Archive for the “Bank of America” Category

New York Attorney General Andrew Cuomo and U.S. Rep. Barney Frank are demanding Bank of America CEO Ken Lewis immediately reveal details regarding individual bonuses that Merrill Lynch paid to employees in December. Bank of America, which acquired Merrill Lynch on Jan. 1, has repeatedly tried to keep executive pay data confidential.

Bank of America may be fighting a losing battle. In a March 9 letter to Lewis, Cuomo and Congressman Frank said any information pertaining to bonuses must be made public because Bank of America received $45 billion as part of the government’s banking rescue program. As a recipient of those funds, Bank of America is obligated to keep taxpayers informed about how their money has been spent.

An investigation into the timing of nearly $4 billion in bonuses paid by Merrill Lynch to certain employees was first launched by in December 2008 by the New York Attorney General’s office. Bank of America distributed about $3.3 billion in bonuses. Among other things, Cuomo wants to know whether Merrill and BofA failed to give adequate disclosures to shareholders about the bonuses, as well as the $15 billion loss incurred by Merrill Lynch in the fourth quarter.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

“I’m sorry.” That’s what recently fired former Merrill Lynch CEO John Thain had to say about his spending $1.2 million on an office decorating project while his company was drowning in debt and slashing thousands of jobs.

In a Jan. 27 interview on CNBC, Thain said he “regretted” using corporate funds on such items as a $37,000 commode and two area rugs totaling $131,000 and, if he had it to do over again, he would pay for the expenses out of his own pocket.

Unfortunately for Thain, there won’t be any do-overs in his future. On Jan. 27, New York Attorney General Andrew Cuomo issued subpoenas to both Thain and Bank of America’s chief administrative officer, J. Steele Alphin, as part of an investigation into the $4.1 million worth of bonus checks that Merrill Lynch paid executives just days before its sale to Bank of America.

The attorney general’s investigation into the Merrill bonuses reportedly will focus on the timing of the payouts. The payouts were made as Merrill Lynch prepared to announce a $15 billion fourth-quarter loss and Bank of America was seeking a second financial bailout from the federal government.  

When asked about Merrill Lynch’s huge losses during the CNBC interview, Thain blamed his former predecessor, Stanley O’Neal.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

The year of 2008 may go down in history as a year of scandals gone wild. From Bernie Madoff’s $50 billion Ponzi scheme to the collapse of the auction-rate securities market, individual and institutional investors alike have found themselves entangled in a financial nightmare that seems to go from bad to worse.

For investors who’ve been stuck holding illiquid auction-rate securities since February 2008, the likelihood that regulators will find a solution to their dilemma anytime soon is remote. Even though some of Wall Street’s biggest firms have bought back more than $60 billion of their clients’ securities, another $135 billion of the bonds still remain frozen.

As reported Dec. 31 by the Boston.com, the illiquidity status of auction-rate securities is hitting small businesses especially hard. Vicor Corp., which makes power systems for electronics, is one of those businesses. The company invested nearly $40 million in auction-rate securities before the market’s collapse in February. At the time, the company’s management thought the bonds were safe and liquid investments. Now, the earliest that Vicor can expect to see some of its auction-rate money is 2010.

UBS is one of the firms that sold Vicor the auction bonds, and it has pledged to buy back about $18 million worth of the securities beginning in June 2010. However, Vicor also bought another $20 million of auction securities from Bank of America, which has yet to offer any kind of buy-back program to Vicor and other large institutional and corporate holders of auction-rate securities.

Another company with a huge chunk of its money tied up in illiquid auction-rate securities is Tufts Health Plan. The Massachusetts-based health care provider has nearly half of its total cash holdings - approximately $30 million - in auction-rate securities at Citigroup. So far, Citigroup hasn’t announced any plans to help Tufts get its money back.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

At the very moment Merrill Lynch’s CEO John Thain was pleading for an emergency bailout from the U.S. federal government to the tune of billions of dollars in taxpayer money, the brokerage giant already had begun to dole out $4 million in bonus checks to executives. A few days later, with the help of government funds, Merrill Lynch was acquired by Bank of America (BofA).

