According to Bank of America Corp’s chief executive offer, he projects the US economy to bottom in during the second half of 2009. Though he is observing “mixed” signals, he doesn’t think that the government will ask the banking institution to raise its capital. By mixed indications, he meant that housing sales data from some sources are better than forecasted while auto sales data is not as severe as it was originally believed.
“When you see mixed signals, I think it signals that you’re getting close to the bottom,” according to Ken Lewis. The recession is also becoming to feel more like the recession that it is rather than an economic freefall. These developments are good news to homeowners and consumers who are concerned about their personal finances and their well-being in the future.
Helping Consumers Avoid Foreclosures
Moreover, he added that there was a consensus that declines are becoming more moderate. With the economy bottoming out in the latter half of the year, recovery can start in the first part of 2010. During a CNBC interview, Lewis, who led the Bank of American’s acquisition of Merrill Lynch and Countrywide financial at the peak of the crisis, said that the company is committed to working with consumers who want to avoid bank foreclosure. “Nobody wants foreclosure…it’s bad for everybody,” that is, it is bad for the homeowners, the banking institutions, and the economy overall.
In the same interview, he revealed that billions worth of capital remains tied up in the bank’s reserves because of consumer loan losses such as credit card and mortgage loans. Bank of America is continuing to make good loans in spite of its rising loan delinquencies. The CEO also talked about the government investment in the bank filed under the Troubled Asset Relief Program stabilization plan. He said that the company had taken more money than it actually needed and he was anxious to return some part of the funding back to the government.
The Bank’s Acquisitions Performance
Lewis admitted that taking $20 billion on top of the $25 funding from the government was a mistake. Explaining his decision, he said that the capital infusion was not solely for the benefit of acquiring Merrill Lynch. It was also a buffer against the worsening economy. However, the economy did not worsen as much as he expected it would.
Regarding the Merrill Lunch acquisitions, he said that the acquisition was a good move. Brokers have diverse banking products to sell. In time, the purchase of Merrill and Countrywide will become two of the best acquisitions the company has ever made if it is judged “over two or three years rather than two or three months”.
And what are the effects of the financial crisis to the banking industry? Ken Lewis thinks that the compensation system will dramatically change. Salaries will represent a greater chunk of the banking industry’s compensation plan against incentive. This is because incentives encourage irresponsible behavior and a risk-taking attitude.