Bank of America

Lewis Staying Mum on Merrill Bonuses

Zachary Roth | February 27, 2009, 3:49PM

Looks like Ken Lewis isn't so eager to reveal what he knows about those controversial Merrill bonuses.

ABC News reports that that the Bank of America CEO -- subpoenaed recently by investigators for New York Attorney General Andrew Cuomo -- refused to provide the AG's office with a list of which company execs got bonuses, and how much they were worth. (For good measure, ABC adds that Lewis traveled to New York for his testimony in a $50 million corporate jet. You can see video of Lewis' arrival here.)

In response, Cuomo's office issued a subpoena to B of A to turn over that information.

The session with Lewis was "ugly and combative," in ABC's paraphrase of New York officials.

Merrill CEO John Thain earlier refused to divulge similar details about the bonuses during his own sitdown with Cuomo's investigators -- claiming B of A had told him not to. But after the AG's office obtained a court order, he was more forthcoming.

We'll see whether the same thing happens with B of A. But for now, it looks like the Bush White House's approach to subpoenas -- that they're optional -- is becoming more widespread.

Bank of America

On Merrill Bonuses B of A's Statements Don't Match Reality

Zachary Roth | February 26, 2009, 6:29PM

As New York Attorney General Andrew Cuomo's investigation continues, it's becoming increasingly clear that Bank of America, and its CEO Ken Lewis, haven't been straight on the subject of what they knew about those outlandish Merrill bonuses.

ABC News yesterday revealed details of the agreement signed by the two banks back in September, when they agreed that B of A would take over Merrill starting January 1. According to it sources, the agreement says that bonuses "shall be determined by the company (Merrill) in consultation with the parent (Bank of America)."

The network added that the two firms at first agreed that Merrill could hand out up to $5.8 billion. That figure was then added to "under $4 billion" after a conversation between Merrill CEO John Thain and a top B of A exec Steele Alphin, who's a close Lewis confidant.

In other words, Bank of America had a clear role in working with Merrill to determine the amount of the bonuses awarded.

But that's not at all how B of A has represented things.

When the Financial Times first broke (sub. req.) the bonus story last month, B of A told the paper:

Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill's chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. B of A was informed of his decision.

And in his testimony before Congress earlier this month, Lewis said:

They were a public company until the first of the year, they had a separate board, separate compensation committee and we had no authority to tell them what to do, just urged them what to do.

It's not clear whether that that outright contradicts the language of the agreement, as ABC has reported it. But whether or not the agreement gave B of A formal "authority" to set Merrill's bonus levels, it certainly gave them an explicit role in the process (assuming ABC's sources are rendering the wording of the agreement accurately). Which is a lot more than B of A's few carefully crafted public statements on the subject have implied.

Thain, Lewis, and Alphin have all been subpoenaed by Cuomo (Thain has now "told all, says ABC), so you've got to think we'll be getting to the bottom of this soon. And it doesn't seem like it'll look good for the increasingly embattled Lewis when we do.

John Thain

Thain Must Dish On Bonuses, Rules Court

Zachary Roth | February 23, 2009, 6:34PM

That was quick!

John Thain has been ordered by a New York court to testify about those controversial Merrill Lynch bonuses, reports CNBC.

Earlier today, it was reported that New York Attorney General Andrew Cuomo, who is investigating the bonuses, filed a motion to compel Thain to testify, after the disgraced former Merrill CEO refused to answer questions about the issue, claiming that Bank of America had ordered him to stay mum.

Cuomo had subpoenaed Thain for testimony. He has also subpoenaed B of A CEO Ken Lewis, and another B of A exec, but does not appear to have taken their testimony yet.

Cuomo's probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

Bank of America

Cuomo: B of A "Obstructing And Interfering" With Merrill Bonus Probe; Thain Staying Mum

Zachary Roth | February 23, 2009, 12:59PM

John Thain is staying mum about the billion-dollar bonuses he approved just weeks before Merrill Lynch came under the control of Bank of America.

New York Attorney General Andrew Cuomo, who is investigating the controversial Merrill bonuses, has filed a motion in court, seeking to compel Thain to talk about the subject, reports Reuters. Cuomo's office says that during his sit-down with investigators last week, Thain refused to do so, claiming that Bank of America has told him to keep quiet.

Cuomo's office is alleging that B of A is "obstructing and interfering" with his investigation.

That probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

B of A CEO Ken Lewis was subpoenaed last week, and another company exec was subpoenaed, along with Thain, before that.

Late Update: A spokesman for Thain told the Associated Press that Thain "would answer questions about individual bonuses if compelled by the court order."