On Jan. 22, Thain abruptly resigned from his post at BofA. Now, both Thain and Bank of America, which has received $45 billion in bailout funds, face harsh criticism for what many are calling an outlandish misuse of taxpayer money.

Adding to Thain’s PR troubles is news of a lavish spending spree totaling $1.2 million to decorate his corporate office during a time when Merrill Lynch was drowning in financial losses and slashing jobs. Among his purchases:

• $800,0000 for the services of interior designer Michael Smith
• $35,115 for a commode
• $1,400 for a trash can
• $37,000 for six dining room chairs
• $131,000 on two area rugs
• $68,000 on a credenza

In addition to Thain’s over-the-top decorating, he reportedly paid his driver a salary, including bonuses and overtime, of $230,000 for one year’s worth of work. Drivers for executives of Thain’s stature are usually paid about half that amount.

Thain also at one time had tried to secure a big bonus for himself before the sale of Merrill Lynch to Bank of America. In October, the 53-year-old suggested a sum of between $30 million and $40 million. Later, it was reduced to $10 million. In the end, he received no bonus at all.

Thain’s departure from Bank of America comes less than a month after being named head of the firm’s global banking, securities and wealth management division. Apparently, BofA CEO Ken Lewis flew to New York on the morning of Jan. 22 to meet with Thain and call for his resignation.

Lewis’ disappointment with Thain no doubt has something to do with Merrill’s unexpected $15.4 billion fourth-quarter loss, which forced BofA to seek an additional $20 billion of funding from the government last week.

As for Thain’s ill-timed gamble of paying $4 million in bonuses to Merrill Lynch executives, that matter is now under investigation by New York State Attorney General Andrew Cuomo. 

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

The year of 2008 will likely be remembered as the year subprime mortgages and corporate scandals changed the face of Wall Street. Buried under the weight of the subprime crisis, financial institutions took nearly $800 billion in writedowns and losses. The value of stocks worldwide plummeted by more than $30 trillion. Goliath investment houses like Bear Stearns fell apart. State, municipal and corporate pension funds reported massive losses from investments tied to faulty valuation models and high-risk mortgage-backed securities and their derivative spin-offs, collateralized debt obligations (CDOs).

Then there’s the near financial collapse of mortgage giants Fannie Mae and Freddie Mac and American Insurance Group (AIG), which required a financial intervention courtesy of the U.S. government. Lehman Brothers, the fourth-largest investment bank in the United States, filed for bankruptcy protection in 2008. Washington Mutual and IndyMac, along with some 20 other banks were forced to close their doors. Government bailouts reached an astronomical $9 trillion. And as a final nod to 2008, investors lost some $50 billion in a Ponzi scheme orchestrated by the former Nasdaq chairman, Bernard (Bernie) Madoff.

For investors, 2008 is the year that went from bad to worse. It began with the collapse of the auction-rate securities market in February and continued with credit default swaps and structured investment products. For the first time since the 1930s, the Dow Jones Industrial Average experienced losses of more than 30%, closing the year at 8,776.39. By comparison, the Dow finished out 2007 at 13,264.82. Bank stocks in particular took a beating in 2008, with Bank of America and Citigroup losing nearly 70% of their value. As for shareholders, they saw about $7 trillion of their wealth wiped out.

In the world of ultra-short bond funds, 2008 provided the lesson that ultra short does not translate to “ultra safe.” A number of supposedly safe and conservative ultra-short funds got into trouble in 2008 by investing in risky mortgage-backed securities and collateralized mortgage obligations (CMOs). When losses in those toxic assets began to skyrocket, investors lined up to pull their money out in droves, sparking a wave of fund redemptions.

As a result, several fund managers were forced to liquidate their funds’ assets. State Street Global Advisors’ SSgA Yield Plus Fund began liquidating in May after the fund fell 19%. It turns out more than 50% of the fund’s assets were tied to mortgage-related securities funds. One month later, the Evergreen Ultra-Short Opportunities Fund liquidated, as well, when its assets plunged more than 20% in value. Finally, there is Charles Schwab’s YieldPlus Fund. Marketed to investors as a safe alternative to cash, the fund suffered the most losses of any ultra-short bond fund in 2008, losing more than 40% of its value.

