Dick Bove is taking his Bank of America loving to new heights.
In a new report, Bove reiterates that the attacks on the bank-–from Congress, a Federal Judge, the SEC and the Attorney General of New York–are just politically driven.
The penalty, he says, could be the CEO’s removal, a major fine for the bank itself, or even the divestiture of Merrill Lynch.
Bove says that the critics are all wrong and that the Merrill deal was great for Bank of America’s sharehoders for a number of reasons:
- Merrill had the best sales force.
- Merrill owned 49% of BlackRock – one of the top three money managers in the world.
- Merrill has investment banking operations in many countries outside the United States.
- Merrill Lynch was a first ranked underwriter of equities
- Merrill was a trader of multiple financial instruments.
“This merger made sense from just about every angle one could look at. Plus, due to the decline of Bank of America’s stock price along with all financial stocks, this deal was cheap,” Bove writes.
So what about Bank of America’s failure to disclose the massive bonuses paid to top Merrill executives? Bove says that considering the range of opportunities that Merrill offered to BofA, the bonus package was not a material event from a legal standpoint. The acqusition was based on longer term considerations so the one time payouts weren’t a big deal.
From Bove’s point of view, bonuses and fourth quarter losses are mere short-term events that should just not be taken into consideration in evaluating how BofA operated for the merger. And Congress just doesn’t seem to understand that “this acquisition was one of the half dozen key events that prevented a financial collapse in this country.”
He argues that is the issue that the Federal judge must face: the merger of Bank of America and Merrill benefitted everyone–the nation, the financial system, the economy, the bank and its shareholders. Even New York State was a beneficiary as it taxed the bonuses, he says.
“If the state’s attorney general was not so anti New York’s biggest and most important industry he might understand this.,” Bove writes.
In some sense, Bove is right. The issue of whether the bonuses should have been disclosed is about their materiality, the technical legal term which asks “is this something an ordinary investor would reasonably want to know.” Bove is more or less arguing that shareholders either wouldn’t have wanted to know about the bonuses or the desire to know would have been unreasonable.
Materiality questions always involve a bit of paternalism: company executives figuring out what to share and what to keep to themselves. But in this case both Bank of America seems to have gone too far into that paternalistic mode, deciding not to tell shareholders something they probably would have to wanted know because they feared shareholders would balk at the acqusition.