Loans to High-Profile Executives Backfire for Bank of America

The Wall Street Journal via Quicken.com ^ | Monday, November 25, 2002 | Carrick Mollenkamp

[jpthomas]

Rich executives once courted by Bank of America Corp. are proving to be a big headache, Monday's Wall Street Journal reported.

In the last year, the bank has run into problems with loans made to executives such as Bernard Ebbers, Samuel Waksal and the Rigas family. Now, it appears a loan to another wealthy executive has resulted in a big financial hit.

In the second and third quarters, Bank of America's private bank charged off $ 261 million in loans to a family investment firm controlled by Oklahoma telecommunications executive Everett Dobson, essentially declaring the loans uncollectible.

Mr. Dobson was once a valued Bank of America client. As chairman and chief executive of Dobson Communications Corp., he posed in Bank of America's 2000 annual report, wrapped in a dark coat and white scarf against a slate sky. "Bank of America has helped us seize opportunities by providing us with excellent advice, industry expertise, and capital strength," he said in the adjoining text.

Now, Bank of America won't talk about Mr. Dobson or other high-profile customers who have recently run into trouble. The identification of the charge- off of the loan to the Dobsons was first reported by a bank analyst at Goldman Sachs and confirmed by an individual familiar with the bank. Through a spokesman, Mr. Dobson declined to comment.

Banks are not required to disclose the identity of corporate or individual borrowers. So when a bank reports an increase in bad loans, it sets off a guessing game for investors and analysts to identify the borrower. Bank of America, in identifying the charge-off as a private bank client in securities filings and in an earnings call with investors, actually provided more information than is required.

The sudden rise in charged-off loans at Bank of America's private bank highlights a potentially costly pattern of lending money to executives whose companies and personal fortunes have declined.

The bank has made a concerted effort to make its private bank, which oversees some $150 billion in assets, more competitive with established private banks at J.P. Morgan Chase & Co. and Citigroup Inc. That has included hiring away veterans from other firms. In 2001, for example, the head of the private bank, Alan Rappaport, was hired away from J.P. Morgan.

For Bank of America's asset-management arm, which includes the private bank, the $261 million in Dobson-related charge-offs were unusually high. In the prior three quarters, for instance, the asset-management arm charged off an average of $25 million.

The concept of providing loans backed by stock has been around for some time. But as executive compensation, including stock awards, skyrocketed in recent years, so did the practice of banks offering loans to court wealthy executives.

Wall Street Journal Staff Reporter Carrick Mollenkamp contributed to this report.

[jpthomas]

Livin' Large with Other People's Money.

[blackdog]

And this, just after bankrupcy tightening failed to pass the senate. Florida exempting residences too! Steal $25,000,000 from a bank, give $5,000,000 to politicians to exempt you, Build a $20,000,000 estate in Florida, and the Bank of America will charge 22% on it's credit cards to cover the bad loans.

I am beginning to like Alec Baldwin's methods.....I say stone the bastards.