Bank Of America Might Not Have Cared About Merrill's Losses

More

Today, a Congressional panel presented documents indicating that Bank of America's management knew that Merrill Lynch had deep losses, but failed to inform shareholders prior to the merger's approval vote. This debate about whether management knew this has been heated. Frankly, I've always assumed that they knew. Merrill Lynch would have had to successfully engage in some serious and sophisticated fraud to prevent BOA's management from gaining such knowledge, unless BOA's due diligence team was truly inept. I just figure that BOA's management didn't much care.

First, I should back up. Clearly it does matter if BOA management knew this information and withheld it from shareholders. That's bad. And some concrete evidence appears to be materializing. Here's one such document, via Reuters reporting:

On Tuesday, for example, the committee disclosed one handwritten note from an outside lawyer, dated November 12, 2008, that said Merrill "lost $7 billion in October."

Of course, unless BOA's management is truly clueless, the mere fact that it was being coerced into the purchase -- which it claims it was -- should be indication enough that Merrill had very serious problems. After all, if it wasn't purchased by BOA, it would have gone the way of Lehman.

So I think it's virtually trivial that management must have known that there were grave problems at Merrill. But why wouldn't they have provided shareholders with full disclosure? I think that management wasn't that concerned with Merrill's losses.

I know that sounds crazy, because losses matter. But management probably thought that the immediate pain that the Merrill's losses would cause was minor compared to the ultimate benefit that Merrill could bring to BOA. This acquisition was not a short-term play: the long-term was clearly what mattered.

That doesn't excuse management for keeping this information from shareholders. But, instead, it shows they should have approached the merger vote differently. This information should have been provided, but the long-run benefit should have been more loudly touted, so to drown out the shareholders whining about the initial damage it would cause.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

Social Security: The Greatest Government Policy of All Time?

It's the most effective anti-poverty program in U.S. history. So why do some people hate it?


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In