Another view ...
http://www.ritholtz.com/blog/2009/10/boa-bond-holders-haircut-can-restore-solvency/
This past week in the IRA Advisory Service, we added M&T Bancorp (NYSE:MTB) to our coverage list. As of Q2 2009, MTB was rated âAâ by the IRA Bank Monitorâs Stress Index due to its below-peer loss rate and strong operating results. We also started to describe for our clients our concerns about the outlook for Bank of America (NYSE:BAC), which was rated âCâ as of Q2 2009 by the IRA Bank Monitor. Click here to register for the IRA Bank Cart and look up the rating for your bank.
If you reduce the increasingly difficult situation facing the largest banks down to its essence, the problem is politicians picking winners and losers. If we donât have losers in our economic life, then there are no winners either. If we donât resolve troubled banks, then all of our banks will be bad, as the century-old Whithers quote above suggests. And the fact that Washington will not let large, mediocre institutions such as BAC fail means that our entire financial system is getting sicker, not recovering as the politicians ask you to believe. The different financial and operational situations facing BAC and other members of the large bank peer group illustrate the point.
As we told CNBCâs Fast Money on Friday, the departure of Ken Lewis as CEO is probably the best news for BAC equity and bond holders in many years. Whoever is eventually selected to replace Lewis, though, is facing a tough task. In his column in the New York Times over the weekend, Joe Nocera makes that point as he talks about the culture of mediocrity that Lewis promoted at BAC, a culture where competent managers were systematically forced out by the human resources department of BAC.
For all of his insider savvy and HR muscle within the bank, Lewis really was not an operator. BAC, after all, is a combination of dozens of companies merged over the last 30 years that were never actually integrated. The mergers âworkedâ because the old NCNB HR department ruthlessly squeezed down personnel costs. These are âprocessâ people, after all, who believe that you can identify tasks that can be done by one person, then train that person and pay him/her well below average. This is what they call âsynergiesâ at BAC. This goal of short-term cost cutting pervades BAC and has led to an organization that produces narrowly focused employees and business units, with no incentive to innovate or manage risk on an enterprise basis as required by Sarbanes-Oxley, not to mention federal banking laws.
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