Greg Fleming, the president of Merrill Lynch who urged John Thain to speak with BofA CEO Ken Lewis, has left. The bankers are washing their hands. BofA advisers Christopher Flowers and investment bank Fox-Pitt Kelton say they didn’t see either company’s books after the deal was announced on Sept. 15.
Shareholders and analysts are livid. BofA is tenuously capitalized, in the opinion of Friedman Billings Ramsey analysts, going into 2009 with just $61.7 billion of pro forma tangible common equity supporting $2.4 trillion of tangible assets.
And the whole brouhaha is wrapped in an ironic ribbon: the U.S. federal government, which has for upward of 70 years urged ever more transparency for publicly traded companies, didn’t feel the urge to tell of a mid-December financing agreement that affected the future and value of two of the U.S’s biggest financial institutions. And remember, the federal government owns 35% of Bank of America’s pro forma tangible equity.
BofA moved up its earnings announcement to Friday in order to soothe investors and clarify the situation. Unfortunately, investors wanted more information than BofA provided. The result? Bank of America’s shares have plummeted, costing as much as $20 billion of market value in two trading days. The stock fell nearly 30% Tuesday to $5.10.
What is puzzling is that none of Merrill’s rivals, including Goldman Sachs Group and Morgan Stanley, experienced anything nearly as severe in asset devaluations in December–the period that BofA is saying that Merrill assets plummeted in value. The biggest credit crisis in the markets was in late September, after Lehman Brothers Holdings collapsed. Investors are left asking what comparable event in December would have led Merrill to triple its quarterly loss.
In short, it has been an object lesson in ‘How Not To Communicate With Shareholders.’
What makes it all the more puzzling is that there are precedents for the markets severely punishing banks that did not give enough reliable or timely information about their financial situation: think Bear Stearns and Lehman. And we know how those turned out.
There is only next step for Bank of America: come clean, and fast. If BofA and Merrill Lynch don’t shed some light on which of Merrill’s bad assets are causing the trouble and why things went so badly so quickly, investors will continue to subtract every bit of value–and more–that Bank of America received from buying Merrill in the first place.