Bank of America

B of A's Lewis Subpoenaed In Merrill Bonus Probe

Zachary Roth | February 20, 2009, 1:24PM

Ken Lewis, Bank of America's embattled CEO, was subpoenaed last week in New York Attorney General Andrew Cuomo's investigation into the billion dollar bonuses awarded late last year by Merrill Lynch, reports the Wall Street Journal.

The paper adds that former Merrill CEO John Thain, who had previously been subpoenaed, talked to Cuomo's team "all day" Thursday.

Bank of America announced in September that it would acquire Merrill. In December, according to reports, Thain and the Merrill board approved billions in bonuses on an expedited schedule before the firm came under the control of B of A January 1, and despite massive fourth quarter losses.

Accounts of when Lewis and B of A learned of the bonus awards, and of the losses, have been conflicting.

Thain was ousted by Lewis last month as a senior B of A exec.

The Journal adds some more detail on what Cuomo's investigators are after:

In particular, they wanted to know why the September merger agreement contained a nonpublic attachment that outlined the maximum Merrill could pay. A Thain spokesman declined to comment.

The person close to the matter said regulators are turning their attention to Mr. Lewis and are looking at his testimony to Congress earlier this month when he said he had "no authority" over bonuses given they were detailed in the merger agreement and part of the bonuses were paid in Bank of America stock.

Mr. Cuomo's investigators are exploring how Merrill could have set and then informed employees about the bonuses before the quarter closed, according to a person familiar with the matter. They are probing whether trading losses were adequately disclosed to shareholders and boards of each company and what the top executives approving the bonuses knew about the losses.

Bailout

Lewis: Yes We Raised Interest Rate On Credit Cards -- After Taking Bailout Money

Zachary Roth | February 11, 2009, 2:12PM

Here's another good exchange, this one between Rep. Maxine Waters and
Bank of America's Ken Lewis .

In one moment, Waters -- a longtime foe of rapacious lending practices, asks the CEOs whether, after receiving taxpayer money, they increased the interest rate on the credit card holders.

Lewis admits his firm did....

Bailout

Frank Stumps CEO: What's The Point Of Bonuses?

Zachary Roth | February 11, 2009, 11:33AM

A nice moment from the hearings...

Barney Frank declares, re: bonuses:

This notion that you need some special incentive to do the right thing troubles me.

Then he asks: What is it you'd do differently if you didn't get a bonus?

It's a question Frank had been previewing all week. He throws it open to any of the CEOs.

Morgan Stanley's John Mack is the only one brave enough to hazard an answer. But all he brief historical digression about how the bonus system became established at investment banks.

But Mack acknowledges:

Without question, given the risks we take today, and the size of our bonuses ... all that has to be looked at again.

Frank's conclusion:

So if there were no bonuses, we'd still get our money's worth.

Sounds about right.

Bank of America

Your Help Needed!

Zachary Roth | February 11, 2009, 10:16AM

As we said, Barney Frank's committee has posted the CEOs' prepared statements on its website.

We're watching the hearings, which just began, but feel free to look through what the prepared remarks and send us anything good...

Bank of America

B of A's Lewis Defends Compensation

Zachary Roth | February 11, 2009, 10:00AM

The CEOs of the eight banks that received the most bailout money are about to testify before the House Financial Services committee, starting any minute. But the committee has already posted the CEOs' prepared statements on its website.

Here are some highlights:

Bank of America's Ken Lewis will say that executive pay and bonuses are intended "to grow our business, enhance profitability and generate returns for investors." That includes "the investors that are the focus of this hearing: U.S. taxpayers."

Citigroup's Vikram Pandit will say that he "removed the people responsible for Citi's financial distress."

JP Morgan Chase's Jamie Dimon will advocate a new bank regulatory system, which would include a "systemic risk regulator."

On compensation, Dimon will say:

Our employees worked harder than ever and performed admirably for the company and for clients under enormously challenging conditions in 2008. I believe the compensation we paid them was appropriate.

We'll be blogging the hearings as they happen, so stay tuned...

Bailout

Thain: "I Don't Know How These People Can Run This Company Without Me"

Zachary Roth | February 9, 2009, 11:33AM

We're getting way past flogging a dead horse territory here, but yesterday, in a rich and lengthy rundown on the troubled Merrill-Bank of America marriage, the New York Times had some great new details about John Thain's narcissism and self-delusion (a subject close to our hearts). Still, as entertaining as those are, this is definitely a story in which no one comes out looking good.

