I began to question what information that Wikileaks leader Julian Assange will dump early next year on Bank of America executives that will be damaging to the company that will cause resignations. Mr. Assange says that Bank of America information dump will be similar to how Enron company was exposed as criminal.
Mr. Assange said in Forbes, "When Enron collapsed, through court processes, thousands and thousands of emails came out that were internal, and it provided a window into how the whole company was managed." I began to wonder what Mr. Assange meant by that. Well, we do know that the downfall of the Enron scandal was not internal emails. In 2003, Enron emails were released that contains thousands and upon thousands messages from Enron staff after the Enron collapse in 2001. These emails included how the family of the then-CEO Ken Lay lived large in the glory days of Enron company, how company executives almost obsessively followed the investigation into price gouging during California's energy crisis, how ultimately Enron employees suffered when the company collapsed and so on. If Assange has damaging information on Bank of America executives which I believe he does, could it be catching the bank executives saying one thing internally while telling the shareholders something else? Now that could be damning. I started to dig into these three possible, if not all, scandals that entangle Bank of America.
First, there is the ties of the Enron scandal with Bank of America. As you recall the Enron scandal, it was the complex and questionable accounting practices that lead to Enron's demise. Then CFO
Andrew Fastow constructed off-book entities in an effort to hide debt and inflate profits for the company. I found an article that was written in 2003 in which "Enron examiner Harrison Goldin came down hard on two of the Big Four accounting firms and two major investment banks in a new report addressing transactions involving the controversial special-purpose entities at Enron Corp." Bank of America was one of the major investment banks. Mr. Goudin said,"Bank of America and Royal Bank of Canada knew of fraud in Enron-related transactions, according to Reuters." The real question did any of the Bank of America executives benefitted from the Enron fraud. That remains to be seen.
Second, Bank of America's $4 billion takeover of Countrywide Financial. Bank of America executives believed Countrywide's mortgage business might be worth the purchase. Then Bank of America CEO Ken
Lewis said "The ability to get that kind of size and scale became more appealing as we saw the business model change to a model we could accept,.We considered the lawsuits, the negative publicity that Countrywide had. We weighed the short-term pain versus what we think will be a very good deal for our shareholders." The big question was there a scheme by which Bank of America intends to acquire Countrywide but leave the Countrywide debt behind?
From “Are Countrywide Financial Bonds Bankruptcy Remote? from Institutional Risk Analytics in 2008:
The announced acquisition of Countrywide Financial (NYSE:CFC) by Bank of America (NYSE:BAC) was in doubt on Friday because of reports that BAC may back away from the deal. Pity CFC shareholders, who are selling at something like 5% of book value (and this for BAC paper), but we wonder how many of the CFC bond holders understand that they may face an equal or greater haircut.
The CFC 6.25%s of 2016 closed at 79.125 on Friday or over a 10% YTM. The pricing reflects the expectation that BAC will assume responsibility for the CFC debt at par. But after hearing from some bankers in the know and reading the “Agreement and Plan of Merger” filed with the SEC by BAC last week, we think that CFC bond holders will soon get the joke.
Usually, when a company acquires another, the former assumes the debt of the latter and agrees to make timely payments of interest and principal as previously contracted. In the case of BAC’s purchase of CFC, however, BAC seems to view the transaction as an option.
Bankers who’ve been briefed by BAC officials tell The IRA that CEO Ken Lewis intends to keep the crippled thrift holding company “bankruptcy remote” by merging CFC with a new vehicle, called Red Oak Merger Corp in the merger plan, and that BAC does not intend to consolidate the entity or take full responsibility for the CFC debt.
According to the plan: “…at the Effective Time, [CFC] shall merge with and into Merger Sub. Merger Sub shall be the Surviving Company in the Merger and shall continue its existence as a limited liability company under the laws of the State of Delaware.” (BAC public affairs officials Kevin Stitt and Pamela Black did not respond to written questions sent by The IRA via email on Thursday.)
The implication is that BAC eventually will take direct ownership of the FDIC insured Countrywide Bank FSB, which now has assets of some $130 billion, leaving the remaining assets of the formerly public CFC and a good chunk of its $105 billion in parent level debt at risk of an eventual default. BAC officials are reported to have said that BAC’s deposit base and debt issuing power offer significant funding advantages to CFC, but also said that BAC will keep the target separate for an “interim period” of indeterminate duration.
FDIC insured banks, you see, cannot file bankruptcy. Were BAC to even contemplate putting the company formerly known as CFC into Chapter 11, it would first need to move Countrywide Bank FSB to a different part of the BAC group. Otherwise, when BAC was about to file the Chapter 11 petition, the Office of Thrift Supervision would intervene and invoke its statutory authority as the bank’s primary regulator to appoint the FDIC as receiver of the bank, potentially stripping BAC of its entire equity investment.
Did Bank of America stiff the bondholders in the merger with Countrywide? And is the Bank of America/Countrywide merger is part of the Wikleaks' soon-to-be released info on the BofA's bank executives? It may be possible.
