Tuesday, June 17, 2008
Our firm and clients have been riding with you for six to seven years. It has not always been easy since we have had to hold our collective breaths every time rumors started to fly that, yes Bank of America might be extending it product lines or its footprint by making yet another acquisition. Unfortunately, few of the rumors have turned out to be false. We have been with you when you belly-flopped our stock with your Fleet Boston purchase and genuflected our stock with your MBNA purchase. In each case, we held our collective noses because we are big believers in Peter Lynch's notion of "diworsification:" diversification and mergers oftentimes make a company "worse" not better. Through your aggressive program of "diworsification" we now own the bank with the biggest footprint and broadest product line of any bank in the US. But we are none the richer for your diworsification; your stock price is lower than it was six years ago. In our judgment, you are one decision away from joining your good friend Kennedy Thompson, late of Wachovia. That decision, as you know, is if you cut your dividend. If you cut your dividend, we will leave you and we won't be alone. It will prove that all that you have cobbled together over these last few years is a pile of rubbish -- the crown jewels were impostors, the gold was folly. If you can find the money in the middle of the subprime crisis to buy Lasalle National, Countrywide Financial, and put another couple of billion in China, you can keep paying the dividend. If you cut it, you will have proved, as so many analysts have said all along, that you didn't know what you were doing, and we will have to fall on our swords and admit that we followed you. You said recently that the condition of the economy will dictate your dividend decisions. Wrong, with your spending spree you have asked us to believe that the future is bright, why would you need to cut the dividend if the future is bright? I don't like the tone of this piece anymore than you do, but I am giving you fair warning: if you cut the dividend you'll be playing golf everyday with Kennedy Thompson. By all accounts, you are a good man; a man who loves banking, your employees, small business people, and your shareholders (I think the list is pretty long). This is a time to show boldness for your stakeholders interests. Lay down the gauntlet and say that Bank of America will not cut its dividend under your leadership. You cannot brag about your dividend hikes for a decade and wipe them all away in a year. That is pretty much what you said about your investment bankers actions. You decided on their behalf that you had had about a much fun in investment banking as you could stand. You know that is what many investors will decide about you and Bank of America if you wipe out five years of dividend increases. Wall Street is laying odds on you cutting the dividend. Why don't you prove them wrong for once by saying "the dividend is safe on my watch." Of course your investment bankers will say that that kind of statement is a foolish thing to do, but good grief how much bad advice are you going to take from them? They were the ones who told you all the smart things that are now blowing up in your face. The banking system needs someone to stand up and risk his own neck for the benefit of his shareholders. Why do you constantly leave that up to Wells Fargo. Why not just say it: "If the dividend goes, I go." At least you can leave with your dignity when this is all over. Nearly tw0-thirds of our client are at or near retirement. They need for you to stand firm for them. We can stand a few years of no increase, but please, stand firm for your shareholders. We have not given up on you. We believe you are the man to begin the healing process between investors and banks: do it with a dividend imperative, Mr. Lewis.