NEW YORK — Questions about chief executive Ken Lewis' leadership of Bank of America are growing louder.
He failed for weeks to disclose that Merrill Lynch, which the nation's second-largest bank was in the process of acquiring, would post a larger-than-expected $15- billion quarterly loss.
On Thursday came the news that he didn't block Merrill management's decision to dole out billions of dollars in early bonuses — even as he was pleading for more bailout cash from Washington to cover Merrill's ballooning losses. To add insult to injury, former Merrill chief John Thain also didn't rethink his $1.2-million office redecoration.
The global financial system can't afford to have someone who doesn't understand why transparency matters when leading one of the financial institutions considered too large to fail. That's the obvious message from the government's decision to pump a total of $45-billion into Bank of America, whose assets are topped only by those of JPMorgan Chase & Co. among U.S. banks.
Bank of America spokesman Scott Silvestri said Lewis was not required by law to spill the beans about the Merrill losses. The company is "confident that our actions were appropriate and legal," he said.
But that's not the point. Bank of America was involved in a massive acquisition, and the CEO decided to keep secrets from its own shareholders and investors in general. Once they were revealed, Lewis then tried to spin his decision as one that was done for the good of the entire financial system.
The tactics backfired.
"A 'Bank of America effect' is sweeping across financial markets," said Peter Henning, a professor of law at Wayne State University in Detroit. "No one knows who they can believe anymore, and everyone assumes everything is a disaster waiting to happen."
In early December, shareholders from both Bank of America and Merrill approved the $19.4-billion all-stock deal, and expectations were for the acquisition to be completed Jan. 1.
But behind the scenes, things were unraveling. As the size of Merrill's fourth-quarter loss became apparent, Lewis told Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that he might walk away from the deal unless the government could promise another big chunk of bailout money.
Lewis' first public disclosure about the talks came in a Jan. 16 conference call with analysts when he confirmed that the bank had concluded it couldn't close the deal without additional aid.
Thain, meanwhile, moved up the payout date for annual bonuses at the soon-to-be acquired investment bank by a month to December. The Financial Times estimated they totaled between $3-billion and $4-billion. Bank of America knew of the plans to do so, spokesman Silvestri said, but he noted that Merrill at the time was still operating as an independent company, implying that Bank of America was powerless to prevent the move.
On Jan. 1, Bank of America announced that its purchase of Merrill was complete. Not a word about the brokerage firm's troubles was mentioned in the news release, which spun the deal as creating "a premier financial services franchise with significantly enhanced wealth management, investment banking and international capabilities."