History May Look Kindly on Lewis' Tenure

Kenneth Lewis' legacy soon will be in the hands of someone else.

As Bank of America Corp.'s chief executive prepares to walk away, there will be plenty of clucking about the price he paid, literally and figuratively, for Merrill Lynch & Co. But really it will be up to Lewis' yet-to-be-named successor to prove that the tough decisions Lewis made in a time of crisis were the right ones, a fate that hinges on the ability of B of A to integrate the Merrill culture and capitalize on the opportunity to cross-sell financial products to clients.

"All of that is going to lie in the execution over the next few years, and that execution now isn't going to lie in Lewis' control," said Bert Ely, an independent industry consultant in Alexandria, Va. "It's going to be a few years — I see a three- to five-year time frame on it — before a definitive judgment can be made about that acquisition."

Not long ago, the idea of Lewis having to wait for a verdict on his career would have been unthinkable.

The Mississippi native, who entered the banking industry 40 years ago as a credit analyst in Charlotte once seemed assured of a legacy focused on the national banking brand he helped build with his mentor and predecessor, Hugh McColl Jr., and on the national banking infrastructure he developed under it.

But history intervened, and the seismic events that reshaped Wall Street last year also reshaped Lewis' reputation, several times over.

He was the country mouse, with smarts and patience that allowed him to conquer a landmark firm from New York. He was the patriot, rushing in to save another storied firm from another messy meltdown. He was the brilliant visionary, the confident risk taker, the earnest high achiever.

And then came the political fallout over Merrill's mounting losses and a secret bonus pool that led to serious questions about what B of A knew and when it should have alerted shareholders. Lewis quickly found himself in an uncomfortable spot that threatened to make him look as though he had either pulled a fast one on investors, or rolled over for government officials who wanted to see the deal completed.

By the end of a recent vacation in the mountains, Lewis decided to step down at yearend.

In a memo to employees, Lewis assured his "teammates," as he called them, that the company was capable of meeting the challenges of a business undergoing a restructuring process in an economic environment that continues to raise concerns about credit risk. He said his choice to resign was his alone, an acknowledgement of the months of rampant speculation that the board would remove him because of his decision to acquire Merrill and another troubled star of the financial crisis, mortgage lender Countrywide Financial Corp., at what he seemed to think were good prices at the time.

"Lewis and McColl built a great company," William Isaac, a former chairman of the Federal Deposit Insurance Corp. and chairman of LECG Global Financial Services, wrote in an opinion piece this week in American Banker.

"It pains me to see Ken Lewis raked over the coals for political purposes when what he deserves is our gratitude for resolving two major problems he did not create."

Edward Kane, a finance professor at Boston College's Carroll School of Management, said he would not be surprised to see Lewis write a tell-all book that tries to settle the score with his critics.

"I thought he really did regulators a great favor by taking over Countrywide and Merrill when he did. This was at a time when most firms were trying to protect their capital, and the losses in both of those firms were very hard to assess," Kane said.

"As a visionary, he saw this as a way to extend the franchise and do things that had never been done before. But with any deal you make, price is an important part of it."

But even if Lewis declines to actively salvage his reputation, he can rest assured that a portion of his legacy lives on in the checkbooks of so many consumers who saw their bank branches get transferred from one owner to the next, until Bank of America stepped in. For many banks, that was the end of the line as far as consolidation was concerned.

"There was one merger after another, and you kept having to get new checkbooks," said Kane, who recalled having accounts handled by Bay Bank, then Shawmut, and later BankBoston, Fleet and finally Bank of America.

"It reached the point where everyone probably welcomed the fact that nobody was going to take over Bank of America. I was able to keep the same checks for a long time."

That is the kind of legacy that Charles Mitchell, head of the old Citigroup Inc. predecessor company National City Bank, is sometimes remembered for, even though he was shamed by Congress and resigned in disgrace in 1933.

Mitchell "was made a scapegoat for some of the financial system's and the economy's problems in the Great Depression. But before that Mitchell had done a lot to build Citi into one of the country's and world's leading banks," said financial historian Richard Sylla, a professor at New York University's Stern School of Business.

"Mr. Lewis, like Mitchell, made a few mistakes and is having to fall on his sword for them. But he also helped to make B of A become one of the country's and world's great banks, and as time goes on, I would predict that he will look like a better banker than he does at this moment."