Ken Lewis moves to Florida
Kenneth Lewis survived the September 2008 bloodbath and even came out looking like a hero to some when he arranged Bank of America’s hasty purchase of Merrill Lynch — O’Neal’s former employer — for $50 billion on the same weekend that Lehman failed, possibly saving it from the same fate as Lehman.
It soon became clear that Merrill was no bargain. That, combined with Lewis’ ill-advised purchase of subprime giant Countrywide Financial just as the housing market went into free fall, led Bank of America to start hemorrhaging cash.
It eventually got $45 billion in bailout money from the federal government to stanch the bleeding.
Lewis knew of Merrill’s excess losses before shareholders approved the final deal, according to his 2009 testimony to then-New York Attorney General Andrew Cuomo. He said he kept the losses hidden under pressure from Treasury Secretary Henry Paulson who worried that, if the deal fell through, it would hurt the already wounded market and overall economy.
Bank of America last month was accused by the Justice Department in a civil lawsuit of understating the risks that the loans included in $850 million of mortgage-backed securities would default. The Justice Department said the company was so hungry for loans to securitize that it let its quality controls slide and didn’t adequately verify borrowers’ incomes or ability to repay. The suit did not name Lewis as a defendant.
The company already settled a civil fraud suit with the SEC for $150 million and another lawsuit brought by pension fund investors for $62.5 million.
Lewis retired in September 2009 with a going-away package worth $83 million, even though the company was largely dependent on the federal government for its survival. He had already banked at least $86.4 million from Bank of America stock sales between 2000 and 2008, according to SEC filings. He also brought in $52.4 million in salary and bonuses in that time.
He and his wife Donna sold their house in Charlotte, N.C., in January for $3.15 million and their mountainside mansion in Aspen for $13.5 million, $3.35 million less than what they paid for it in 2006.
They appear now to have only one home, a $4.1 million condo in a beachfront high-rise in Naples, Fla.
While Lewis and several of the CEOs that led their companies into the thicket of mortgage-backed securities have ended up rich but unemployed, two have seen their fortunes soar.
Jamie Dimon and Lloyd Blankfein, the leaders of JPMorgan Chase & Co. and Goldman Sachs Group Inc., today stand atop the global financial system, their banks bigger and more powerful than ever and their personal fortunes growing.
Blankfein was a magnet for scorn and envy before the crisis when Goldman awarded him a $68 million bonus in 2007, just as the economy was going bad. He then became the target for much of the public wrath that followed the collapse of the economy when he flippantly declared that Goldman was doing “God’s work” by lending money to businesses.
His reputation plummeted to its lowest point in 2010 after revelations that Goldman Sachs packaged and sold mortgage securities that appeared designed to fail, and then shorted the bonds, making a killing for the firm while customers lost money.
The company was sued by the SEC over one such deal, called Abacus, and Goldman settled the case for $550 million without admitting any wrongdoing.
While Blankfein was the villain, Dimon was treated as a rock-star statesman.
He was welcome at the White House and lauded as one of the only bankers who didn’t need a bailout — even though he took one, allegedly at the direction of Paulson.
Obama sang his praises in February 2009, just weeks after entering the Oval Office.
“There are a lot of banks that are actually pretty well managed, JPMorgan being a good example,” Obama said. “Jamie Dimon, the CEO there, I don't think should be punished for doing a pretty good job managing an enormous portfolio.”
Dimon’s popularity in the White House began to fade because he was a vocal opponent of many of the financial reforms being advocated in response to the crisis. Then in 2012, JPMorgan announced it had lost billions because of bad bets by a rogue derivatives trader in London.
Dimon came under investigation for minimizing the issue to investors — he called the problem “a tempest in a teapot.” The company was sued by the SEC, and Dimon had to testify before Congress. Last spring he barely survived a shareholder vote that would have separated his two jobs, chairman of the board and chief executive.
Last month the company said it was under civil and criminal investigation by the Justice Department over its subprime mortgage-backed securities.
When he hit the nadir of his troubles, Dimon reportedly sought advice from Blankfein on how to weather the storm and maintain his and his company’s reputation.
