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XMFSinchiruna (28.58)

Did he really just say that??

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52

July 17, 2009 – Comments (21)

It appears that Bank of America CEO Ken Lewis just proclaimed in the earnings conference call that the Countrywide and Merrill acquisitions "continue to be accretive". Accretive? Really, Ken?

Wow, that's quite a claim after BOA shares plunged from $40+ to a low of $2.53 in the wake of those moves. Comments like these perfectly expose the lunacy of federally condoned deceptive accounting practices that permit such statements to be made. 

The mere fact that this guy remains at the helm is astonishing to me. Shame on shareholders for not ousting him! 

I think Mr. Lewis needs to return to accounting 101. From Investopedia:

What Does Accretive Acquisition Mean?
An acquisition that will increase the acquiring company's earnings per share (EPS). These acquisitions tend to be favorable for the company's market price because the price paid by the acquiring firm is lower than the boost the new acquisition will provide to the acquiring company's EPS. 

In that "price paid" part of the equation, I think he conveniently forgot to include all those billions of dollars worth of nonfunctioning loans and derivatives securities festering away in some dark corner of his balance sheets and/or heaped upon the unsuspecting American populace.

And still the financials rally ... which means people are swallowing this garbage.

This banking system remains a complete fraud, a ponzi scheme, and a financial parasite on the backs of the American people. Wake up!

I ask you, what exactly distinguishes these guys from Madoff?

21 Comments – Post Your Own

#1) On July 17, 2009 at 10:22 AM, ocsurf (< 20) wrote:

Great post Sinch. These guys are all idiots and nothing will ever change as long as they are at the helm.

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#2) On July 17, 2009 at 10:55 AM, outoffocus (24.53) wrote:

I ask you, what exactly distinguishes these guys from Madoff?

Madoff was caught and prosecuted.

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#3) On July 17, 2009 at 11:00 AM, jesusfreakinco (29.60) wrote:

I ask you, what exactly distinguishes these guys from Madoff?

Madoff didn't have Paulson's blessing whereas BAC did.

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#4) On July 17, 2009 at 12:32 PM, StatsGeek (29.98) wrote:

BAC is given access to unlimited funds from the Fed at 0% interest and Madoff wasn't.

BAC is allowed officially condoned fraudulent accounting (Mark to Imagination).  Madoff wasn't allowed to do that.

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#5) On July 17, 2009 at 12:54 PM, Option1307 (30.48) wrote:

I ask you, what exactly distinguishes these guys from Madoff?

Do you think that maybe the government offered up Madoff as sort of a scapegoat? So they can say, "see look Sheeple, we are porsecuting criminals and seeking justice for you all! We are such a good big government, we always want whats best for you." Basically to focus our attention on Madoff so the real criminals can get away unscathed.

Wow, my conspiracy theories have really go into overdrive lately. I need to stop looking into government affairs...

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#6) On July 17, 2009 at 1:03 PM, silverminer (41.99) wrote:

Option1307

Of course I do. ;)

Sinch

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#7) On July 17, 2009 at 1:28 PM, BMFPitt (77.01) wrote:

I ask you, what exactly distinguishes these guys from Madoff?

When he got caught, the government didn't give him another $50 billion to keep his scheme going.

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#8) On July 17, 2009 at 2:25 PM, bigpeach (34.23) wrote:

Accretive means to increase. Earnings in this case. A company's stock price can drop even if an acquisition is accretive. That part wasn't really part of the definition, rather it was commentary on the effect of accretive acquisitions. I'm not sure why you bolded that. Additionally, an acquisition does not have to increase earnings immediately to be considered accretive.

I haven't gone through the earnings report, so I don't know if either of these acquistions increased earnings or not. Perhaps you could include that information? It's a bit unfair of you to take one sentence from Mr. Lewis and accuse him and all bankers of fraud. You haven't even provided the context in which this was uttered. Did he mean accretive in terms of operating earnings? If that was the context, I imagine that would be entirely accurate.

Sinch, you're constantly railing about the banking system and accusing bankers of being criminals. I respect your opinions of course, but your arguments are generally based on hearsay and your very clear dislike for the banking system, rarely facts. If you're going to accuse a person of a crime, you really should make a more factual and less emotional argument.

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#9) On July 17, 2009 at 3:00 PM, bigpeach (34.23) wrote:

Just went through the earnings release. They no longer report the three entities separately, so it's difficult to know if Merrill and Countrywide added to earnings or not. It does appear however that the businesses Merrill is involved in were profitable this quarter. Not really that surprising since the other investment banks have all been profitable as well. Losses were in the traditional banking units of home loans and card services. Countrywide is too similar to Bank of America to be able to separate at this point. So unless anyone can show otherwise, it appears Mr. Lewis' comment was not untrue.

