Leave BofA Alone
As Bank of America prepares to name a new CEO, Charlie Gasparino says it’s time for New York’s attorney general to stop investigating the banking giant—or hurry up and charge someone.
Inside Bank of America, senior officials tell me that the long-awaited successor to CEO Ken Lewis should be announced next week. The bank, they say, may even be making progress in coming up with a suitable outside candidate—something many analysts and investors, who weren’t impressed with the internal choices, had clamored for—to fill Lewis’ shoes: Bank of New York CEO Robert Kelly is back under consideration, people at BofA tell me. (Kelly, through a spokesman, says he “continues to have no interest in the job.”)
And wouldn’t you know it, just as BofA seems to be getting its act together—last week I broke the news that it has reached a deal with the government to repay bailout money—here comes Andrew Cuomo, the New York state attorney general, with his two cents about his “investigation” into BofA’s decision to purchase Merrill Lynch last year during the height of the financial crisis.
Cuomo’s investigation is hampering the business activities of a major “systemically important” bank, which, despite some recent good news, hasn’t fully recovered from the financial crisis.
Cuomo has been probing whether BofA management, including Lewis and another senior official, Greg Curl, properly disclosed mounting losses at Merrill to shareholders before they voted to approve the ill-fated merger last year. News of this investigation and its findings appears every now and then, leaked by Cuomo’s office, usually around the time when BofA is in the news for something else.
You see, when you’re Andrew Cuomo, and you’re about to run for governor of New York state, beating up on a Charlotte, North Carolina-based bank has almost no consequences, other than keeping your name in the press and getting a few more votes. But if you’re a BofA shareholder or simply someone who is worried about the safety and soundness of the banking system, it has real implications.
And that’s why Cuomo should either come clean with real evidence and charge someone—or just go away.
Consider what Cuomo has accomplished so far: He has offered many leaks about when Ken Lewis knew about the losses that were mounting on Merrill’s books (as well as billions of dollars in bonus money due to Merrill executives), he’s sparked a congressional inquiry, damaged the bank’s reputation, and forced Lewis out of his job. Yesterday, a leak to The New York Times that Cuomo is “concerned” about testimony from Curl, one of the primary architects of the BofA-Merrill merger and the primary internal candidate for CEO, has, I am told, cast a cloud over Curl’s chances to succeed Lewis. (That’s why Kelly is now back in the mix.)
Now, maybe Cuomo’s investigators have discovered some smoking gun here showing Lewis and Curl conspiring to keep information from shareholders before they voted on the deal, but somehow I doubt it because that news would have leaked, rather than Cuomo’s “concern.” My bet is that Cuomo’s investigators are sifting through a confusing array of claims and counterclaims from the various people showing that at the height of the financial crisis, people were behaving exactly as you’d expect— they were confused.
As someone who covered the financial crisis through all its iterations last year, the best way to describe what was happening, particularly at the height of the panic after Lehman’s bankruptcy, is to liken it to a battle. Real bullets weren’t flying, but everyone was acting as if they were because the banks’ balance sheets were bleeding and the financial system was shutting down.
Amid this maelstrom, no one really knew what to do—let alone the right thing to do—including regulators like Ben Bernanke and Hank Paulson, who all but ordered Lewis to go through with the Merrill deal. In war, there are always friendly fire incidents—it’s regrettable but unavoidable. Last year, I’m sure, people like Lewis, Paulson, and Bernanke made a lot of regrettable decisions as well, and that usually doesn’t equate to fraud.
Prosecutors like the great Manhattan District Attorney Robert Morgenthau understood this; that’s why his people walked away from cases and rarely if ever kept them alive for the sake of publicity. Cuomo, on the other hand, is following the lead of Eliot Spitzer, the former New York attorney general who used his bully pulpit to actually bully his targets and become governor, before his affair with a prostitute forced him from office.
In some respects, what Cuomo is doing to BofA is even more reckless than what Spitzer did to some of his targets, such as former New York Stock Exchange Chairman Dick Grasso, who Spitzer hounded for years because of his massive compensation package with little to show for it. (The case was ultimately dropped.)
Meanwhile, Cuomo’s investigation is hampering the business activities of a major “systemically important” bank, which, despite some recent good news, hasn’t fully recovered from the financial crisis. BofA may be repaying its government bailout money, but it still holds plenty of toxic assets that could turn deadly if the economy doesn’t fully recover and people don’t repay their loans.
For that reason, Bank of America needs a CEO who is more concerned with assuring that one of the biggest banks in the world survives than what “concerns” the attorney general of New York who is running for governor.
So what do you say, Mr. Attorney General—either put up or shut up.
Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.