Bank Of America

banks are supposed to lend money and when they stop as they have in recent months the workings of our entire economy are threatened credit became so Frozen the government had to step in this past week and take an ownership stake in the country's biggest banks on Monday treasury secretary Henry Paulson summoned the CEOs of the nine largest banks to Washington and gave them a massive amount of money so that they would start lending again the largest of the banks is Bank of America now partly owned by the United States of America the head of Bank of America is Ken Lewis he says when he and the others met at the treasury Department it became clear that secretary Paulson's offer was an ultimatum what happened no negotiation was allowed no negotiations no so in other words take it or take it right right one of those it's said that he told the bankers and you this is your patriotic Duty I don't remember if he used the word but but there was an element to that that this was the right thing for the for the American Financial system and therefore it was the right thing for America did you feel that was that a persuasive line of of AR absolutely I I I deeply believe that I think he was right on now explain why it was so important to the government that everybody agree that the the nine largest banks are all in this if you have a bank in that group that really really needed the capital you don't want to expose that bank in other words stigmatize it so everybody knows that they're not as good as somebody else most of you were just stunned by the amount of money that the government put on the table yeah at least I I was and and I think most everybody else was the total was $125 billion of taxpayers money Bank of America Lewis says didn't need the money but got 25 billion anyway do you have any choice in this in other words can you take the money and not lend we wouldn't want to to do it that way because you can make more money lending and so it the intent will be to use it to uh to grow loans and and to make more net income but under the treasury plan there is no requirement that a bank use the money to lend it could use it to acquire weaker competitors or put it in treasury bills one of the few strings Paulson attached relates to salaries a bank would have to pay more taxes if it paid an executive over $500,000 a year one of the bankers in the meeting objected and started arguing with Paulson and that's when Ken Lewis a Critic of excessive executive compensation spoke up I did make the point that we needed to stop talking about executive comp and get on with this because that should not stop the deal actually you're quoted as saying if if this is what's going to stop this you're out of your mind I did use I did use the phrase out of your mind because why because you thought if it got out publicly that know that the importance of this deal getting done versus this these elements of executive comp um were just out of sync I mean this was so much more important and all of us can can take a little less money with his salary and lucrative stock and options Lewis took home $25 million last year but he's one of the few in the business who can be fired without a golden parachute and he thinks Executives on Wall Street have made too much money I think they were overpaid it's more agous in financial services than any other industry that I know of uh we need to cut back uh compensation in this industry so this is a question everybody wants answered is this socialism have we now sort of stepped taken a huge step away from the kind of free willing capitalism that we've known for the last 30 or so years I don't know what we'll call it but it will be different and there will be more regulation uh the era of the golden era of financial services is over in my opinion but why isn't it socialism if if the government starts owning our banks and that will not last forever we will we will pay off the preferred stock at some point and come back to uh not being owned partially by the government can you give us what your sense of how long it's going to take yeah I think somewhere between three and 5 years we'll pay it off I mean then and then you go back to uh more toward capitalism it's said that one of the main reasons the bank is doing well is because of your decision not to get into subprime mortgages in uh in 2001 my first year as CEO um we decided that we just didn't like the business it was it was too risky and so we decided to get out of it he makes it sound like a routine decision but getting out of most of the financial products that brought Wall Street crashing down was significant and now Lewis runs one of the country's healthiest Banks which just keeps growing we saw the strongest growth in deposits in the third quarter that we've ever seen in our history he told us that during this crisis people are taking their money out of other Banks and putting it in his we we Bank every other American family you know in America you what we Bank every other American family in the United States no yeah half of the American families does business with us in some form of fashion you credit cards auto loans deposits half the country the way B OFA accomplished this was by buying the number one company in virtually every category of banking for instance it bought Countrywide and mortgages and MBNA in credit cards now it's a nearly $3 trillion conglomerate the Walmart of banking this is the iconic image of Wall Street 600 Wheeler Dealers buying and selling but this is bfa's trading floor and it's 600 M south of New