-1 rec.

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#10) On July 17, 2009 at 3:08 PM, chk999 (99.98) wrote:

You want the CEO of a bank to know some accounting?

That's just crazy talk!

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#11) On July 17, 2009 at 4:16 PM, cthomas1017 (36.16) wrote:

outoffocus

outoffocus, Now THAT was about as clever a response as I have seen on CAPS (or any where else for that matter).  +1 rec even in light of bigpeach's astute observation.  A shell game is still a shell game, bigpeach.  Mr. OutOfFocus' rule still stands! :)

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#12) On July 18, 2009 at 12:22 AM, LovinMe (91.40) wrote:

bigpeach; it's obvious that you've never worked for a bank.

They prey on the middle class and poor to give perks to the rich. This is also true within their own ranks as the workers in the front line are paid horrendously compared to the fat that "manages" them.

Investment banks purposfully manipulate the markets in the name of "liquidity" and have done so with even more gusto since the changes in electronic exchange around summer 2007.

Are banks needed? Yes; right now we couldn't keep our monetary system without them. Have they become border line criminals? Yes; brilliant criminals.

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#13) On July 19, 2009 at 12:19 PM, XMFSinchiruna (28.58) wrote:

bigpeach

I haven't gone through the earnings report, so I don't know if either of these acquistions increased earnings or not. Perhaps you could include that information? It's a bit unfair of you to take one sentence from Mr. Lewis and accuse him and all bankers of fraud. You haven't even provided the context in which this was uttered. Did he mean accretive in terms of operating earnings? If that was the context, I imagine that would be entirely accurate.

I don't waste my time listening to Ken Lewis' conference calls. Why in the world would shareholders trust a thing out of his mouth after he failed to inform them of the deteriorating condition of the Merrill assets? Regardless of findings as to the extent to which he was pressured by Paulson to keep his mouth shut, the episode inescapably represents one of the most grotesque betrayals of shareholder interest in the history of corporate malfeasance.

Bank profits at this stage are fictional, and achieved only through accounting practices that have zero basis in reality.

According to Meredith Whitney:

http://www.examiner.com/x-1760-Baltimore-Investing-Examiner~y2009m5d18-Why-It-Pays-to-Listen-to-Meredith-Whitney

"They were overdone all the way into this rally. What happened was the government - I call this the great government momentum trade - the government enabled the banks to have better than expected, better than even the banks could organically deliver, first-quarter earnings. That looks like it could continue into the second-quarter and the third-quarter. The banks rallied from well below tangible book multiples to almost two times tangible book multiples [...] the underlying core earnings power of these banks is negligible," she says."

 

Sinch, you're constantly railing about the banking system and accusing bankers of being criminals. I respect your opinions of course, but your arguments are generally based on hearsay and your very clear dislike for the banking system, rarely facts. If you're going to accuse a person of a crime, you really should make a more factual and less emotional argument.

bigpeach, I deny your accusation that my arguments are based on hearsay, dislike for the banking system, and "rarely facts". At their core, my arguments are always based upon my countless thousands of hours of research and analysis. True, I have developed a sour taste in my mouth for the banking/brokerage sector at large in the wake of their utter destruction of the global economy with oversized and irresponsible gambles. The fact that their interests have been addressed first and foremost in our government's response to the crisis -- at a direct and immeasurable cost to the populace -- is a further bone of contention. I am not feeling much love for the sector, but my arguments remain founded upon my ceaseless research and objective interpretation of available information. I was an Anthropologist before entering the financial field, and I am keenly self-aware with respect to maintaining distinctions between my personal feelings on a topic and the conclusions I draw from available evidence.

My readers need to understand something about the way I conceptualize my role here. Although each of my articles is designed as a stand-alone piece, I am concentrating on building a bank of insight through my collected works. As for my blog posts, I am not out to repeat myself ad nauseum, but rather to make resources available for Fools to conduct their own research and draw their own conclusions. I have established through presentation of documented facts plenty of examples of fanciful accounting procedures and corporate malfeasance within the fiancial sector throughout my time blogging here -- as well as through published articles -- so the evidence you're looking for is already on record.

If you're offering a counter-argument that this sector is NOT fraught with deceptive accounting practices, a dangerous lack of transparency, virtually incalculable exposure to debt instruments, and a cunningly symbiotic relationship with the U.S. Treasury and the Fed, then I propose that the burden of proof lies with you. The world has witnessed first hand through the public record everything I have alluded to above, and to expect me to list out every example when I vent a touch of outrage is frankly quite insulting. If you have a perspective on the sector that runs contrary to the new conventional wisdom, then by all means, prove to me that: A.) I have cause to trust what Ken Lewis tells me is or is not accretive, and B.) that bank earnings are meaningful metrics at this stage when exposure to toxic debt instruments remains tucked away from balance sheets through "mark to imagination" practices. I've done my part ... I've laid down my evidence continually over the past 2 years, so go back and find fault with the evidence I've provided if you wish to try, but you can not reasonably accuse me of holding back on the facts. 

