In Ryan's Daughter, David Lean's 1970 movie of Ireland beginning to
seethe under the cauldron of what would become the Easter Rebellion, a young
British officer, Major Doryan, (Christopher Jones) returns, broken in body and
spirit, back from World War I's western front to take up garrison duty in a
small Irish village.
Doryan's adjutant wants to know how the younger man was able to find within him
the courage for his heroism, for the adjutant is soon scheduled to take his
place in the trenches. He's particularly fearful that he will shame himself
with "Shellshock - just shaking and shambling like an epileptic baby. Nay, I'd
rather be dead! I can see what's coming - I'm going to disgrace myself!"
From behind his lifeless gaze, Doryan tells the secret that has
probably breathed life to most great valorous deeds in history. "You don't know
what you'll do. No one does - you don't know what you're doing."
The adjutant will hear none of the heroes' self-abasement. "I read what you did
in the newspapers. That weren't no flash in the pan - you'd do the same again,
I dare say."
Doryan blankly gazes down on his wooden leg resting on a chair. "You'd be
One wonders how former Bank of America chief executive Ken Lewis now looks back
on his actions, which most have called foolish but that some now call heroic,
during the momentous weekend a year ago when Lehman Brothers collapsed. When
Lewis rose up out of the trenches and led his bank into the most withering
machine-gun fire the financial crisis could throw at it, did he actually know
what he was doing? And now, a year later, with those actions resulting both in
flatfoots baying outside his windows all hours of the day and night and
commentators opining that he perhaps singlehandedly saved the entire financial
system, would he do it again?
Doryan was not willing to give up another leg; how much more of his fortune
would Lewis give up in order to promote a quaint little custom that most
contemporary bankers know very little of - the common good?
Many people forget that the bankruptcy of Lehman Brothers was but one event of
the fortune-destroying grindhouse splatterfest that was 2008's Lehman weekend.
Yes, there was the evisceration of Lehman as the main match on the card, but
there was also the collapse of the American International Group (AIG) and the
question of what it would do with its 50-odd (many very, very odd) trillion
dollars of credit default swaps on its portfolio. But right in the middle of
the weekend was this strange factoid, snippet of news - that Bank of America
had decided to buy the eternally self proclaiming "bullish on America" Merrill
Lynch stockbrokerage for about US$50 billion.
It is said that ladies, even ladies of the evening, don't currently kiss and
tell, but all that proves is that your average banker, whatever the gender, is
no lady, or even a lady of the evening. Any banker who had in any way a
presence at the Lehman weekend, (technically, from September 12 to 15 last
year) has so rushed to get their story down on paper or digital media that
you'd think they had promised their publisher a free "Domino's Pizza" type
policy on the advance.
On Friday night, September 12, US Treasury secretary Henry Paulson made Wall
Street an offer it couldn't refuse; he summoned the heads of New York's great
houses of finance and more, to a 6pm meeting at the New York Federal Reserve's
fortress-like redoubt in lower Manhattan. Merrill Lynch chief executive John
Thain was a bit perturbed, for, as he put in it in an interview with the PBS
news magazine "Frontline", "it was a rainy Friday afternoon. I was in Merrill
Lynch's Midtown facilities, and I live in Westchester, so I was trying to get
out of the city early because the traffic is always bad when it rains on a
Once Thain and the others were out of their Burberry's and mukluks, maybe with
some nice warm cocoa poured into their little toy bear sippy cups, Paulson
lowered the boom. The 158-year-old Lehman Brothers stock and bond brokerage was
going under, another victim, like Bear Stearns six months earlier, in March, of
a high-tech electronic run on the banks' deposits.
Since he was afraid of the risks to the confidence in the banking system,
Paulson didn't want to see Lehman fail, but he was also determined to hold fast
to a developing new policy of no more Federal money for bailouts. Therefore,
the rescue would be up to, and more importantly would be financed by, the
private sector bankers summoned before him.
That was certainly news to the bankers.
