Dear Mr. Berko: About five years ago, you recommended Bank of America when it was trading between $6 and $8 a share. I came very close to buying 200 shares for my individual retirement account but chickened out because I was concerned it would declare bankruptcy. I am thinking of buying 150 shares today and would like your opinion. — MC, Oklahoma City
Dear MC: Don't buy it! I have never, ever recommended Bank of America (BAC-$16.12) stock. That's because I don't trust its legal representation, its business model, its accounting or its management. And I certainly don't trust the 15 people with sinecures on BAC's vaporous board of directors, each of whom receives a $25,000 monthly check from BAC, lavish per diem pay and a generous bounty from numerous other corporate boards.
I did recommend Bank of America's 7.25 percent noncumulative perpetual convertible preferred stock (BAC.PRL-$1,173) on several occasions in 2009 and 2010, when it traded between the high $600s and the low $700s. I recommended this convertible preferred because I believed that BAC was too big to fail, I thought management was too connected to go to prison and the current yield was in excess of 10 percent. I reckoned readers would enjoy a 10 percent yield while waiting for a potential capital gains opportunity.
Visit Google and type in "Bank of America fraud," and then read and weep. Next type in "Bank of America fines and penalties." You'll quail at the innumerous details about BAC's allegedly intentional illegal activities, all of which were said to be approved by management, the executive committee and the board of directors. Those accusations include, but are not limited to, email fraud, foreclosure fraud, consumer loan fraud, debit and credit card fraud, defective mortgage fraud, currency and commodity manipulation, money laundering, fraudulently overstating its capital ratio, defrauding Fannie Mae and Freddie Mac, and colluding to rig international benchmark levels used by fund managers. To settle, BAC paid billions in fines and legal fees. Still, management and the board, disdainful of those fines, look down their chins (not their noses) at investors and regulators.
BAC's biggest fine, $16.65 billion, was for knowingly selling shoddy mortgages and intentionally misrepresenting their quality. This bank shouldn't be called Bank of America. That gives America a bad name; rather, BAC should be renamed Bank of the Mafia. I'd never recommend a bank that's run by a crew of crooks who knowingly bilked middle-class Americans out of billions of dollars. This mortgage fraud by BAC, Goldman Sachs, JPMorgan Chase, Citigroup, UBS, etc., is the primary reason the market crashed in 2008. And in the aftermath, not a single member of BAC's management, which engineered this fraud, its executive committee, which encouraged it, or its board of directors, which approved it, paid a fine or spent an hour in jail. It's good to have well-paid friends in Congress.
The ongoing problem with public companies is that mutual funds, pension plans and institutions expect management to grow revenues, earnings and dividends every year because those metrics increase the prices of stocks. If a company fails to do so, its overcompensated CEO will be out of his or her job. And in our crazy capitalistic economy, BAC's banksters are expected to provide shareholders with annual gains regardless of the intense competition from their competitors. That's tough to do, especially when your competition is equally degenerate and the economy can't generate enough activity to improve revenues, earnings and dividends.
So last decade, banks had two alternatives. They could mulct, diddle and exploit their clients, or they could employ cunning legal counsel to advise management on how to fudge numbers, skirt rules and misrepresent services. These schemes created cumulative losses of hundreds of billions of dollars, and millions of middle-class Americans were jolted into penury. Many lawyers have become legal terrorists in American society; not a single soul employed by those banks spent a nickel on legal fees. However, Bernie Madoff and his covey of cohorts, who stole tens of billions from wealthy Americans, now reside in some of our best federal hotels. The lesson is: Steal from the wealthy and pay the price if you get caught, but it's OK to step on middle-class Americans because they can't afford representation.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.