In February 2008, before the scale of the crisis was anywhere close to common knowledge, I cited this confidential Bank of America document revealed by the New York Times, in which BOA floated a plan to members of Congress for a bailout to cover mortgage-related losses of up to $739 billion. At the time, I warned investors with any exposure to companies engaged in mortgage lending to run, not walk, to the nearest exit. Bank of America shares closed that day at $39.36. Seven months later, the $700 billion TARP program was approved by Congress, and by Spring 2009 shares had fallen below $3 per share.

Oh, and did Lewis bother to caution shareholders about the monster crisis that his company looked to Congress to protect it from? Nope!

Both Countrywide and Merrill were revealed to have debt exposures far more massive than previously reported shortly after their respective acquisitions were announced, and in both cases the deals proceeded nonetheless. To then claim that the deals were somehow accretive to earnings, again, is beyond ridiculous since the earnings are not real when real losses are ignored.

That degree of foreknowledge about the scale of the crisis, furthermore, casts a very interesting shadow upon the enormous ramp-up in consumer lending by Bank of America. From the 3rd qtr to the 4th qtr of 2007, BOA: "added $30 billion in consumer credit, notably in credit card and home equity lending.  They added $55 billion to their commercial loans, focusing on domestic commercial loans and commercial real estate". With the combined evidence of the late-stage, ramped-up lending, the acquisition of Countrywide at a time when BAC already forecast a $739 billion mortgage meltdown, and the lunacy of the Merrill acquisition in light of what was known at the time, I believe that one viable conclusion Fools could draw from the totality of these pieces of evidence would be that Bank of America was in a fight to ensure its own survival by becoming "too big to fail" in a very big way ... and as fast as humanly possible.

I am entirely than willing to discuss alternate conclusions or scenarios that could account for all of these odd events, but until someone convinces me otherwise that is the conclusion I have drawn. Don't even get me started about the House of Morgan or Golden Slacks.

 

 

 

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#14) On July 19, 2009 at 12:31 PM, portefeuille (99.78) wrote:

Oh come on tmfsinchiruna, you can do better than that. I appreciate very much the voice of reason (bigpeach) and would have written more or less the same.

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#15) On July 19, 2009 at 12:46 PM, XMFSinchiruna (28.58) wrote:

portefeuille

Again, disagree with me on the merits of my arguments if you wish, or challenge the evidence I've presented with the results of your own research, but dismissive comments like yours above contribute absolutely nothing to the conversation.

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#16) On July 19, 2009 at 2:56 PM, portefeuille (99.78) wrote:

That is exactly the point I was making. Your response to bigpeach was not very useful.

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#17) On July 19, 2009 at 3:00 PM, portefeuille (99.78) wrote:

And again, my arguments/opinion are very close to the ones presented by bigpeach in comment #8 above. The extent of agreement would have rendered a presentation of my arguments repetitive so I refrained.

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#18) On July 19, 2009 at 3:05 PM, portefeuille (99.78) wrote:

Having read my comment #14 again I think I now understand your comment #15. #14 was a response to the first part of your comment #13 above, not a comment to your post.

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#19) On July 19, 2009 at 8:12 PM, XMFSinchiruna (28.58) wrote:

From the Huffington Post... see the video at the link

We don't care. We don't have to care ... we're Goldman Sachs:

http://www.huffingtonpost.com/mike-lux/we-dont-care-we-dont-have_b_236218.html

Goldman Sachs has openly, blatantly gone back to business as usual, knowing they will be bailed out by taxpayers if their high rolling gambles don't work, and they don't care who knows about it.

The reason they can be so breathtakingly arrogant, so stunningly cavalier about not giving a damn about things that any other company's PR and government relations department would advise them against, is that they know they have the power to do anything they want to do. The Obama White House needs to take Goldman Sachs to the woodshed rhetorically, and they should have the Justice Department investigating them for anti-trust violations and all manner of stock manipulation. It is time to start squeezing the management at Goldman, and making them nervous about being broken up into pieces that are not too big to fail.

 

 

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#20) On July 21, 2009 at 6:42 AM, XMFSinchiruna (28.58) wrote:

A related topic, bank accounting practices as they relate to mortgage losses, brought to you by fellow Fool billddrummer:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=231542&t=01001136468628885338

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#21) On July 23, 2009 at 3:14 AM, billddrummer (41.81) wrote:

To TMFSinchiruna,

Thank you for the cross reference.  I've added you to my favorites list and am following this thread as well.

Your rant was masterful. 

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