On one hand, the $130 billion he spent on acquisitions – FleetBoston Financial Corp., MBNA Corp., LaSalle Bank Corp., Countrywide Financial Corp., Charles Schwab Corp.’s (Nasdaq: SCHW) U.S. Trust private banking unit and Merrill Lynch – that more than tripled the size of Bank of America, making it the largest U.S. lender both by assets and deposits.

On the other, his open-wallet policy and the example it set forth almost perfectly encapsulates the boom, bust and nascent rebound of the U.S. housing and banking crisis – which later became the financial plague that devastated markets all over the world.

In the second half of 2007, the extent of the U.S. housing crisis began to crystallize when Countrywide’s freewheeling subprime-lending policy irreversibly sank the nation’s largest home lender. Lewis moved in and acquired the troubled lender for $4 billion the following January, and in doing so, he put Bank of America on the hook for Countrywide $1.5 trillion loan portfolio.

In the second half of 2008, the extent of the how much havoc the destruction of investment banks and brokerage firms would wreak upon the world became clear. The vortex of it was Sept. 15, the day the Lehman Brothers Holdings Inc. (OTC: LEHMQ) declared bankruptcy and Bank of America agreed to pay $29 billion for world’s largest brokerage firm, Merrill Lynch, which probably would have failed had it not found a partner.

Lewis’ spending got Bank of America into this mess. The question now is whether continued  spending – using the $45 billion bailout courtesy of the U.S. Treasury’s Troubled Asset Relief Program (TARP) – will get BofA out of it.

And Lewis seems to acknowledge both in the news release announcing his voluntary departure.

“Bank of America is well positioned to meet the continuing challenges of the economy and markets,” Lewis said. “We are in position to begin to repay the federal government’s TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America.”

Lewis naturally defends his actions just as much as critics chide him for them.

“Their loan portfolio is horrible looking and it’s not going to be easy for them,” Mike Williams, research director at Gradient Analytics in Scottsdale, Arizona, said in a Bloomberg News interview before Lewis announced his departure. “They would have been better off without the Merrill and Countrywide acquisitions over the next few years.”

Money Morning Contributing Editor Martin Hutchinson, a leading banking expert, says that Bank of America has a very difficult journey ahead of it.

“Lewis followed [predecessor CEO Hugh] McColl’s strategy of expanding BofA by acquisition,” he said. “The trouble is that his last 2 deals were both lousy. Countrywide was at the epicenter of all that was bad about housing finance, and that was obvious in January 2008, when he bought it. Just a terrible deal.”

In fact, Hutchinson believes there’s only one viable option for Bank of America.

“BofA will have to be broken up, but may need to be sorted out by a liquidator/ the government,” he said.

Spinning Merrill

The Merrill merger was perhaps the defining moment in Lewis’ tenure, and he Lewis has played the victim and hero of the saga.

Lewis testified that U.S. Federal Reserve Chairman Ben S. Bernanke and former U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. pressured him not only to move ahead with a merger with Merrill Lynch despite reservations, but also to stay quiet about the mounting losses at the crumbling investment bank.

And in a note to employees announcing his departure, he took credit for the fact that Merrill has contributed 24% to the Bank of America’s first-half profit, boosted trading and investment-banking revenue, Bloomberg reported.

“I am gratified that even some of the critics of our acquisition of Merrill Lynch have come to acknowledge how well the deal is working out for our clients,” Lewis wrote. “This journey has been a rocky one and not for the faint of heart, but perseverance is paying off.”

But to the rest of the world, Lewis was most often seen sitting under the hot light of probes by Congress, the U.S. Securities and Exchange Commission (SEC) and New York’s attorney general all trying to determine if Lewis misled investors about Merrill’s losses and bonuses.

And even if shareholders agreed with Lewis’ decisions, they didn’t prefer him to be the company’s face. In April, shareholders voted 50.34% in favor of stripping Lewis of his chairman title.

Changing of the Guard

When Lewis steps down from his post Dec. 31, he joins the ranks of fellow financial firm executives – James Cayne of The Bear Stearns Cos., Charles Prince of Citigroup Inc. (NYSE: C), Stanley O’Neal of Merrill, Kennedy Thompson of Wachovia and Richard Fuld of Lehman Brothers, John Thain of  Merrill Lynch – that resigned, many in disgrace, either during or in the aftermath of the global financial crisis.