York the biggest bank in America is headquartered in Charlotte some people don't even know what state Charlotte's in whether it's Norther or South Carolina am I insulting you no in fact I always say Charlotte North Carolina just so so I don't have to ask the question you have this building this building that building that building then there's one next to us that building not surprisingly BFA seems to own Charlotte and the town grew with the bank H Mcall was the bank CEO before Lewis now it started out as a as a relatively small Regional Bank well we didn't like being small I mean there's nothing really attractive about being small he set out to expand the bank's reach from coast to coast and make Charlotte a financial Powerhouse I think we have this sort of Southern under dog of wanting to be masters of our own fate and not be dependent on Northern Capital when you were growing and you'd go to New York did they not treat you well is is that did they treat you like sort of the country bumpkins and I guess when I was a young man I always felt a little uncomfortable in New York this uncomfortable feeling that they they weren't respecting you did you have it in your head I'm going to conquer New York well that would overstate New York I was more interested in America did you really think that you could overtake Wall Street well have you ever played tennis this once you size up the competition and decide whether you can beat them or not hey and you thought you could I thought I could and they did the crowning Victory came last month when wall Street's most famous investment houses were collapsing under the weight of their toxic portfolios and needed rescuing they went hat in hand to Charlotte North Carolina and everybody thought you were going to buy Layman Brothers Friday night that was the buzz Monday morning it's not Layman Brothers It's Mara Lynch what happened between Friday night and Monday morning I had uh talked to um secretary pulson that uh that Friday and basically said we didn't think we could do the deal without government assistance with Layman with Leman that we we couldn't do it without some help and then about uh 10:30 John F called it was Saturday morning September 13th John F the CEO of maril Lynch was on the line Layman was on its deathbed Mara Lynch was said to be next you always wanted Mara Lynch we've always thought that was the best you droing for Maryland we have always thought it was yeah deals of this magnitude take months of due diligence and vetting this deal was thrown together over a weekend with Bank of America spending $50 billion to buy one of wall Street's emblematic companies but now BFA is exposed to maril Lynch's poisonous Investments and continuing losses the question is did Ken Lewis pay too much some think that we should have waited uh till Monday and and see if they would have gone bankrupt you're saying that if you'd waited they would they might have gone bankrupt some some think we would have gotten it for you know dirt cheap but my point is you would have had a tarnished brand you would have had chaos you would have had a c ruling over all of the the sale of assets and that that it was worth it to us to pay u a more market price so that we could not have that happen so what about Merrill's 177,000 Brokers Lewis has said their salaries are too high is New York going to lose a lot of jobs do you think I don't think a lot I mean obviously we have to we we've got 7 billion of cost savings to get and so that that means that there will be jobs eliminated 7 billion billion in call oh my God so the government's rescue isn't helping everyone on Wall Street what about Main Street has the lending started did this jump start lending again it should it's only been a few days obviously uh and and it will make a big difference it will we're sitting down with you Wednesday uh the market is at this moment going down again the Market's going down and what's worrying me is is the fact that we had we've gotten the financial system in much much better shape but the economy is still a question mark and and we we are in a recession by any standard other than maybe some technical standard it feels like a recession and we think it's going to take some time before you know it gets better Bank of America is the largest morgage lender in the country so when do you think the housing problems are going to bottom out our best guess now is that the U toward the end of the first half of next year we'll start to see signs either signs of bottoming or actual bottoming what what about credit card debt is that going to be the next shoe to drop it uh in some ways already is because uh credit card losses have have risen pretty substantially credit card debt and autol Loan defaults are part of why the bank's thirdd quarter earnings dropped nearly 70% Lewis called the situation a damn disaster do you think your job is secure uh I I've not it must I must think that because I don't I don't think about that question it doesn't enter your mind I threw you a Zinger didn't I did you did did you defeat Wall Street no to some degree we're we're part of it uh so I don't I don't know that we defeated it but well if you're number one right and if the idea was to compete with New York or Wall Street um you won we we have yes we we have won in that sense

Channel: CBS

Views: 194,771

Keywords: 60, Minutes, Stahl, Finance, Recession, Economy, Bank, Charlotte, New, York, Wall, Street, Credit, Loan, Mortgage, Foreclosure, Paulson

Id: 5CmDtxRqtIo

Length: 12min 3sec (723 seconds)

Published: Mon Oct 20 2008