As for Thain, the former Merrill CEO, we learn that he believed he was entitled to that $40 million bonus he initially requested, on account of his "deal-making heroics", in the Times' words, in putting together the agreement with B of A.

His actual record, of course, was less heroic. The Times reports that Thain put a lot of effort into self-promotion, bringing in Margaret Tutwiler, with whom he had worked at the New York Stock Exchange, to run communications for the firm. Tutwiler -- a veteran of Republican Washington, who was George H. W. Bush's press secretary and in 2003 ran the State Department's unsuccessful effort to boost America's image abroad -- "largely spent her time cultivating Mr. Thain's image." (Thain, of course, was a major John McCain backer, who was mentioned as a possible Treasury Secretary in a McCain administration.)

For instance:

Ms. Tutwiler quickly scheduled a series of interviews for Mr. Thain from Merrill's trading floor. As the cameras flashed, he shook hands with the troops. When the cameras left, so did Mr. Thain.

But in terms of substance, the Times makes clear there were numerous missteps. Before the B of A takeover, Thain might have made moves to mitigate the damage done to Merrill by the toxic assets on its books, but didn't.

First:

For months, there were inquiries from hedge funds and other buyers about a range of mortgage assets and securities, but Merrill's mortgage desk was blocked from distributing price lists because Merrill's management refused to agree on market estimates, according to Merrill insiders.

And:

Despite the fact that Mr. Thain inherited these assets, Merrill insiders say they could have been hedged -- moves well within Mr. Thain's purview as head of risk management at the firm. Yet he never did so, according to three people who worked closely with him. An individual familiar with Mr. Thain's thinking said that Mr. Thain didn't believe hedges would have been effective.

Losses in those so-called legacy assets would reach $10 billion in the quarter.

Unsurprisingly, Thain wasn't too popular with B of A rank and file. When news broke of his firing last month, reports the paper, "[s]pontaneous applause broke out across the trading floor and bets were placed on which one of Mr. Thain's highly paid lieutenants would be next."

But at least he kept believing in himself. After his ouster, the Times reports, Mr. Thain paced the halls of Merrill, venting his frustration to at least two people. "I don't know how these people can run this company without me," he told them.

Not that Bank of America and its CEO, Ken Lewis, come out looking much better. Since last month, Merrill and B of A have been squabbling over what the latter firm knew, and when, about Merrill's massive fourth-quarter losses, and its decision to award bonuses -- subjects being probed by the New York and North Carolina attorneys general (B of A has provided "reams of documents" to the NY investigators, says the Times). And the evidence is mounting that Bank of America knew, or should have known, just about everything.

The Times reports:

Although Mr. Lewis contends that he was surprised by the magnitude of Merrill's losses, his financial team on the ground in New York had daily access to Merrill's trading books, which would have allowed them to detect the mounting exposures.

To be specific:

A Bank of America executive was sent to New York from Charlotte to act as an interim chief financial officer and had daily access to Merrill's profit-and-loss statements.

Likewise, Bank of America was well aware of the $3.2 billion in bonuses that Merrill paid to its rank and file in late December. The two companies had agreed in September that Merrill might pay up to $5.8 billion, according to a private agreement reviewed by The New York Times.

That "Bank of America executive," by the way, appears to be J. Steele Alphin, B of A's chief administrative officer and a close confidant of Lewis, who Thain has claimed knew about the bonuses, and who has been subpoenaed by the New York investigators.

And according to one Times source, at a December 9 B of A board meeting, Lewis did not question Thain about Merrill's losses, even though 60 percent of those losses were already visible. Nor did Lewis tell his shareholders, who two days earlier had voted to approve the merger, about the Merrill losses.

Indeed, Lewis may have been kept as much important information from Thain as vice versa. We knew that, after seeing the losses, Lewis had gone to the government during the last two weeks of December, requesting bailout money to help digest Merrill. What we didn't know is that, according to one source, Lewis didn't tell Thain about his talks with the Feds till January 5.

Like we said, there aren't many heroes here.

Bank of America

How Theresa Hatt Caused The Financial Crisis

Zachary Roth | February 6, 2009, 11:23AM

Last month, Theresa Hatt died at 52, after a brief struggle with cancer.

Hatt, who lived in Portland, Maine, and worked for the city of Scarborough, had had several credit cards in her name. So, shortly after her death, Hatt's son, Paul Kelleher, began the sad task of calling his mother's creditors, to inform them of her passing.

The calls were uneventful, if depressing, until Kelleher got to Bank of America. Here is how he says his conversation with a representative of the company's estates unit went:

Paul Kelleher: Yes, I'm calling to inform you that my mom died on the 24th of January.

