Memo to the Obama Administration: Has Bank of America CEO Ken Lewis Stressed You Out Enough Already? There’s an Easy, and Long Overdue, Solution.

Stress test results are about to be released. The Wall Street Journal is reporting that as many as ten banks will fail the test, and will need to raise more capital. One of these banks is Bank of America, and this morning's reports indicate that BAC will need an incredible $35 billion to shape up. CEO Ken Lewis has been saying for more than two months that the firm he leads will not need any more government money. Oops.

If today's reports are correct, Ken Lewis will have been wrong, very wrong, once again. While shareholders couldn’t muster the votes needed to push Ken to Pebble Beach full-time, what are we to make of a CEO who has a remarkable record of being wrong? It’s actually worse than that. Ken seems to think that he is absolutely right (to buy Countrywide, to buy Merrill Lynch, to fire John Thain) when in fact he is terribly wrong. And now yet another insult to shareholders. Bank of America is still in trouble, BAC is failing the Fed’s stress test, BAC is unlikely to soon pay back the money it has already received from the government, and BAC will need more capital to weather the financial storm. Capital that almost certainly will need to come from the government, again, whether in the form of a preferred-to-common stock swap, or new money entirely.

The big question is whether the Treasury will insist that Ken Lewis must go if the bank is to move forward. There can be no fathomable reason to keep him in the top job at this point. Even Vikram Pandit at Citi has done a better job than Ken Lewis. Or at least it wasn’t Pandit that put Citi into the mess it’s in. But it was Ken that put BAC into the mess that it is in. If Rick Wagoner had to walk the plank, how in the world can the Feds keep Ken Lewis in the corner office? It’s time.

The Curious Case of Bank of America's Ken Lewis

Tomorrow BofA CEO Ken Lewis goes on trial. The annual shareholder meeting has become a referendum on the decisions, and legacy, of Ken Lewis. Let’s parse the data.

Why He Should Stay as CEO

1. Who else is there?
2. Paulson and Bernanke came at him with a baseball bat in a dark alley – what choice did he have but to buy the much-maligned Merrill Lynch?
3. Up until September 2008, Lewis was a seen as a star of the banking industry, even winning the “Banker of the Year” honors from American Banker.

Why He Should Be Removed as CEO

1. Despite the Paulson-Bernanke takedown, Lewis did not have to make the Merrill deal. The simple truth is that he wanted this deal, badly, to demonstrate to the world that BofA was king of the hill, and just as importantly, that he could go one better than his mentor, former BofA CEO Hugh McColl. To Lewis, Merrill was a dream of a company, one that had an enormous emotional attachment for him personally. McColl never acquired Merrill; Ken Lewis did. Wow!
2. How many lives should one CEO have? Countrywide; Merrill; TARP lifelines; the John Thain debacle; testimony to Cuomo that may yet land Lewis in more trouble than even he could imagine; first quarter earnings chock full of one-time gains based on increasing the valuation of toxic assets on the book; characterizing these results as evidence of “a testament to the value and breadth of the franchise;” outraged shareholders and institutional investors who finally have had enough; news that Treasury stress tests indicate BofA needs more capital, yet again. By my count, that makes 9 lives…

The Bottom Line

I don’t know Ken Lewis personally, and I have no reason to believe he is not a good person. But, the evidence is now overwhelming that Ken Lewis is an incompetent CEO. What shareholders and the board cannot, or will not, do, Ken Lewis should do for himself. The one solution that will be best for Bank of America, and best for Ken Lewis and his personal dignity, is clear. He should resign.

You may say I'm a dreamer, but (perhaps) I'm not the only one.

Bernanke, Paulson, and Lewis: He Said, She Said

We are in for a fresh round of escalating recriminations.

Bank of America CEO Ken Lewis testified to New York Attorney General Andrew Cuomo that he was pressured to do the Merrill Lynch deal, and moreover, that he was told not to disclose the extent of ML damage to shareholders in advance of the vote authorizing the acquisition. Paulson, and the Fed, quickly followed with press releases indicating that they did no such thing.

