Bank of America Corp. chief executive Ken Lewis confirmed that his bank had no choice in accepting a capital injection from the government but he said he backed Treasury Secretary Henry Paulson's landmark effort last week to unthaw frozen lending markets.
“I think he was right on,” Lewis said in an interview broadcast Sunday night on CBS's “60 Minutes.”
Charlotte-based Bank of America will receive $25 billion of the $125 billion the government is providing nine major U.S. banks. The idea is to shore up these big banks and in turn free up money that can be lent to consumers, businesses and other financial institutions.
Although the capital infusion comes with few strings attached, Lewis said his bank will use the money to make loans, noting this would boost the bank's bottom line. Bank of America has said it doesn't need the capital, but Lewis said the nine banks had to take the money as a group so as not to expose any institution that really needed the capital.
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One of the few restrictions tied to the injection is limits on executive compensation and so-called “golden parachute” severance packages. In a meeting last week of Paulson and the nine bank CEOs, Lewis said he told his counterparts they were “out of their mind” if they resisted the rescue plan because of these caps.
“This was so much more important,” he told interviewer Lesley Stahl. “All of us can take a little less money.”
Lewis, 61, added that financial services executives are “overpaid.” “We need to cut back compensation in this industry,” he said.
Lewis made $17 million in 2007, according to the Observer's calculation, which counts salary, bonus, restricted stock, exercised options and other compensation. That was down from 2006, when Lewis tallied $96 million in compensation, counting $77 million he made by exercising stock options he had accumulated over the years. He operates, however, without an employment agreement that would grant him severance if he were fired.
Paulson's intervention is a radical departure from the loose regulation that allowed the nation's subprime mortgage market meltdown to bleed into the rest of the financial services industry as well as the economy as a whole. Lewis wouldn't call it socialism, but said “it will be different.”
He reiterated an earlier statement that the “golden era” in financial services is over, but said that he expected banks to pay back the government's investment in three to five years. Then it will get back “more toward capitalism,” he said.
Sunday's interview followed a dismal third-quarter earnings report this month for Bank of America, which saw its profits fall 68 percent to $1.18 billion, driven by rising defaults in mortgages, credit cards and small businesses. Lewis said the U.S. economy is essentially in recession and that it will be “some time” before it gets better. He doesn't expect to see signs that the housing market is bottoming until the middle of next year.
While Bank of America has suffered like other banks, it has missed some of the subprime mess because Lewis got out of the business of making such high-rate loans in 2001. His investment bank, however, continued to package the loans into securities, leading to major writedowns. Lewis also noted that with the struggles of other institutions his bank is seeing a record influx of deposits as customers seek a more stable place to stash their money.
The “60 Minutes” report also followed Bank of America's Sept. 15 announcement that it was buying brokerage Merrill Lynch & Co. for $50 billion, saving the New York-based firm from the potential demise suffered by Wall Street counterpart Lehman Brothers. Lewis said he could have bought Merrill for a “dirt cheap” price if he had waited for a possible bankruptcy filing. But then the firm's brand would have been tarnished and chaos would have erupted in the financial industry, he said.
Stahl traced Bank of America's rise from a small Southern institution to the nation's biggest consumer bank, with No. 1 market share in mortgages, credit cards and deposits. Lewis' predecessor, Hugh McColl Jr., told her that his goal wasn't to take on New York. “I was more interested in America,” he said, adding: “There's nothing attractive in being small.”
Asked if he beat Wall Street, Lewis said he didn't see it that way because his bank was already part of Wall Street with its own investment banking operations. When Stahl noted that the Merrill Lynch purchase would make him No. 1 in the business, he went along with her premise: “We have won in that sense.”