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Mergers become minefields for Bank of America's Lewis

Ken Lewis, the banking wunderkind who cut his teeth in Tampa before ascending to the top of the financial world, finally met the deal he couldn't handle.

And his institution, Bank of America, is paying the price.

Lewis obtained billions more in federal bailout dollars to salvage his bank's troubled rescue/acquisition of Merrill Lynch. Bank of America's already-decimated stock slumped another 18 percent on the news Thursday while some bloggers and shareholders were calling for Lewis' head.

It's a fast fall from grace for a guy hailed just a few months ago by American Banker as its banker of the year.

The bank's downward spiral has its roots in two mega acquisitions: the $50-billion purchase of Merrill Lynch inked in September and a deal nine months earlier to buy mortgage giant Countrywide Financial for $4-billion.

In both cases, some analysts say, Bank of America overreached and overpaid for troubled portfolios.

"If you overpaid for these things, it becomes a problem quickly, especially when they used their stock as their currency" and it's fallen so sharply, Miami-based banking analyst Ken Thomas said Thursday. "I don't think anybody would have ever believed Bank of America would become a single-digit stock."

In 2008, Bank of America stock fell 66 percent. So far in the early weeks of the new year, it's down 40 percent more.

The bank's Thursday close: $8.32, down $1.88 a share. The last time BofA shares were trading below $10 was 1992.

Both the Merrill and Countrywide deals were borne by an unstoppable force within Bank of America to become a dominant player in America's financial industry. Sure, it wanted to be the best, but it also wanted to be the biggest.

That brazen confidence, a damn-the-torpedoes attitude, is what made Bank of America's predecessor company, NationsBank, such an amazing force a decade ago.

Under Hugh McColl and his top lieutenant — Ken Lewis — NationsBank marched into Florida and gobbled up its biggest bank, Barnett Banks.

Critics thought it was overpaying with Barnett's $15.5-billion price tag. But Lewis, who formerly ran the bank's Florida operations out of Tampa, was the details person who pulled it off. Ditto when NationsBank bought California's BankAmerica and merged the two institutions into the first coast-to-coast bank, renamed Bank of America.

After McColl retired, Lewis took over and kept the deals coming: FleetBoston Financial, MBNA, U.S. Trust, ABN AMRO North America and LaSalle Bank. He couldn't resist when opportunities to take over Countrywide and then Merrill Lynch surfaced.

For years, Lewis was compared to Ken Thompson, his arch rival in Charlotte, N.C. As the head of Wachovia (and its predecessor, First Union), Thompson also led a merger-making machine, creating the sixth-largest bank in the country — and biggest in Florida. His undoing came after Wachovia bought Golden West, the parent of World Savings, a bank riddled with problem mortgage loans.

Now, Wachovia has been sold to Wells Fargo, and its Florida banking colony is reporting to bosses in San Francisco, not Charlotte.

Unlike Thompson, Lewis may yet survive his Waterloo. He carries a lot of weight as Bank of America board chairman as well as CEO. And unlike Thompson, his troubled deal came during a crisis, not boom times. After all, it was the federal government that played the dual roles of minister and shotgun-toting Big Brother in pushing for BofA's marriage to Merrill during one of the most tumultuous weekends in the history of banking.

Still, in retrospect, Lewis may be kicking himself that when Big Brother came knocking that September day asking "Deal or No Deal,'' he didn't choose the latter.

Mergers become minefields for Bank of America's Lewis 01/15/09 [Last modified: Friday, January 16, 2009 12:45am]
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