Were you super-shocked that Ken Lewis said that the US should consider separting commercial banking from investment banking? OK, we admit its a bit weird that a guy who rushed to have Bank of America buy Merrill Lynch at an unforgivably high price now wants to bring back the old Glass-Steagall separation that held from the Great Depression until Citi cracked it open in the late 1990s.
But it really isn’t that surprising. We think that Ken Lewis probably really wishes that he could just run an old fashioned commercial bank once again. Clearly, this investment banking thing hasn’t been working out for Ken. In fact, two years ago he started signalling that Bank of America might get out of the investment banking business altogether.
“I’ve had all the fun I can stand in investment banking right now,” Lewis said in response to questions about whether the bank might undertake some kind of strategic acquisition to rescue it’s flailing investment banking business.
We know what happened next. Ken decided to give the fun last last run, and it has ended in tears. Couldn’t Ken get out of investment banking without a new law mandating it? Well, of course he can. The thing is that he wants laws that will prevent competitors such as JP Morgan Chase, Wells Fargo and Citigroup from being in that business too. He’s worried that if Bank of America limits its business to traditional commercial banking, the profits of those competitors will beat those of his bank.
Today Reuters is reporting that the cost to insure the debt of Merrill Lynch surged on Ken’s remarks: “Credit default swaps insuring Merrill Lynch’s legacy debt jumped 110 basis points to 575 basis points, or $575,000 per year for five years to insure $10 million in debt, according to Phoenix Partners Group.”
We’re sure if he’s asked, Ken will repeat the mantra that he’s very happy with the deal to buy Merrill and expects it to be super-profitable any day now.