Earlier this summer, Blankfein held forth before a roomful of journalists and lobbyists at Washington’s swank Mayflower Hotel where, like an elder statesman, he was asked about everything from immigration reform to his first job selling hot dogs at Yankee Stadium. BusinessWeek Magazine wrote a story about the fashion impact of his new beard.
Through the ups and downs, neither CEO has suffered financially.
Blankfein was paid $21 million last year and he was the highest-paid chief executive of the 20 biggest financial companies, according to Bloomberg. Dimon earned about half that, or $11.5 million, as a result of the derivatives loss that became known as the “London whale.” Blankfein owns about $256 million of Goldman shares, according to Forbes magazine.
Dimon bought a Park Avenue apartment in 2004 for $4.9 million and bought a second unit in the same building this year for $2 million. He also owns a $17 million estate in Mt. Kisko, N.Y. Blankfein’s Central Park West penthouse is valued at $26.5 million, according to New York property records. Late last year, he and his wife also bought a 7.5-acre estate in the Hamptons with a pool and tennis court for $32.5 million. Forbes estimates Dimon owns $223 million of JPMorgan stock.
While Dimon and Blankfein held on to their power, the banks they lead, and other U.S. megabanks, have grown larger and more powerful.
JPMorgan’s assets — one common measure of bank size — have grown to $2.44 trillion from $1.78 trillion shortly before Lehman failed in 2008. Bank of America’s assets have ballooned to $2.13 trillion from $1.72 trillion, while Wells Fargo more than doubled to $1.44 trillion from $609 billion five years ago. Goldman Sachs, which wasn’t on the list of top 50 bank holding companies in 2008 because it was a pure investment bank at the time, is now the nation’s fifth largest with $939 billion in assets.
Citigroup, beset by financial problems, is the only one of the top five banks whose balance sheet has shrunk in those years.
Total assets don’t even adequately measure the full size of these institutions because the measure does not take into account derivatives contracts or off-balance-sheet items that could still put the banks at risk. If those assets were counted, JPMorgan’s size would rise to $3.95 trillion, according to a worksheet prepared by FDIC Vice Chairman Thomas Hoenig.
‘Bad guys everywhere’
Since that epic month in 2008 that began with the bankruptcy of Lehman early Monday, Sept. 15, and ended with the $80 billion bailout of insurance giant American International Group and the sales of Merrill Lynch to Bank of America, Wachovia to Wells Fargo and Washington Mutual to JPMorgan, thousands of hours and millions of pages have been filled trying to determine what happened.
The most comprehensive, the Financial Crisis Inquiry Report, said the financial collapse was avoidable.
“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble,” the report said.
That those “captains of finance” have suffered few consequences of that “big miss” is now part of the legacy of the crisis, and has cast a shadow over the U.S. justice system, which prosecutes small-time offenders but appears to turn away from what many see as crimes of the wealthy.
“This is the greatest white-collar fraud and most destructive white-collar fraud in history and we have found ourselves unable to prosecute any elite bankers,” said Bill Black, an economics and law professor at the University of Missouri and author of The Best Way to Rob a Bank is to Own One. “That’s outrageous.”
U.S. Attorney General Eric Holder appeared to confirm that view earlier this year when he said he’s hesitant to criminally prosecute big banks because he’s afraid of the damage such a move could do to the economy.
“When we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy … that is a function of the fact that some of these institutions have become too large,” he said during a Senate Judiciary Committee hearing in March.
Since that time, the Justice Department has walked back those statements and assured lawmakers and the public that they have aggressively investigated and pursued any criminal acts related to the financial crisis.
The hurdle, officials say, is that to prove a crime, they must prove intent. That means if the government wanted to bring charges against any of the CEOs of the companies that led the nation to financial disaster, prosecutors would have to prove to a jury beyond a reasonable doubt that these individuals intended to commit fraud.
“They tend to have to work in a much more black and white misconduct universe,” said Jordan Thomas, a former lawyer for the SEC who worked with Justice on many financial fraud cases. Proving criminal misconduct is such a high hurdle that the government has resorted mostly to civil charges, where the burden of proof is lower. That doesn’t mean, Thomas says, that nobody did anything wrong.
“The financial crisis had bad guys everywhere,” he said.
Ben Wieder contributed to this report.