Posts filed under “M&A”
Huge Bloomberg article on BofA’s Merrill acquisition. My view is that the vast majority of all mega-mergers are unmitigated disasters. The one true exception seem seems to be Commodity mergers (especially Energy/Oil), where you increase reserves but cut admin overhead.
As disastrous and expensive as the acquisition has been, the Bloomberg column argues it also has helped the bank compete with JPMorgan (JPM).
Merrill’s businesses contributed $1.8 billion to Bank of America’s first-half net profit of $7.5 billion, or 28 percent, even after the bank posted $27 billion in loan charge-offs and higher loan-loss reserves, according to company filings. Those businesses are likely to account for 25 percent to 30 percent of the bank’s profits over the next three years, said John McDonald, an analyst at Sanford C. Bernstein & Co. in New York.
The share of the bank’s revenue that came from investment banking and wealth management rose to 47 percent in the first half, after the Merrill acquisition, from 29 percent last year, according to the bank.
I don’t agree with much of the analysis, but it is nonetheless worth a read.
Merrill Bringing Down Lewis Gives Bank 30% Profits
Bloomberg, October 5 2009
The late breaking news doesn’t seem to stop these days: “Comcast, the nation’s leading provider of cable, entertainment and communications products and services, is in talks to buy the entertainment giant NBC-Universal from General Electric, according to knowledgeable individuals. Deal points were hammered out at a meeting among bankers for both sides in New York…Read More
A Bailout Nation reader reached out to me with the following tale. What makes it so compelling even today was what they thought they could do with it: Turn it into another Pay-for-Play business: I was at Morningstar as a mutual fund analyst when S&P tried to buy the company circa 1997. The S&P people…Read More
If they are too big to fail, make them smaller.”
-Nixon Treasury Secretary George Shultz about Fannie Mae and Freddie Mac
This Sunday NYT seems to be all about one of our favorite crisis whipping boys: The concept of TBTF — “Too Big to Fail.” There are numerous articles, stories, blog posts on this pernicious policy, including our own “Too Big to Succeed” meme (aka chapter 18: Too Big to Succeed? in Bailout Nation).
• Gretchen Morgenson asks: Too Big to Fail, or Too Big to Handle?:
Rather than propose ways to shrink these companies and the risks they pose, the Geithner plan argues instead for enhanced regulatory oversight of the behemoths. This suggests the taxpayer safety net will be larger after our national financial train wreck, not smaller.
More than two years after the crisis began, “too big to fail” remains “too problematic to address” with anything other than more souped-up regulation. Given that earlier efforts at policing these entities failed so miserably, why should anyone think that a new-and-improved regulatory approach will fare better?
• Eric Dash asks If It’s Too Big to Fail, Is It Too Big to Exist?:
Today, amid the wreckage of the gravest financial crisis since the Great Depression, bigness is one of our biggest problems. Major banks, the Detroit automakers, the financial basket case that is the American International Group — the only reason these giant, sclerotic companies are still standing is that they have been deemed “too big to fail.”
Or, more precisely, too big to be allowed to fail. Policy makers fear companies like these are so enormous and so intertwined in the fabric of the economy that their collapse would be catastrophic. Hence, all those multibillion-dollar, taxpayer-financed bailouts.
In its overhaul of financial regulation last week, the Obama administration proposed several measures to try to contain the biggest of America’s big banks. But it stopped far short of calling for the dismantling of those institutions.”
Paul Krugman gets meta on the idea — Too big to fail FAIL — and surprisingly argues that we can never eliminate TBTF:
“I’m a big advocate of much strengthened financial regulation. One argument I don’t buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail. Basically, it’s just not possible . . .
So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. Regulate and supervise, then rescue if necessary; there’s no way to make this automatic.”
I totally disagree — size is problem, for it not only creates companies too large to effectively practice risk management with, the mere size creates other issues. The fact that CitiGroup was able to get Glass Steagall repealed, but did so by forcing the government’s hand via a technically illegal merger is quite telling.
When companies get to be that large, their vast wealth buys influence and power and corrupts the political system. Despite the crisis caused by the banks, just look at how successful their lobbying effort was. Their enormous pushback effectively neutered any true regulation of the finacial sector.
I think that from now on, I will be referring to the President as Barack W. Obama — since he is adopting Bush’s economic policies, he might as well as adopt his middle initial.
Too Big To Succeed . . . (January 14th, 2009)
Obama Reform Plan Fails to Fix Whats Broken (June 18th, 2009)
I thought this was kinda odd: Ken Lewis, the CEO of Bank of America, who either wanted/got stuck with/was forced into owning Merrill Lynch’s herd of brokers, is doing some redecorating. No, not John Thain’s former office, but rather, he is retouching one of the most the famous logos of the business world over the…Read More
The WSJ reports on Congressman Edolphus Towns unearthing of emails documents in which the Fed Chief trashes Ken Lewis’ attempt to squirm out of the Merrill acquisition. Federal Reserve officials sharply criticized Bank of America Corp. and its Chief Executive Kenneth Lewis in emails to each other after the bank tried to pull out of…Read More
I have repeatedly mentioned Too Big To Succeed as a cause of the most recent crisis, but have you ever wondered HOW we got that way? One obvious suspect has been the easy M&A environment of the past 20 years. Instead of a very competitive market where mergers for sheer size sake is discouraged, the…Read More
“Regulators are supposed to tell you to obey the law, not to disobey the law. If you’re the CEO, your first obligation is not to your regulator, it’s to your institution and shareholders.”
-Jonathan R. Macey, deputy dean of Yale Law School
I have not commented on the allegations by Bank of America CEO Ken Lewis that he was forced into making a disastrous acquisition of Merrill Lynch.
Why? Because they appeared to me be utter and shameless nonsense, an attempt to worm out of responsibility. Indeed, the very statements by Bank of America CEO Ken Lewis appeared to be excuse-making for a lousy acquisition (which Bof A has quite the history of). Its the sort of weasely responsibility evading CEO speak we have come to expect these days. To be blunt, I was astonished anyone took them very seriously.
Yet they were taken seriously, by quite a few people — including a huge front page Wall Street Journal article. The mere accusation means that we are likely to see former Treasury Secretary Hank Paulson — a major cause of the credit crisis and a horrific bailout steward — up for a major grilling in Congress.
This morning, in the same WSJ venue, we learn that many of the statements Ken Lewis made under oath were directly contradicted by former Merrill CEO John Thain (but not under oath). Thain claims these understandings were in in writing.
One of these two CEOs is lying, and if its the guy who was doing so in sworn testimony, he may have a very big problem on his hands.