Even in these early stages of this emerging scandal, the next steps are highly likely:

1. There will be a Congressional investigation, and it will be embarrassing to all concerned, including President Obama.
2. Ken Lewis will finally resign as CEO of Bank of America.
3. Americans will learn more about how Treasury sausage is made, and it will be an eye-opener.

There is no reason why government cannot play a constructive role in the development and growth of businesses. The history of business indicates that such a role can be highly valuable, but almost always in the earliest stages of an industry’s development. Mixing government and business in the intimate manner we are observing these last several months creates all sorts of complications, conflicts of interest, and collisions. The story of Bernanke, Paulson, and Lewis is about to spill out of the bedroom.

Bankers 1, GM 0. Countdown with Olbermann on MSNBC Has It Right

Last night on Countdown with Keith Olbermann he asked the same question I’ve been wondering about as well (see my post) – why are the bank CEOs staying in their executive suites while GM’s Rick Wagoner is forced to walk the plank? This is not a defense of Wagoner – GM is broken and needs fixing. But what should we say about Bank of America and Citi, the two paragons of fiduciary responsibility in the banking industry? Both Ken Lewis (BAC) and Vikram Pandit (Citi) are past due. So, why?

Keith had Dan Gross, Senior Editor on Newsweek magazine and the author of Dumb Money on his show, and he made a great point. Dan reminded us that top Obama advisors are in the same inner circle as many Wall Street titans, BBM-ing on the beach in the Hamptons and Martha’s Vineyard, and digging into the double porterhouse at Delmonico’s Restaurant.

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Dan is right. In Think Again: Why Good Leaders Make Bad Decisions, I wanted to know why people think they are right when they are really wrong! One of the primary ways this happens is when we let our attachments to people (and sometimes places and things) cloud our thinking. This is natural after all – who doesn’t feel comfortable with the people they know? The problem is that these attachments influence how we make decisions, and not in a good way. Why are Wall Street CEOs being spared, while GM’s Rick Wagoner is pushed out? As the old saying goes, it’s not always what you know, but who you know, that counts.

Why GM's Rick Wagoner, and not Ken Lewis at Bank of America or Vikram Pandit at Citi?

Does it strike you as odd that Rick Wagoner has been forced to walk the plank for his failures as CEO at General Motors, while Ken Lewis continues to hold court at Bank of America, and Vikram Pandit just holds on at Citigroup? The Obama Administration’s approach to the freefall in financial services has always been different than their response to the mayhem in the automobile industry:

· Billions in bailouts for Wall Street; not quite so much for Detroit.
· No questions asked early on about corporate jets on Wall Street; embarrassing the Detroit CEOs into actually riding in their own cars on the way to Congress.
· And now, pushing GM CEO Rick Wagoner out while leaving in place Lewis, Pandit, and Company.

What gives? It may be that the government sees the solution to the financial services disaster as considerably more complex than what is needed for automobiles. And certainly it appears that the consequences of Armageddon on Wall Street are much more severe to the global economy than bankruptcies in Detroit.

But the different approaches by the Feds to these two industries may also speak volumes about their mindset and assumptions. If financial services can’t be “figured out” by a task force working for a month to find solutions (as they did in automobiles), then surely we’ve got to keep the people that got us into the mess in the first place! But, is this really true? I believe this logic is fundamentally flawed, for at least two reasons:

(1) Justice must be done, and seen to be done. For the big banks, this just has not happened. Every week brings new revelations of incredible bonuses to bankers to “retain” their talents despite a track record comparable to the Montreal Expos. Why do we keep shoveling money into their companies when the very leaders who brought this calamity on themselves remain in their jobs? I don’t get that.

(2) Are the Obama economists too attached to Wall Street? The party line from Wall Street is that the housing-fueled, subprime-exacerbated, leverage-over-the-top credit crisis could not have been predicted; ergo, it’s not our fault. Others have pointed out in fine detail how faulty this argument, so why are the Obama economists buying it? I believe it is because of an inherent belief and attachment to the people who make their living on Wall Street, an attachment that biases their ability to be clear-eyed in their assessment of the leadership talent in place.

If Rick Wagoner is being held responsible for “leadership mistakes” at GM, why not Ken Lewis and Vikram Pandit?