BofA’s Swift Repayment Should Raise Red Flags

Copyright 2009 Contra Costa NewspapersAll Rights Reserved Contra Costa Times (California)

December 8, 2009 Tuesday

SECTION: BREAKING; News; Local; Business

LENGTH: 533 words

HEADLINE: Voros: BofA’s swift repayment should raise red flags

BYLINE: Drew Voros, Oakland Tribune Business Editor

SUDDENLY Bank of America is rolling in cash. So much so that it has decided to pay back the federal government’s $45 billion bailout as soon as its bank tellers finish counting and rolling all the pennies.

There are two ways to view this new development.

If BofA, which appeared mortally wounded last Christmas, has come this far this quickly, the banking industry and in fact the economy should be marking the official end to The Great Recession.

Or, BofA is trying to pull a fast one in order to hire a new CEO and free itself of government oversight while putting taxpayers at risk of a second bailout if another crisis strikes.

Something smells fishy here.

Consider that San Francisco-based Wells Fargo & Co. is seeking to repay billions in federal bailout aid but so far hasn’t received permission from the government, people familiar with the talks told The Associated Press on Monday. The main sticking point is over how much capital the bank would need to raise to repay taxpayers and for reserves.

Wells emerged from last year’s meltdown in far better shape than BofA. The idea that BofA is suddenly healthier and wealthier than its peers is hard to believe.

The Obama administration should take its time in collecting BofA’s money. One of the best provisions of The Great Bank Bailout is that Uncle Sam does not have to accept the payback if the bank is deemed unready to weather another crisis. Remember those bank stress tests?

With nearly $100 billion in mortgages, much of which BofA acquired from serial subprime lender Countrywide in its 2008 takeover, Bank of America is far from being out of the woods.

We just don’t know how many more foreclosures and troubled loans are out there, much less in BofA’s powder keg of a mortgage portfolio. We don’t know if we are in a recovery or an artificial economic lift thanks to $2 trillion in government bailouts, handouts, stimulus funding and tax credits. We don’t know if unemployment is truly slowing down or a statistical mirage that hides long-term unemployed.

We just don’t know a lot of things, and letting BofA go on its own, less than a year after it faced insolvency and an FDIC takeover, would seem like allowing a drunk to leave an accident after giving him a cup of coffee.

Bank of America’s eagerness comes from the need for a seasoned bank veteran to take the helm from outgoing honcho Ken Lewis, and apparently being BofA’s CEO with government oversight is not worth its weight in deposit slips. Again, it’s hard to believe no candidate exists who would take the job without lavish guarantees of exorbitant pay.

BofA’s desire for unrestricted executive compensation should hoist a red flag the size of Texas. If BofA has truly found its feet and begun to grow with government oversight, the need to break away from that successful remedy seems premature at best.

Before accepting repayment, Congress should call BofA executives to a public hearing and audit the bank.

Let’s have the bank make a case and demonstrate to taxpayers that this recently wounded company is healthy enough to drive itself without running off the road.

Drew Voros is the business editor. His column runs on Wednesdays. He can be reached at www.twitter.com/bizeditor.

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