I’m sitting in a one-tenth full meeting room at the Beverly Hilton for a 6:30 a.m. panel discussion on Private Versus Publicly Held Financial Institutions: Which Are Best Positioned? More than 300 people had signed up, but maybe the just added session on the swine flu siphoned people away. Or maybe the swine flu siphoned people away.
Anyway, because I’m rude, I’m also sitting here reading the latest about the stress tests: Citi and BofA are apparently being told that they’ll need to raise more capital. Which means that Treasury will probably end up putting up that capital and taking a bigger ownership stake at both companies, thus pushing aside existing shareholders and, possibly, management. This is no big surprise, so the reports that the leadership at both banks are objecting to the government’s verdict is a little bit weird. At least, it’s weird at Citigroup, which got itself into this mess and really has no business questioning what the Treasury Department says at this point. In the case of BofA, though, I actually am capable of ginning up some sympathy for Ken Lewis.
I’m going on the assumption that BofA needs capital largely because of problems at Merrill Lynch. And it has become pretty clear in recent days that BofA wouldn’t have gone through with its acquisition of Merrill late last year unless it had been strong-armed into it by then-Treasury Secretary Hank Paulson. BofA is in trouble because it was doing Treasury a favor. How do you fairly deal with a situation like that?