Investors, meanwhile, are suing all three funds, charging that they investments were represented as conservative “cash alternatives” and similar to money-market funds. Far from safe or conservative, the funds were heavily concentrated in risky mortgage and asset-backed securities. And, in the case of Schwab’s YieldPlus Fund, several investors who have filed lawsuits claim various Schwab executives and fund manager Kimon Daifotis committed “acts of gross misconduct” by encouraging investors to hold on to their YieldPlus shares, while simultaneously dumping millions of YieldPlus shares from the portfolios of Schwab’s other mutual funds.

Capping out 2008, of course, is the Bernie Madoff scandal. The disgraced hedge fund manager was arrested Dec. 11 by federal agents on charges of securities fraud for scamming $50 billion from investors. Meanwhile, the Securities and Exchange Commission (SEC), the supposed protector of investors and their investments, apparently turned a blind eye to Madoff’s subterfuge over the years by ignoring red flags that signaled problems with his funds and their “too-good-to-be-true” returns.

For investors, the Madoff affair may well be the final nail in the coffin when it comes to confidence in Wall Street. Already shaken from a year that was punctuated by the subprime crisis and corporate scandals - including the implosion of Bear Stearns, the collapse of the auction rate securities market, the bankruptcy of Lehman Brothers and inept accounting practices by Fannie Mae and Freddie Mac and other institutions - Wall Street has its work cut out in 2009 as it tries to renew investors’ faith once again.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Recent lawsuits filed by two Louisiana pension funds against Citigroup and JPMorgan Chase highlight the growing concerns facing more corporate, state and municipal pension funds in the wake of the subprime fallout and ongoing credit crunch. In the case of Louisiana, the Louisiana Sheriffs’ Pension and Relief Fund and the Louisiana Municipal Employees’ Retirement System allege that Citigroup and JPMorgan misled investors in more than $29 billion of Citigroup’s securities offerings dating back to May 2006.

The proposed class-action lawsuits also name former Citigroup chairman Charles Prince and more than a dozen underwriters of the securities offerings, including units of Bank of America Corp., Goldman Sachs Group Inc., UBS AG, Barclays PLC, Deutsche Bank AG and Fortis.

The complaint, which was filed Oct. 1 in New York State Supreme Court in Manhattan, contends that Citigroup “harmed investors by causing a significant decline in the value of the securities purchased in or traceable to a series of securities offerings.” 

The suit also claims that Citigroup failed to disclose its “massive exposure to losses from its mortgage-related assets” and failed to write down the assets to properly reflect their true value.

The success of public pension funds depends on the entities that serve as the steward of the fund’s assets.  In a number of instances that are just now coming to light, that work has been severely flawed. Meanwhile, pension fund managers continue to reassure retirees and current employees that their funds are safe and the assets sufficient to pay benefits for several years.

In truth, it depends on the quality and quantity of the securities contained in the fund’s portfolio, as well as the valuation model used to determine the value of the assets. The bottom line: Many portfolios of large pension funds include a high concentration of hard-to-value and difficult-to-sell assets, including mortgage-related securities and other collateralized pools of debt. These investments do not readily trade on the secondary market. Therefore, the value assigned to them simply does not reflect their actual value.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

The financial markets got another dose of bad news this morning when Citigroup - the nation’s second-largest bank by assets - reported a third-quarter net loss of nearly $3 billion as the New York-based bank continues to struggle from exposure to derivatives and bad bets on mortgage-related securities.

It is Citigroup’s fourth consecutive quarterly loss.

The banking giant’s latest earnings results pale in comparison to its financial standing for the same period one year ago when it earned $2.2 billion.

In addition to its poor third-quarter performance, Citigroup has eliminated 11,000 jobs between the current quarter and the previous one, bringing the total number of layoffs to 23,000 so far this year. On the company’s earnings call Oct. 16, Gary Crittenden, Citigroup’s chief financial officer, referred to the latest round of layoffs as “right-sizing.”