Among the survivors, Lloyd Blankfein, CEO of Goldman Sachs Group Inc. (NYSE: GS), and Jamie Dimon, CEO of JPMorgan Chase & Co. (NYSE: JPM).

Bank of America said it will find a replacement by Lewis’ last day, and media outlets have already began making lists of possible successors.

Among the names frequently mentioned:

• Brian Moynihan, head of Bank of America’s consumer and small business banking unit.
• Sallie Krawcheck, former Citigroup Inc. (NYSE: C) CFO and president of Bank of America’s global wealth and investment management unit.
• Tom Montag, former Merrill executive and head of Bank of America’s corporate and investment banking unit.

An outsider might well be the best choice, says Money Morning’s Hutchinson.

Lewis is “leaving a company that no human being could manage, with vast problems, and far too broad a franchise,” Hutchinson said. “North Carolina retail bankers haven’t a clue how to run a top international investment bank like Merrill and vice versa. There’s nobody available to succeed him that can do the job.”

Source: Boom, Bust and Rebuild: Bank of America and the Kenneth Lewis Legacy

I can’t say I blame them. After all, the company did make a foolish foray into the real estate lending business. And it did so at precisely the wrong time – the top of the market. In turn, like many banks, it got sacked as loan losses mounted.

At that point, forget a takeover. Bankruptcy appeared more imminent. And the stock quickly reflected this widely held belief, plunging by 95% from its 2007 high to trade below $1.

Unsurprisingly, many investors sprinted away from the company. But here’s what most of them don’t understand: Beneath the muck of E*Trade’s real estate operations, it possesses a valuable asset – its brokerage business…

For example, even during aterrible year for stocks in 2008, E*Trade (NASDAQ:ETFC) still managed to grow its account base by 6% and added $6.4 billion in customer assets.

It wasn’t a fluke either. E*Trade has continued to grow its brokerage business in 2009.

CEO, Donald Layton, sums it up: “Our online brokerage business is thriving… volumes are up versus last quarter, our average commission per trade is higher, and interest spreads are much improved.”

If it weren’t for the company’s real estate operations, shares would be soaring based on such comments. But therein lies the opportunity.

A Risk Worth Taking for E*Trade’s Rivals

With real estate operations weighing down its share price, suitors like TD Ameritrade (Nasdaq: AMTD) and Charles Schwab (Nasdaq: SCHW) can scoop up E*Trade’s most valuable asset at a steep discount. Both companies certainly possess the stability and financial resources to pull off a deal.

So what’s the holdup? Nothing… anymore.

I’m convinced that the only thing holding up a takeover is the uncertainty surrounding E*Trade’s real-estate loan portfolio. But that obstacle is quickly disappearing.

On Monday, E*Trade revealed that delinquencies continue to drop. In fact, over the past two months, delinquencies for its home-equity portfolio (its largest exposure) fell by another 7%, having fallen by 10% in the prior period.

Meanwhile, overall delinquencies remained flat, clearly indicating that E*Trade’s real-estate portfolio is stabilizing.

When we factor in all the capital the company raised to insulate itself from further losses, the risk to potential suitors appears manageable. And if suitors don’t act quickly, they’ll miss out on the opportunity to buy E*Trade’s brokerage assets at a discount. Shares have already tacked on 11% this week.

Here’s why I’m believe the situation is even more urgent for us…

Why You Should Buy E*Trade Today

A few weeks ago, E*Trade’s largest shareholder, Citadel Investment Group, scrapped plans to start unwinding its position. The move suggests a deal is in the works. Why else would the firm have such a sudden change of heart?

The rumor mill continues to heat up about the possibility of deal. And a strong uptick in call options trading adds credibility to the rumors. In fact, a Yale University study confirms that heavy spikes in options trading precede takeover announcements.

Most compelling of all, TD Ameritrade CEO, Fredric J. Tomczyk, said on Monday that he expects more consolidation to come in the industry.

Since his company is one of the most obvious buyers, he could be foreshadowing a deal. And at such an attractive price, E*Trade represents a risk worth taking for him… and us.

Bottom line: With the real estate risks subsiding, a takeover offer could come any day now for E*Trade. And if you don’t buy shares today, you might not get another chance.

Good investing,

Louis Basenese

Source: E*Trade (Nasdaq: ETFC): Why You Should Buy This Stock Before It’s Too Late