That's how it went all weekend - Paulson, pushing right up to the limit of his
statutory authority to get the bankers to pry open their purses; the bankers
saying no, or yes only with huge government guarantees of Lehman's bad assets -
essentially, a bailout. The deadline to get this thing done was by the opening
of trading in the Asian markets on Sunday evening New York time. This came and
went with no deal. At 1am, Lehman filed for bankruptcy in the Federal Court for
the Southern District of Manhattan.
For most of the weekend, Bank of America's portion in all this was as a Paulson
resister, but as Sunday afternoon rolled towards evening a new twist was added
to the dance. That was when Bank of America said it was halting all talks with
the government regarding Lehman in order to fully commit to a $50 billion
purchase of Merrill Lynch.
At a private meeting between Thain and Lewis at Merrill Lynch's Wall Street
apartment, one is struck by the cavalier lightheartedness with which the fate
of two great institutions, and thousands of employees, was decided. In Lewis'
words: "He [Thain] says, 'I would like to explore a situation where Bank of
America would invest 9% or 10% in us, and then we see where it goes from
there.' And I responded to John ... 'That's not really what I have envisioned
here. Let me first tell you how I see the strategic benefits of these two
companies coming together.'
"And so we talked about that. And it's so hard to argue the strategic benefits
and the fit. Nobody, in fact, that I've talked to actually has ever refuted
that. They can refute the price or the timing, but the fit is just so good.
"And so [we] went through that and agreed that it made all the sense in the
world. And I said, 'As a result, if we're going to do something, I want to buy
the whole company, not invest 9% to 10%.' "
Eyebrows were certainly raised when the deal was announced,. For one thing,
this irrevocably sealed Lehman's fate; with Lewis deploying Bank of America's
capital reserves to grab Merrill, there just was nobody else left with the
loose capital or inclination to save Lehman.
Bank of America's $50 billion bid worked out to about $29 for each Merrill
share, certainly well under Merrill's stock price high of $99 in early 2007,
but, significantly, a 70% premium over where the stock closed that Friday
Worse yet, with the benefit of hindsight, and knowing that Lehman was about to
fall, Lewis had to know that Merrill would have opened far lower than either
what he paid for it or where it went out on Friday; his $50 billion commitment
might have only had to be half or third that and still won poor Lehman's
So why did Lewis do it? At this, the absolute worst moment of the financial
crisis, why did he charge into its worst fire and buy Merrill?
Some say that the answer lay deep down in Bank of America's very genetic
structure; like a shark needing to move forward in the water to breathe, Bank
of America needed to buy out other banks to grow and survive. Beginning with
Italian immigrant Amadeo Giannini's creation of the San Francisco-based Bank of
Italy in 1904, then renaming his institution to Bank of America in 1930, the
bank, through other acquisitions and purchases, first became the largest bank
in California, then as the prohibitions against interstate banking were lifted
in the mid-1960s, Bank of America became the largest consumer-oriented bank in
The 1998 merger of Bank of America with Nationsbank of Charlotte, North
Carolina, (what many say was the corporate takeover of Bank of America by
Nationsbank) re-affirmed Bank of America's dominant role in the consumer
market, and with the appointment of Lewis as CEO in 2001, the way was cleared
for acquisitions of even greater ambition and scale. In 2004, the bank
purchased FleetBoston Financial; this bank was created by the 1999 merger of
Fleet Bank of Rhode Island and Bank of Boston. In buying FleetBoston, Bank of
America could legitimately claim that it was around to give loans to American
Revolutionary War hero John Hancock in 1784.
After FleetBoston came mergers with credit card behemoth MBNA in 2005, then US
Trust bank in 2006, Lasalle Bank in 2007. The company's confidence that it
could ride out whatever the financial storm could throw at it was evident with
its August 2007 and January 2008 $6 billion dual-stage purchase of Countrywide
Financial, one of the institutions at the core of all the pernicious
malfeasance we have come to know as the subprime market. Just in and of itself,
this purchase made Bank of America the largest mortgage-loan originator and
servicer in the country, with between 20% and 25% of the market.
So was it this, Lewis' insurmountable hubris that he could manage and cost cut
his way out of any quandary, that put him in the market for Merrill? Well, if
no good deeds go unpunished, it doesn't follow that you can get all that far
with the bad ones, either.