Free Advice for Bank of America: Move On

So far Bank of America has managed to keep private much of its internal deliberations about its acquisition of Merrill Lynch. And at what cost? A wide-ranging investigation by New York Attorney General Andrew Cuomo; a botched settlement with the Securities and Exchange Commission and ongoing scrutiny from a federal judge; and an investigation by the House Committee on Oversight and Government Reform. Is it really worth it?

I see no reason for Bank of America (BAC) to be so defensive about its acquisition of Merrill Lynch. Hastily reached a year ago, as the global financial system lurched toward a precipice, the deal enabled Bank of America to acquire a firm which had previously rebuffed its overtures and that never would have been available but for the crisis. Give Bank of America and its beleaguered chief executive, Ken Lewis, credit for the courage to act a year ago when most were paralyzed.

With benefit of hindsight, Bank of America no doubt overpaid for Merrill, but no one knew that at the time, and the deal made sound strategic sense. Bank of America gained a global investment banking platform, a significant presence in mergers and acquisitions and a significant equity underwriting capacity, all of which it lacked. It also got Merrill’s vaunted Thundering Herd of retail brokers, a source of profits in good times and bad. And despite all the hand-wringing over Merrill’s billions in fourth-quarter losses, the deal should make financial sense in the long run. Bank of America is promising $7 billion in cost savings. For the first half of 2009, Merrill has contributed $1.84 billion in profit. Bank of America is on sound enough footing that it’s looking to repay some government loans.

In other words, Bank of America has a good story to tell. So why is it spending so much of its energy, time and resources to avoid disclosing details of what went into its deliberations, all the while reaping bad publicity and becoming further embroiled in litigation?

Bank of America no doubt has an army of high-paid lawyers. Here’s my advice, which is simple, straight-forward, easy to implement — and won’t cost shareholders a penny. Indeed, it would probably save untold millions in legal fees:

WAIVE THE ATTORNEY-CLIENT PRIVILEGE AND ANY OTHER PRIVILEGES NOW, TURN OVER ALL RELEVANT DOCUMENTS AND ANSWER EVERYONE’S QUESTIONS FULLY AND TRUTHFULLY.

The problem with refusing to provide documents and answer questions is that everyone assumes Bank of America is hiding something. It’s like waving a red flag in front of prosecutors, journalists and, in this instance, a federal judge. As long as the mystery continues, Bank of America will keep landing on the front page as disclosures dribble out, investigations multiply and suspicion deepens.

Bank of America maintains that it has nothing to hide and it is only defending an important principle of attorney-client privilege. But so far that argument is getting it nowhere. Bank of America should leave it to corporate government experts and others to fight that battle another day. Why should Bank of America shareholders care about an abstract principle of legal privilege, especially if, as the bank insists, it’s done nothing wrong?

Just for the sake of argument, let’s assume that there are some potentially damaging or embarrassing disclosures. How bad are they likely to be? That Bank of America should have put something in its proxy statement but didn’t? That bank executives wanted to renegotiate or rescind the deal but had no legal grounds to do so? That bank executives knew all about the egregious Merrill bonuses but blamed former Merrill chief executive John Thain? These are interesting and potentially important questions. But speaking as a journalist, they’re one-day stories. Once the mystery is gone, the Bank of America-Merrill “scandal” will be over.

I’m not a Bank of America shareholder, though I have been in the past (as I’ve reported, I took profits after the sharp run-up in financial stocks). If I were, I’d be asking the same question that U.S. District Court Judge Jed Rakoff posed in his recent withering ruling: “… if the Bank is innocent of lying to its shareholders, why is it prepared to pay $33 million of its shareholders’ money as a penalty for lying to them?”

We’ll never know until Bank of America discloses everything. My advice is, the sooner the better. Then Bank of America officials can get back to realizing the potential benefits of what could still be hailed as one of the great banking deals of the decade.