BofA's Mantra: We're Not Citigroup [WSJ]
Lewis Takes Shot at Rival to Highlight Bank's Strength; Fighting Nationalization
By DAN FITZPATRICK
Bank of America Corp. Chief Executive Kenneth Lewis is eager to prove one thing above all else: His company isn't Citigroup Inc.
As shares of big banks have fallen in the face of speculation that they might be nationalized by the government, Mr. Lewis and other executives have mounted a full-court press to differentiate their company from their New York rival.
In a series of internal memorandums to Bank of America managers and in media appearances over the past two weeks, Mr. Lewis has implicitly attacked Citi's performance. He has repeatedly insisted that Bank of America needs no more government money -- while suggesting that Citi probably will -- and that fees generated from Bank of America's base of 59 million retail and small-business customers will allow his bank to "earn" its way out of the crisis.
"We need to help keep these facts straight in the public debate as the market appears to be moving in part based on rumor, innuendo and falsehoods propagated by the misinformed," Mr. Lewis wrote in a Feb. 20 internal memo. "I see no reason why a company that is profitable, with capital and liquidity levels that are very strong, and that continues to lend actively, should be considered for nationalization."
Bank of America made $4 billion in 2008, but it lost $1.79 billion in the fourth quarter. Its Tier 1 capital ratio is 9.15%, above regulatory minimums, but another capital ratio known as tangible common equity remains thin at 2.83%. And while the bank did make $115 billion in new loans during the fourth quarter, outstanding loan balances declined 1.2%.
On Feb. 20, during a talk to top managers at the bank's Charlotte, N.C., headquarters, Mr. Lewis predicted that the bank wouldn't be nationalized. But he added that fate might befall an unnamed competitor that operates in most of the same business lines, according to people familiar with the content of the talk.
Mr. Lewis suggested that employees could figure out to whom he was referring. People familiar with the meeting said they assumed it was Citigroup.
Citi spokeswoman Shannon Bell declined comment on Mr. Lewis's statements. However, she defended Citi's business model as positioning the bank "to capitalize on global growth trends."
The bank's shares are down 55% since Jan. 16, when details emerged of a new federal rescue plan for Bank of America similar to the one provided Citigroup. Last week, the share price dropped another 21%, to $3.14, before jumping 19% Monday, to close at $3.75. Meanwhile, investors have pushed Citi near $1; it closed Monday at $1.05, up 1.9%.
Despite Mr. Lewis's assertions, there remain doubts inside the company as to whether the bank can survive the crisis without more help from the government, said one person familiar with recent deliberations inside BofA. And two prominent congressional Republicans said Sunday that big, troubled banks should be allowed to fail. But Mr. Lewis is adamant that the company can still earn its way out of this crisis, said a person who discussed the subject with him.
Bank of America, now the largest U.S. bank by assets, expects to produce more than $100 billion in revenue from businesses that touch every corner of the U.S. financial system, from auto and home loans to wealth management and merger advice. In 2008, it collected $10.3 billion just in service charges, which include ATM and overdraft fees. As the nation's largest mortgage originator and servicer by dollar volume of loans, Bank of America already is benefiting from a surge in refinancing applications as rates drop.
Pandit Memo Cites Citi's 'Strengths'
Citigroup CEO Vikram Pandit issued a memo to employees Monday as the company's shares hovered above $1, arguing the current price does not reflect the company's capital position and earnings power. Read the memo.
"We have been, from Ken on down, working very hard to help people understand the difference" between the two banks, said Bank of America spokesman Robert Stickler. Some "carelessly lump us together." Mr. Stickler said analysts expect Bank of America to post a profit in 2009, and the bank has predicted it will be profitable this year. As for Citigroup, he said, "the consensus is they will not." Citi declined to comment.
Uneasiness about that comparison began in December when Mr. Lewis told then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that he might back out of a shareholder-approved agreement to buy Merrill Lynch & Co. due to losses at the securities firm. Federal officials refused to let the bank walk away and agreed to provide additional capital and protections against future losses on bad assets.
One of Bank of America's concerns about taking the money was that an additional $20 billion in rescue aid, on top of an initial $25 billion given to the bank in late 2008 and early 2009, would make the company look too much like Citigroup -- the first bank to collect a total of $45 billion. Citigroup has since agreed to greater government ownership, and the U.S. now owns 36% of the bank.
Mr. Lewis believed that federal regulators would be more helpful to Bank of America than other companies out of appreciation for the bank's $4 billion rescue of Countrywide Financial Corp. and the $19 billion deal to acquire Merrill.
Partly to differentiate itself from Citigroup, Mr. Lewis suggested during the Merrill negotiations that the government receive a form of preferred stock that would look to ratings firms like common stock for its second infusion of capital in Bank of America, unlike the preferred shares the government initially purchased in Citi, said people familiar with the matter.
But the Treasury Department insisted that Bank of America accept terms similar to what Citigroup had, specifically, preferred shares carrying an 8% dividend rate, according to people familiar with both sides of deliberations. BofA executives expressed frustration during the negotiations that they were being treated just like Citi; the government's view was that Bank of America wanted to be treated "better" than Citigroup, according to these people. Bank of America declined to comment on those negotiations. A Treasury Department spokesman also declined to comment.
In recent weeks, the bank pushed unsuccessfully for federal officials to make public statements of support of the company. |
