Last week, many were shocked to hear that Ken Lewis, the embattled CEO of Bank of America, was resigning. Amidst lawsuits and virtually every man, woman and child in the U.S. questioning his judgment, he was surely looking forward to a pleasant retirement. As he wrote his goodbye letter he must have been thinking: you won't have Ken Lewis to kick around anymore. But one of the big labor lobbies, the Service Employees International Union (SEIU) doesn't want Lewis's retirement to be as pleasant as he might have imagined. They want Obama's compensation czar, Kenneth Feinberg, to seize his pension.
The Service Employees International Union sent a letter to pay czar Kenneth Feinberg, calling Lewis "one of the chief architects" of the economic crisis and saying he should not receive any retirement or severance package until the bank stops foreclosures and increases lending.
"Taxpayers have already provided nearly $200 billion in bailouts and backstops to Bank of America," the letter said. "This enormous public investment entitles taxpayers to have a say in the bank's executive compensation practices."
Bank of America announced last week that Lewis will leave the company by year-end. Lewis stands to receive a retirement package worth $125 million.
Okay, first, let me defend Lewis for just a second (and only a second). I think it's a stretch to call him one of the "chief architects" of the economic crisis. Bank of America was never much more than a glorified retail bank. During the course of the crisis, it made two huge acquisitions: Countrywide and Merrill Lynch. Both were pretty terrible for shareholders in the short-term. But the failure of those two firms would have been ugly for the broader economy. If anything, Lewis' actions helped soften the blow of the economic crisis.
The SEIU's contention that he can get the pension after the bank stops foreclosures and increases lending is also rather laughable. That means he'd never get it. Most of those foreclosures are utterly inevitable because the houses are too underwater to save, given their borrowers' financial situations. And Bank of America is still desperately trying to build back up its capital base and to pay back Uncle Sam, so its lending must remain subdued.
Now I don't know much about the structure of Ken Lewis' pension. His fund was likely built up over the many years he spent at Bank of America. Certainly, there is little controversy in the assertion that any money put in there since the beginning of 2007 should be clawed back. Before that, it's not as clear, but here's a suggestion:
As of January 3, 2007, his firm's stock price was $53.33. As of Sept. 29, 2009, the day prior to his resignation announcement, the stock price was $17.16. I know, ouch. That's a decline of, wait for it, 68%! So how about this: what if that loss in shareholder value was also the loss to his pension? That sounds fair to me. And it would still leave Lewis with around $40 million -- plenty to live on.
But that's just a fun idea. In reality, the pay czar shouldn't be able to claw back much of his pension, since the vast majority if it was accrued well before Bank of America took any government assistance. Indeed, a lot of it was accrued even before Bank of America wrote any mortgages that are being modified by the Obama administration. But I'll be curious to see if/how Feinberg responds. $125 million is an awful lot of money for Bank of America to promise Lewis under the circumstances, even if it is in the form of a pension.