“But did you feel strong-armed?” I asked. “Did they say, ‘Look, we may take you out of a job’?”
“I promise you, that was not a factor,” he said firmly. “This was about their advice. And then, as we reflected on it, we agreed it was the right thing to do.”
And why, I wondered, had he fired Thain?
Lewis definitely didn’t want to talk about it. “I almost feel like that’s ancient history,” he said of the firing, which was only three weeks old. He had already moved on and had effectively thrown Thain under the bus.
But Thain’s ouster was hardly the end of the story. Bank of America’s purchase of Merrill Lynch continued to haunt Lewis. At the end of 2009, Lewis was forced out of Bank of America, a breathtaking fall from grace. Two months later, on February 4, 2010, New York attorney general (and soon-to-be governor of New York) Andrew Cuomo filed fraud charges against him, stating that he had hidden the scope of Merrill’s problems. “We believe the bank management understated the Merrill Lynch losses to shareholders,” Cuomo said. “Then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud. Bank of America and its officials defrauded the government and the taxpayers at a very difficult time. This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules. In the end, they committed an enormous fraud, and American taxpayers ended up paying billions for Bank of America’s misdeeds.” Lewis hired attorney Mary Jo White, now a private lawyer whose former job for nine years was as a U.S. attorney for the Southern District of New York, litigating white-collar crime from the other side. White stated, “There is not a shred of objective evidence to support the allegations by the attorney general.”
Regardless of the legal outcome, the deal that had so many people praising the team of Lewis and Thain in 2008 had become a giant black mark for both of them. Lewis might well have wondered how it all happened. Hadn’t he been the good guy, the dignified Southern banker who eschewed Wall Street’s culture of greed? Hadn’t he rescued Merrill?
Lewis was quickly replaced by Brian Moynihan, the fifty-year-old lawyer who had been serving as Merrill’s CEO. I caught up with Moynihan on the Bank of America trading floor, and he cheerfully told me how the transfer of power came down. “I was in Charlotte for other reasons, and they said, ‘You need to stay around.’ And the board has their meeting and someone came down and said, ‘They need you to come upstairs.’ I walked in, and the board greeted me with a round of applause, and gave me a hug and said, ‘You’re the new CEO.’ I said that was terrific.”
He smiled broadly and I returned it. “That was the easy part,” I said. “Now the hard part begins.” It was true. With the acquisition fever of recent years, Bank of America had joined Citigroup on the poster for “too big to fail” banks, and that was not a good place to be. The deal that would hurt most—Countrywide Financial.
“Can you categorically say no more acquisitions for the near term?” I asked Moynihan, knowing what his answer would be. With Lewis gone, no one at a bank built on a long string of mergers had much stomach for expansion. Instead, the new ideal was lean and mean. Even worse, the string of foreclosures and mortgages gone bad would haunt Bank of America for years to come.
As the months rolled on, many began to talk about the fact that things were not as they had seemed that weekend in September, when the crisis appeared to revolve around the fate of a single investment firm, Lehman Brothers. Truths were revealed in a trickle, not a flood, and everyone was too focused on surviving to contemplate the larger picture.
Back in January, in his final interview with me as Treasury secretary, Hank Paulson had told me during a commercial break, “In six months you will understand why we did what we did.” He meant spending upwards of $1 trillion bailing out major banks without revealing which banks got the money. I thought it was a mysterious remark, but the government secrecy finally became clear: it was hiding Citigroup’s potential insolvency.
In the wake of the financial crisis, the superstore that was Sandy Weill’s brainchild was in real trouble. Vikram Pandit had been CEO for less than a year, but he had to be thinking his ascension came at the worst possible time. Sources told me that the potential failure of Citigroup was of such concern to government officials that they devised the wall of secrecy for all banks, solely to prevent Citigroup’s weakness from being revealed. But by November 2008, its problems were too great to hide. The $25 billion TARP contribution did not even begin to cover the bank’s asset drain. Was it possible Citigroup could go down? The idea sent a shudder through Wall Street that was felt around the world.
Observing events with special interest was Prince Alwaleed of Saudi Arabia. The nephew of Saudi Arabia’s King Abdullah, Alwaleed, fifty, could be something of a loose canon, but he was also Citigroup’s largest shareholder. When he first invested in Citigroup, it was seen as a smart move, and his net worth was estimated at more than $21 billion. He was always very opinionated about the company and its management.