Third, Bank of America's merger with Merrill Lynch. Like Countrywide, then Bank of America CEO Ken Lewis said that Merrill Lynch merger was a good deal for the shareholder. New York Attorney General Andrew Cuomo didn't think so. Bank of America approved bonuses before the merger and didn't disclose them to its shareholders when the shareholders were considering approving the Merrill acquisition in December 2008. In addition, Bank of America understated the Merrill Lynch losses to shareholders and then overstated their ability to terminate their agreement to secure $20 billion of TARP money. These factors by Bank of America was what prompted New York Attorney General Cuomo to investigate Bank of America of defrauding the government and the taxpayers.
Second, Bank of America's $4 billion takeover of Countrywide Financial. Bank of America executives believed Countrywide's mortgage business might be worth the purchase. Then Bank of America CEO Ken
Lewis said "The ability to get that kind of size and scale became more appealing as we saw the business model change to a model we could accept,.We considered the lawsuits, the negative publicity that Countrywide had. We weighed the short-term pain versus what we think will be a very good deal for our shareholders." The big question was there a scheme by which Bank of America intends to acquire Countrywide but leave the Countrywide debt behind?
From “Are Countrywide Financial Bonds Bankruptcy Remote? from Institutional Risk Analytics in 2008:
The announced acquisition of Countrywide Financial (NYSE:CFC) by Bank of America (NYSE:BAC) was in doubt on Friday because of reports that BAC may back away from the deal. Pity CFC shareholders, who are selling at something like 5% of book value (and this for BAC paper), but we wonder how many of the CFC bond holders understand that they may face an equal or greater haircut.
The CFC 6.25%s of 2016 closed at 79.125 on Friday or over a 10% YTM. The pricing reflects the expectation that BAC will assume responsibility for the CFC debt at par. But after hearing from some bankers in the know and reading the “Agreement and Plan of Merger” filed with the SEC by BAC last week, we think that CFC bond holders will soon get the joke.
Usually, when a company acquires another, the former assumes the debt of the latter and agrees to make timely payments of interest and principal as previously contracted. In the case of BAC’s purchase of CFC, however, BAC seems to view the transaction as an option.
Bankers who’ve been briefed by BAC officials tell The IRA that CEO Ken Lewis intends to keep the crippled thrift holding company “bankruptcy remote” by merging CFC with a new vehicle, called Red Oak Merger Corp in the merger plan, and that BAC does not intend to consolidate the entity or take full responsibility for the CFC debt.
According to the plan: “…at the Effective Time, [CFC] shall merge with and into Merger Sub. Merger Sub shall be the Surviving Company in the Merger and shall continue its existence as a limited liability company under the laws of the State of Delaware.” (BAC public affairs officials Kevin Stitt and Pamela Black did not respond to written questions sent by The IRA via email on Thursday.)
The implication is that BAC eventually will take direct ownership of the FDIC insured Countrywide Bank FSB, which now has assets of some $130 billion, leaving the remaining assets of the formerly public CFC and a good chunk of its $105 billion in parent level debt at risk of an eventual default. BAC officials are reported to have said that BAC’s deposit base and debt issuing power offer significant funding advantages to CFC, but also said that BAC will keep the target separate for an “interim period” of indeterminate duration.
FDIC insured banks, you see, cannot file bankruptcy. Were BAC to even contemplate putting the company formerly known as CFC into Chapter 11, it would first need to move Countrywide Bank FSB to a different part of the BAC group. Otherwise, when BAC was about to file the Chapter 11 petition, the Office of Thrift Supervision would intervene and invoke its statutory authority as the bank’s primary regulator to appoint the FDIC as receiver of the bank, potentially stripping BAC of its entire equity investment.
Did Bank of America stiff the bondholders in the merger with Countrywide? And is the Bank of America/Countrywide merger is part of the Wikleaks' soon-to-be released info on the BofA's bank executives? It may be possible.
Third, Bank of America's merger with Merrill Lynch. Like Countrywide, then Bank of America CEO Ken Lewis said that Merrill Lynch merger was a good deal for the shareholder. New York Attorney General Andrew Cuomo didn't think so. Bank of America approved bonuses before the merger and didn't disclose them to its shareholders when the shareholders were considering approving the Merrill acquisition in December 2008. In addition, Bank of America understated the Merrill Lynch losses to shareholders and then overstated their ability to terminate their agreement to secure $20 billion of TARP money. These factors by Bank of America was what prompted New York Attorney General Cuomo to investigate Bank of America of defrauding the government and the taxpayers.
In 2009, leaked testimony by Ken Lewis revealed that according to Business Insider, Federal Reserve head
We can only wait and see if it indeed Bank of America is Assange's target. But, there is so much being build into the possibility that it is Bank of America. Assange did say that he could take down "one bank or no." For sure, if Assange can take down one bank, he certainly leaving the door opens to take down more than one bank. The question is what is the other bank?
Bernanke and then Treasury Secretary Hank Paulson implicitly ordered Lewis to keep silent about the massive losses Merrill Lynch was sustaining in fourth quarter of earnings. Also, Paulson told Ken Lewis he would oust him and the Bank of America Corp.board if Lewis stopped the Merrill deal.
We can only wait and see if it indeed Bank of America is Assange's target. But, there is so much being build into the possibility that it is Bank of America. Assange did say that he could take down "one bank or no." For sure, if Assange can take down one bank, he certainly leaving the door opens to take down more than one bank. The question is what is the other bank?
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