Bank Of America Is Paying Back The Government Soon; Why?
There seems to be a really odd trend going on right now. Three weeks ago, GM announced that they were going to be paying back the bailout money from the government, even though they had posted a loss of $1.15 billion in the third quarter. That seemed to make no sense, especially since they were under no obligation to start paying the money back until 2015.
Now Bank of America has announced that they’re going to do the same thing after posting a $2.2 billion loss in the third quarter. They need to pay back nearly $45 billion, and to do this, they have to raise some money to do it. The news sparked their stock price up 3.3% after the announcement.
Once again, B of A was under no obligation to start paying any of this money back. However, they have an ulterior motive, one that, in my mind, does and doesn’t make sense at the same time.
Their problem is that they’re having problems finding someone to take over the leadership role because of the restrictions put on them by the pay czar, Kenneth Feinberg. It’s never been announced just how much he was allowing Bank of America to spend looking for a new CEO, but it obviously isn’t enough based on the normal pay scales of businesses of this size because no one would take it. Even internal candidates for the job decided they didn’t want it at that amount; that either smacks of very low pay, or pay that doesn’t have anyone thinking it’s worth the risk.
In one way, it makes sense because they want to get top talent to run the organization, which is in trouble even with the government bailout. In another way, once again it seems that all these people they’ve been paying big money to haven’t been able to do the job, and I personally can’t believe there’s no talent out there that will accept what I bet it still a very nice salary for the rest of us. That may not be fair, of course, but it seems illogical to put oneself into a worse financial position just to bring in someone you think might do a good job, especially if it’s an internal candidate who may have had a hand in “helping” the company fall apart to begin with. And this is banking we’re dealing with; these people are scaring me.
This seems like a bad financial risk to me. It’s like me taking my business American Express card and purchasing a new roof for my house on the premise that the roof will generate new money that I can use to pay off the card next month, while I have no plan on how to generate those funds because I don’t have anyone in place helping me figure that out.
So be it; let’s see if they can raise this money in the first place.