Citigroup’s dismal earnings follow another recent setback for the bank when it failed to beat out Wells Fargo for ownership of Wachovia Corp. With financial assistance from the Federal Deposit Insurance Corp. (FDIC), Citigroup initially wanted to put up $2 billion, or $1 a share, for Wachovia’s banking operations, with the FDIC taking on some $270 billion of Wachovia’s most troubled assets. The deal was thwarted, however, when Wells Fargo upped the ante and agreed to buy all of Wachovia’s operations for $15 billion, or $7 a share, and without help from the FDIC. The deal was confirmed by the Federal Reserve on Oct. 14.

As is the case for the majority of financial institutions, 2008 has been a rocky year for Citigroup:

• Citigroup’s losses over the past 12 months have surpassed $20 billion.

• The company has written down the value of investments tied to bad mortgages and other toxic debt by more than $50 billion;

• In May, Citigroup’s CEO announced that the company must rid itself of at least $500 billion in assets in order to get out of businesses tied to risky mortgages and other low-quality debt;

• In August, Citigroup - which is the largest underwriter of auction-rate securities - agreed to buy back roughly $7.5 billion worth of the securities it sold to some 40,000 retail investors. The bank also paid a $50 million civil penalty to the State of New York and a $50 million penalty to the North American Securities Administrators Association; and

• Legal issues continue to heat up from angry investors in Citigroup’s ASTA and MAT Funds. Both the ASTA Fund and MAT Fund were highly leveraged municipal bond funds that borrowed approximately $8 for every $1 raised. Ultimately, the funds suffered massive losses, with both funds losing approximately 90% of their original value. Investors, meanwhile, were repeatedly told by Citigroup that the funds would rebound. Among other things, investors claim Citigroup did not disclose accurate and true information about the funds and their potential risks and failed to institute appropriate risk management practices to prevent the funds’ management from investing in risky and highly speculative investments.

Moving forward, it appears Citigroup has a long road to haul before its financial issues turn the corner. The newly announced plan by the federal government to inject capital into U.S. banks may help. Citigroup - as well as JPMorgan Chase, Bank of America Corp. and Wells Fargo - is set to receive $25 billion.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

There will be no more curtain calls for Wall Street. On Sunday night, the era of investment banking came to a stunning and dramatic conclusion as investment icons Goldman Sachs and Morgan Stanley - Wall Street’s two remaining independent investment firms - agreed to become bank holding companies regulated by the Federal Reserve.

Abandoning their investment banking status means Goldman and Morgan Stanley will no longer rely on leveraged money and instead have access to more stable funding avenues in the future, including bank deposits from retail customers and the Federal Reserve’s Discount Lending Window. It also means they will face much stricter oversight and regulation by the federal government.

Prior to announcing the changeover, Goldman Sachs and Morgan Stanley had been submerged with massive losses on subprime mortgages and other risky real estate holdings. Shares in the two companies have lost nearly half of their value this year.

Last week’s chaos in the financial markets only added to Goldman and Morgan Stanley’s troubles. After 158 years, Lehman Brothers Holdings was forced to file for bankruptcy; Merrill Lynch, fearing a similar fate for its future, was purchased by Bank of America; and the federal government announced an $88 billion bailout of insurance giant American International Group (AIG).

Then, in a meeting that began at 9 p.m. on a Sunday night, the Federal Reserve and the U.S. Treasury laid out the most sweeping - and expensive - rescue plan for the country’s financial system since the Great Depression. The centerpiece of the plan focuses on cleaning up the balance sheets of financial institutions with the U.S. Treasury taking on hundreds of billions of dollars in toxic mortgages. The price tag to taxpayers could be as high as $1 trillion.

U.S. Treasury Secretary Henry Paulson is urging Congress to pass the bailout plan this week.

Meanwhile, the immediate future of Goldman Sachs and Morgan Stanley is a bit brighter today, as the move to shed their investment bank status lets them steer clear of the road to disaster that overtook many of their counterparts recently - including Bear Stearns, Lehman Brothers and Merrill Lynch. Goldman and Morgan Stanley appear to be safe - for now, anyway.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Sometimes arranged marriages work out for the best; sometimes they don’t. In the case of Bank of America’s purchase of 94-year-old investment firm Merrill Lynch, a weekend of high-speed discussions and unprecedented market conditions culminated in their $50 billion union. The arrangement surprised Wall Street and investors alike, and has many people asking whether the pairing of these two very distinctly different financial operations will yield long-term success for BofA in the future.