Bank of America Estates representative: I'm sorry. Oh, it looks like she never even missed a payment. That's too bad. Well, how are you planning to take care of her balance?

PK: I'm not going to. She has no estate to speak of, but you should feel free to just go through the standard probate procedure. I'm certainly not legally obligated to pay for her.

BOA: You mean you're not going to help her out?

PK: I wouldn't be helping her out -- she's dead. I'd be helping you out.

BOA: Oh, that's really not the way to look at it. I know that if it were my mother, I'd pay it. That's why we're in the banking crisis we're in: banks having to write off defaulted loans.

"I lost it there," Kelleher, a mild-mannered 30-year-old who lives in Brookline, Mass., where he works remotely for a Washington DC-based non-profit, told TPMMuckraker. When pressed, he said, the estates rep backed off that last claim, but only a little, continuing to suggest that cases like his mothers had played a role in the financial crisis.

The rep's apparent intention, as Kelleher described it, was to mislead him into believing that he was obligated -- at first legally, then, failing that, morally -- to cover his mother's debt (which, in any case, was not large: she had had a $1000 limit on her card). Of course, Kelleher was sophisticated enough to know that's not true. But how many other less savvy callers in similar situations, he wondered, might respond to the rep's breezy "how are you planning to take care of her balance?," with a confused "I guess I'll mail in a check"?

And what bothered Kelleher as much as the estate rep's insensitivity, not to mention her apparent effort to deceive, was the impression he got that she wasn't winging it.

"It seemed rote," Kelleher said. "It was too naturally delivered to have been a misstatement."

That impression was strengthened when Kelleher eventually spoke with the rep's supervisor, Eric Davis. Kelleher said that when he recounted his conversation with the rep, Davis apologized -- for what, exactly, it was unclear -- but told him: "That's not how she meant it."

From his conversation with Davis, said Kelleher, "it sounded like [the rep's approach] was encouraged."

How strongly encouraged, we wondered? And how common was this particular rep's approach? So we tracked down a former rep for Bank of America's collections unit. And according to the former rep, Kelleher's interlocutor was doing just what she was told .

The former rep, who worked until quite recently at B of A's Belfast, Maine-based collections unit, described for TPMmuckraker a system in which staffers responsible for making collections were routinely encouraged to mislead customers or those calling on their behalf, and were financially incentivized to do all they could to get payments.

Kelleher's reported conversation, the former rep said, "sounds like how I would have attempted to collect" in such a situation. "I would have asked: 'How do you plan on paying for this?'"

The rep said that employees were encouraged to walk right up to the line of actively deceiving a caller about the consequences of non-payment. "As long as you don't get caught [lying]," the former rep added, "there's no really no punishment." The former rep did not work in the estates unit, but confirmed, based on direct knowledge of B of A's practices, that it operates similarly to the former rep's own unit.

The former rep said that employees responsible for collections receive "feedback" about their phone performance from managers who monitor the calls. (When you hear "this call may be monitored for quality assurance purposes", the "quality assurance" oftentimes isn't quality of service from the customer's perspective -- it's quality of performance from the rep, who's being trained to be as effective as possible at extracting money from callers.)

The former rep added that if a manager had listened to the performance of Kelleher's rep, he would likely tell her: "Good job!" By contrast, if he had heard the rep failing to make any serious effort to convince Kelleher to pay his mother's debt, he would have told her "that was not a good 'listening score,'" -- the term gets at the precision with which a rep's phone performance is monitored -- and would have encouraged her to take a tougher approach.

There are also more direct ways to ensure that collections agents play hardball.
"We were obligated to collect 45 percent of the debt that rolled in to us," said the former rep, adding that that figure fluctuated. Employees who consistently failed to meet that baseline might be fired. "People lost their jobs all the time for non-performance."

And there were bonuses of us as much as $5000 a month for reps who successfully brought in a certain percentage of "collectible money", said the former rep, using the industry's cold-blooded jargon.

What's the larger point here? Well, here's one: When the automakers were asking Washington for a bailout recently, there was a lot of talk about insisting on conditions -- like requiring that they build more fuel-efficient cars -- that would be in the national interest. Bank of America and its competitors have already taken billions in taxpayer dollars. So it seems logical to insist on a similar set of public interest conditions -- and the industry's range of deceptive and rapacious lending practices would be a natural place to start.

Neither Eric Davis, the B of A supervisor, nor B of A's public relations office immediately responded to a request for comment.

Late Update: A Bank of America spokeswoman declined to comment on "allegations by former associates."