Ken Lewis Lies Again…
May 6th, 2009 | By Contrarian Profits | Category: Top StoryBank of America may need $34 billion in government handouts, according to a leak to the press ahead of the official stress test results tomorrow. That’s strange, because we seem to recall Ken Lewis announcing on April 20 that “we absolutely don’t think we need additional capital.”
Thirty-four billion dollars is hardly pocket change. So it seems odd that Lewis would have miscalculated BoA’s capital requirements by such a wide margin. Of course, Ken made this bold claim ahead of BoA’s 1Q results. Maybe he just got a bit confused. Or maybe he just didn’t want to tell the truth to investors, who would naturally take fright at such an admission.
According to research by Bailout Nation author and underground investor Barry Ritholz, the amount of capital the bank now suddenly needs to save it from insolvency is roughly a third the cost of the Marshall Plan, which in today’s dollars cost $115.3 billion.
This guy should be locked up for repeatedly lying to investors. Failing that, someone should at least slash his tires. He represents the worst of corporate America. And, boy, does he face some stiff competition…
We all have a tough time conceptualizing large numbers. As Nobel Prize-winning physicist and Richard Feynman put it, “There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.”
This has been doing the rounds for some time. But in case you forgot how much the bailouts are costing America in real terms, here’s a quick reminder. (If you’ve seen this list before, we apologize. If you haven’t, we hope you’re sitting down.)
In inflation-adjusted numbers, the recent economic crisis has cost taxpayers more than twice all of these big budget government expenditures combined:
• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion
TOTAL: $3.92 trillion
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Actually Ken Lewis has a well deserved reputation as a truth teller. It doesn’t mean he is always right or appropriated prudently for short term stock holders given the environment.
A few weeks ago, Lewis stated, Bank of America doesn’t need any new capital but that government regulators will determine in the end which banks need additional capital.
It turns out, Bank of America didn’t need any new capital since their tier 1 ratio was high enough but the government did dictate they needed more of that capital to be in the form of common equity.
BAC could have required no additional capital if they simply converted the government preferred shares but they realize given all of the government interference, it’s better to simply pay off the TARP preferred shares and raise the capital in the private markets and by selling some non core assets.
BAC just raised 3 billion in private debt and expect them to pay back about 25+ billion in TARP funds in the next 6 months.
They have already stated that they no longer want the government to 90% guarantee 118 billion of assets in return for what amounts to a 14 to 24 billion deductible. This supposed great government guarantee wasn’t favorable to BAC.
Taxpayers will end up making a very nice profit in terms of preferred dividends and warrants on their investment in Bank of America so I don’t know why a company that cleaned up the Countrywide mess and will help out Merrill Lynch has been vilified in the press. It’s a joke.