By David Nelson
After the close Wednesday the Wall Street Journal reported Bank of America and Justice were close to a deal to settle accusations of misconduct related to mortgages prior to the financial crisis. (BAC) would pay between $16 and $17 Billion. The settlement would include $9 Billion in cash to Justice and the States with the rest going to consumers.
I have no problem with our Justice Department going after those responsible. However, once again the only ones who foot the bill here are shareholders. If a crime has been committed, “WHY ISN’T ANYONE GOING TO JAIL?”
Negotiations have been going on for some time. In another case Judge Rakoff forced the bank to pay $1.27 Billion in relation to Countrywide Financial Corp a company they bought just prior to its collapse. The decision seemed to force Bank of America’s lawyers to change their tune. That same day on July 30th there was a conversation between current CEO Brian Moynihan and Attorney General Eric Holder.
“I Know Nothing “
It’s hard to believe that management at any of the companies involved could get away using the Sergeant Schultz Defense. What about Ken Lewis former Bank of America CEO? He had no idea and bears no responsibility? This is the CEO whose two disastrous take outs are rivaled only by Time Warner’s ill-fated takeout of AOL. Bank of America argued they shouldn’t be responsible for misdeeds at Countrywide and Merrill. Ok, so let’s turn to Countrywide and Merrill Lynch. This is where most of the bad actors lived. If Ken knew nothing certainly the CEO’s of his two acquisitions did.
Merrill Lynch
Merrill Lynch CEO Stanley O’Neal was close to ground zero during the financial meltdown. The New York Times reports that the United States attorney in New Jersey, Paul J. Fishman, was prepared to accuse Merrill of duping investors into buying toxic mortgage securities.
Surely he knew something. Realizing in 2007 that the sub-prime crisis was getting worse, he approached Bank of America to sell the company. He resigned in October of that year. Bloomberg reported that his severance package of $167.5 Million was the fifth largest of all time. A short time later Alcoa named Mr. O’Neal to their board. It really is an old boys club.
Countrywide Financial
Apparently Countrywide had a brilliantly named program called the Hustle where employees were paid based on the number of mortgages they could write. In 2010 former Countrywide CEO Angelo Mozilo settled insider trading charges with the SEC paying $67.5 million. He had sold $Millions in stock often while touting his company to the media and press. The SEC let Mr. Mozilo settle without admitting any wrong doing. Countrywide paid $20 Million of the fine. At least here the SEC had funds paid to affected shareholders. Today’s reports point to more than half of the (BAC) fine going to Justice and the States.
It’s seems I get to address this topic every few weeks. It’s less than a month since I was on CNBC talking to anchor Brian Sullivan about the failure of Justice to indict anyone at BNP Paribas, only moving to fine the company and penalize shareholders. The indictment reads almost like Treason. BNP was clearing transactions for sworn enemies including Iran, Syria and the Sudan. Obviously management was well aware this was criminal activity because they went to great pains to cover it up. That’s in the indictment!
Once again it seems Justice is looking to do nothing more than collect money and is doing little to go after those responsible. It defies logic that after years of investigation they can’t find enough evidence to go after anyone. JP Morgan paid over $25 Billion, BNP over $9 Billion, Citi (C) over 7 & and now it looks like (BAC) will write a check for over $16 Billion. Seems to me like their lawyers were concerned enough to pay a king’s ransom to put this behind them. The evidence couldn’t have been that bad.
It’s Not Just About the Money
Ultimately the role of the DOJ isn’t just to give out traffic tickets. Their job is to root out criminal activity and bring those responsible to justice.
Now more than ever we need to make sure this type of behavior never happens again. Despite our concerns about “too big to fail” the past 5 years have made our largest financial institutions even larger. JP Morgan alone currently has over 3000 subsidiaries and over $2.5 Trillion in assets.
The story of Bank of America paying out $17 Billion will appear on the front pages of most major papers. Many Americans will read these stories feeling justice has been done. But has it?
If you really want to change behavior and prevent the kind of risk taking that nearly brought this country to its knees, than you have to go after the INDIVIDUALS responsible. Again I say, “We need less fines and more perp walks.”
