Posts Tagged ‘Merrill Lynch’

Communication Ethics Violated in Taming of Merrill Lynch


Bank of America CEO Ken Lewis retired from his position at the end of the 2009 year, a full year earlier than expected. Lewis, who was responsible for the acquisition of Merrill Lynch at the height of financial crisis, last year, has been accused of withholding shareholder information regarding the now controversial purchase. Three months following  his departure, financial world is still left with pending questions, including the impact Bank of America acquisition of Merrill Lynch had on Mr. Lewis’ decision to resign, the ethical controversy regarding the acquisition itself and the fate of Bank of America post Mr. Lewis’ exodus. Lewis has been a target of critics for months, and the decision surrounding the end of his four-decade career raises questions about  legal and ethical violation that might have taken place.

During Lewis’ tenure as CEO, Bank of America more than doubled its deposits and expanded its credit card and mortgage operations. Lewis was named Banker of the Year in 2001 and 2008. In addition, he was listed among the 100 most influential people in the world by Time Magazine.

On September 15, 2008, Bank of America announced its intention to purchase Merrill Lynch in an all-stock deal worth approximately $50 billion. At the time, Lewis was believed to be a savior of Wall Street and the acquisition made Bank of America the largest financial services company in the world.  The bank, in its January earnings statement, revealed massive losses at Merrill Lynch in the fourth quarter, which necessitated an emergency government bailout in amount of $20 billion to keep the bank solvent. The bank also disclosed that it tried to terminate the deal in December after the extent of Merrill’s trading losses surfaced, but was forced to complete the merger by the U.S. government. According to sources, Mr. Paulson and Mr. Bernanke (Federal Reserve Chairman) persuaded Lewis to stick by the deal terrified that pulling out of it might set off renewed panic in financial markets. Lewis later testified before Congress that federal officials pressured him to proceed with the deal or face losing his job and endangering the bank’s relationship with federal regulators.

The revelation of the $20 billion rescue package in January angered some long-term BofA investors, who filed suit against Mr. Lewis and mounted a successful campaign to strip him of his title as chairman. Angry shareholders held him accountable for what they view as a series of missteps that forced the bank to accept two government bailouts.

Under communication ethics, four general categories are at play when evaluating existence of an ethical issue: Truthfulness, ethics of running a business, ethics of representation and helping clients behave ethically.   In the case of Lewis and BoA, one can argue that he violated the category of truthfulness, by failing to disclose losses and executive bonuses at Merrill Lynch to the bank’s shareholders BEFORE they voted to approve the deal. His action also takes a form of deception, since the omission to submit previously-mentioned material information to the shareholders disabled them from being able to completely evaluate the situation and act accordingly.

We’ll never know what would have happened if Bank of America had canceled the Merrill deal. Merrill Lynch would probably have been in a horrible position, akin to Lehman Brothers fate and the government would have likely had to spend an awful lot more than $20 billion to save it. Given that the system didn’t melt down last December, it seems reasonable to assume that the decision by Mr. Paulson and Mr. Bernanke to convince Mr. Lewis to proceed with the merger was the right one.

Analyzing Ken Lewis and his actions inside Bank of America, it is very difficult to say with certainty whether he was looking to deceive his shareholders, or if his actions were a result of pressure exerted from the U.S. government. Furthermore, when assessing communication ethics in the case, it is almost impossible to know whether he lacked the ethical instinct when making his decisions, or he truly had a long-term vision for the success of the Bank.