The challenges facing Bank of America are significant to say the least. Before the acquisition this past weekend, Merrill Lynch was swimming in troubled financial waters. The company has taken some $40 billion in write-downs - with another $8.8 billion potentially to come - from failed investments, and reported losses for four consecutive quarters. Its stock has fallen nearly 70 percent this year. And in August, Merrill’s CEO John Thain announced a liquidation of $30.6 billion of toxic collateralized debt obligations (CDOs) at fire-sale prices in an attempt to shore up the company’s strained balance sheet.

With its purchase by Bank of America a seemingly done deal, the threat that Merrill Lynch might meet a similar fate of Lehman Brothers, which declared bankruptcy on Sept. 15, is removed entirely. The deal also positions BofA, a retail-focused bank, to enter the world of global investment banking, making it the nation’s largest financial services company with more than 20,000 financial advisers and $2.5 trillion in client assets.

Still, many perceive the strategy to be a big gamble on the part of Bank of America. On Monday, the day that the acquisition was announced, shares of Bank of America fell more than 20%.

“The market reaction is very clear: The market is absolutely appalled by the deal,” said James Ellman, head of San Francisco hedge fund Seacliff Capital, in a Sept. 15 story in the Houston Chronicle. According to the story, Ellman, who does not own shares of either Bank of America or Merrill Lynch, says the market believes BofA paid too much for Merrill Lynch, a move that ultimately could lead to a number of scenarios, including an attempt to renegotiate the sale price.

The apparent skepticism on the wisdom of the BofA-Merill Lynch union also was seen in recent actions taken by Standard & Poor’s Ratings Services. The ratings agency lowered its long-term credit rating on Bank of America, saying the purchase of Merrill Lynch carries integration risk for the bank, and puts further pressure on BofA’s capital.

Meanwhile, two of the top men in charge at Merrill Lynch stand to make a tidy profit from the firm’s sale to Bank of America. A Sept. 16 story on Bloomberg.com reports that CEO John Thain could pocket $11 million if he does not stay on once the purchase is finalized. Thomas Montag, who’s in charge of Merrill’s global sales and trading division, may be looking at a payout of $30 million in accelerated stock awards and $6.4 million in options.

Both of the payouts are in addition to a $15 million signing bonus Thain received last December and a nearly $40 million bonus Montag is guaranteed to receive this coming January.

Moving forward, a lot is riding on Bank of America’s CEO Kenneth Lewis and his high-stake gamble to acquire the world’s largest and most widely recognized brokerage firm. Only time will tell whether his decision leads to a match made in financial heaven or becomes a union doomed to fail because of incompatibility.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in valuating their legal options when confronted with subprime and other mortgage-related investment losses.

As it became more apparent that the 158-year-old investment firm of Lehman Brothers would succumb to bankruptcy, Merrill Lynch’s CEO John Thain saw the writing on the wall. Already pummeled by toxic mortgages, falling stock prices and nearly $20 billion in losses over the past four quarters, Merrill Lynch was likely next in line to fail.

To prevent a fate similar to Lehman, within 42 hours Thain and others orchestrated a plan to sell the 94-year-old brokerage firm - the world’s largest - to Bank of America in all-stock deal worth $50 billion. The transaction is the seventh-largest bank acquisition to be announced, according to Thomson Reuters.

The deal itself is expected to close in early 2009. Under the terms of the transaction, three directors of Merrill Lynch will join Bank of America’s Board of Directors. Bank of America will retain the Merrill Lynch name for the retail brokerage.

For Bank of America, already the largest retail bank and credit card issuer in the country, the acquisition of Merrill Lynch is viewed as strategic business move. The combined company will now have leadership positions in retail brokerage and wealth management. By adding on Merrill Lynch’s 16,000 financial advisers, Bank of America becomes the largest brokerage in the world, with more than 20,000 advisers and $2.5 trillion in client assets.

The acquisition of Merrill Lynch is not the first major purchase for BofA this year. In January, the company agreed to buy troubled mortgage lender Countrywide Financial Corp. for $2.5 billion. As in the purchase of Merrill Lynch, it was an all-stock transaction.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.