Well-known bearish bank analyst Meredith Whitney said Bank of America Corp. should keep Chief Executive Ken Lewis despite what she calls the mistake of buying Merrill Lynch.
Whitney said Lewis has done a great job stewarding the Charlotte, N.C.-based bank as a low-cost operation but said he made one major mistake. She said he's a good bank manager but acted more like a good citizen than a good steward of shareholder capital when he bought New York-based Merrill.
But she said that doesn't mean he can't run Bank of America effectively. She said if others were to run it would be seen as too disruptive internally.
Whitney made the comments to reporters before appearing with famous bear economist Nouriel Roubini and Canadian bears Ian Gordon and Eric Sprott at a Toronto event titled "A Night with the Bears" on Tuesday. They all correctly predicted the current financial meltdown.
Whitney made many forecasts in 2007 — particularly about Citigroup Inc. — that ended up coming true. She predicted that Citigroup would need to oust then-CEO Charles Prince, sell off assets and slash its dividend to raise cash.
Whitney left Oppenheimer & Co. recently to start her own stock-advisory firm.
Many analysts are skeptical about the outlook for Bank of America. It is still absorbing two troublesome acquisitions: brokerage Merrill Lynch and the mortgage lender Countrywide Financial.
"I think he made a mistake of acting more a good citizen than a good steward of shareholder capital, but does it mean he can't effectively run Bank of America, I think he can," Whitney said.
A group that owns Bank of America stock is waging a battle to get shareholders to vote against re-electing Lewis because of the Merrill deal and there have been a number of high-profile departures at Merrill since the purchase.
There are also multiple lawsuits filed around the country. Shareholders of the bank have challenged the company's acquisition of Merrill, alleging that proxy statements distributed before the acquisition did not accurately disclose Merrill's financial condition and risks, and that Bank of America failed to conduct adequate research into the deal.
Just weeks after the deal closed in January, it was revealed that Merrill incurred losses of more than $15 billion during the fourth quarter. Meanwhile, reports surfaced that Merrill Chief Executive John Thain rushed out billions of dollars in bonuses to Merrill employees in his final days as CEO even as Bank of America was begging the government for more aid to complete the deal.
New York Attorney General Andrew Cuomo also is trying to determine if Merrill and Bank of America failed to provide adequate disclosures to shareholders about the payouts, made in December, and the losses.
The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off the most intense period of the financial crisis. Bank of America has received $45 billion in bailout funds, plus government guarantees on billions.
Bank of America shares fell 9 cents to $7.28 in midday trading Wednesday.
