What To Do With Bank of America Stock? (Curt Bradbury Commentary)

by Curt Bradbury  on Monday, Feb. 2, 2009 12:00 am  

As someone who played a small role in bringing Bank of America to Arkansas, I have received many calls recently from old Worthen shareholders who still have Bank of America stock. They ask, "What should I do?"

In trying to give a good answer, I am reminded of what Bobby Jones, the great Southern gentleman and golfer (in that order) said about Jack Nicklaus: "This young man plays a game with which I am not familiar." The game that is afoot in the world's financial services industry has no historical precedent, is being made up as we go along, and therefore is devoid of a framework for making a decision that is anything other than a guess or a gamble. Thus, my answer, rendered with great sadness, is that I have no idea what should be done with Bank of America stock if one has yet to bail out.

What I do know is that, as a Bank of America shareholder, you have been abused in a manner that shares certain strands of ideological DNA with, let's say, Chavez's last expropriation in Venezuela. Here is my logic.

I know Ken Lewis, CEO of BOA, slightly. I simply don't believe that he is as bad as he currently looks. Either there is an acceptable end game for shareholders here or he has been seriously out-traded by Bernanke and Paulson.

The recovery of Bank of America and, for that matter, the economy as a whole has been seriously complicated by the fact that in Reid's and Pelosi's America, it has become the received wisdom and fixed policy that corporate executives and shareholders of corporations are bad and can be maligned with impunity. I will not rise in defense of corporate executives here, especially those hailing from Wall Street. But shareholders? Shareholders R Us! The percentage of American people who own shares in the companies of this country, either directly or through some sort of retirement plan, is very high. So beware everyone. You are under attack!

In consequence, when the government gets around to "bailing out" a bank, the shareholders, representing private wealth, are viewed as expendable. Why is this wrong? Because any fair assessment of our current economic predicament would find that the government is utterly complicit in the situation that has caused this unprecedented, historical and life-changing mess. The impulse to protect taxpayers in these bailouts is quite appropriate. The hammering of shareholders whose diminished values are in substantial part due to flawed public policy may or may not be. Judgment, not fanaticism, is required.

Fannie Mae and Freddie Mac were the creation of the government and grew through misguided policy over the course of 15 to 20 years. The government wanted the banks to make those mortgage loans. And while residential mortgages are not the only problem assets held by banks, we are now dealing with the first, second and third derivatives of the mortgage meltdown. If you look closely at the genetics of this problem, just whose fingerprints do you see? Not only misguided CEOs', but misguided policymakers' in Washington spanning several administrations. Thus my belief that Barney Frank and like-minded Democrats are more responsible for the travails of Bank of America than I am, as a shareholder.

In the same vein, one is forced to wonder what really happened in those meetings with Bernanke and Paulson around the time Lewis decided to buy Merrill Lynch. There can be no question, now, that Merrill was going down. There can also be no question that Lewis could have bought the carnage for less than he paid for the ostensibly going concern. But, at that moment, nobody wanted another Lehman, and guess who stepped in, my fellow shareholders? You and I. What do we now get in exchange? Dilution and vastly reduced value.

Later, when Lewis tried to walk away from the deal, someone must have squeezed him hard, and you and I, fellow shareholders, were asked to share the systemic risk that Merrill clearly presented. Lewis accepted a complicated package of financial "incentives," which the stock market promptly valued at less than zero. A nice thank you note on U.S. Treasury Department stationery might have been better.

What would I have preferred? My first choice would have been for us to walk away from the Merrill deal and take our independent chances with the systemic ramifications that followed. If we then failed, so be it. Alternatively, I would have preferred that the government take its government-inspired "toxic assets" off (off!) of Merrill's books, infuse capital and give us shareholders a preemptive right to invest new capital at the same terms. To the extent that we subscribed to invest the new capital, this round of creeping ownership by the government could have been reduced or eliminated.

In any event, when the country is led to adopt a "share the wealth" mentality, this is what you get – never mind the government's fault in the matter; impound the shareholders' property first! The same mindset also leads you to blame the political party that just happens to be in power when the culmination of decades of policy mistakes comes to fruition. Republicans in Congress tried to circumscribe Fannie and Freddie several times during the last eight years, over the wounded cries of the Democrats interested in making mortgage loans to anybody with a pulse.

In summary, old friends, I don't know what you should do with your Bank of America stock. One of the most gratifying experiences of my entire life has been to be approached by many people who made money (that's a good thing, children!) on Worthen stock as it morphed into Boatmen's and then Bank of America and who told me that they sent kids to college or bought businesses with those profits. You might therefore imagine my sadness at all of this.

Personally, I will hold on to the Bank of America shares I have left as a call option on what I once thought of Ken Lewis and on the faint hope of a blessedly early economic recovery. In so doing, I must have faith that America will not permanently reject its reverence for ownership rights, for personal ambition based on individual uniqueness, for the rewards of success without the fear of government confiscation and for the noble aspiration to own shares in great American enterprises. Nationalization, even if occurs in small increments, is surely the highest tax of all because its cost is freedom.                                        

(Curt Bradbury is chief operating officer of Stephens Inc. in Little Rock. He managed the turnaround of Worthen Banking Corp. in the mid-1980s and the sale of Worthen to Boatmen's Bancshares of St. Louis in 1994. Boatmen's was sold to NationsBank in 1996, and NationsBank was renamed Bank of America in 1998.)



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