Bank of America-FleetBoston deal highlights criminalization of US corporate elite
By Barry Grey
Mar 23, 2004
The acquisition of FleetBoston Financial Corp. by Bank of America provides revealing insights into the workings of the American profit system and its social priorities.
On March 17, the same day that shareholders of both banks met to approve the takeover of Fleet, the nation’s seventh largest bank, by the number-three financial institution, the Wall Street Journal reported that the merged bank plans to eliminate between 12,000 and 13,000 jobs. The job cuts, which amount to 7 percent of the combined work force of the two banks, are to be imposed through a combination of layoffs and attrition, and are to begin when the merger takes effect next month, according to the Journal.
These job reductions are only part of a cost-cutting program that will undoubtedly claim many more positions in the coming months. When Bank of America announced its takeover plan last October, at an estimated cost of $48 billion, it promised investors that the merger would enable it to achieve $250 million in cost reductions in 2004 and another $1.1 billion in 2005.
But while thousands of employees and their families pay the price for this belt-tightening regimen, the top executives at FleetBoston are awarding themselves huge windfalls. According to the company’s 10-K annual report filed March 2 with the Securities and Exchange Commission (SEC), the five leading FleetBoston executives received $32 million in bonuses and stock awards last year. These same individuals pocketed an additional $23 billion in stock grants this past February.
The banks’ chief executive, Charles K. Gifford, received $11 million in salary, bonuses and stock options in 2003, and another $6.5 million in restricted stock last month. President Eugene M. McQuade and Vice Chairman H. Jay Sarles each took in about $8 million last year, and an additional $3 million in February.
Three of the top five at FleetBoston—McQuade, Sarles and Executive Vice President Brian T. Moynihan—will receive severance payments currently valued at $20 million if and when they leave Bank of America, where all three are currently slated to hold high-level jobs. The severance package for McQuade, who is to become president of the merged bank, is by itself valued at $7.85 million. His base salary is to rise from $700,000 last year to $1.25 million. Gifford’s base salary of $992,000 in 2003 is to remain unchanged.
To properly assess the significance of such largesse for a handful of executives, it is necessary to place it within the context of the pervasive economic insecurity that confronts tens of millions of working people in America. There are no golden parachutes for ordinary workers who lose their jobs as a result of corporate mergers, downsizing and the plundering of company assets by millionaire executives. For the most part, they receive no advance warning that their livelihoods are about to be extinguished. There are no negotiations and there is no recourse. Under the economic despotism that prevails in American business, they are subject to the diktat of their bosses. A large majority of laid-off workers do not even qualify for unemployment benefits—the result of regressive changes in eligibility rules legislated over the past quarter century.
According to official government figures, 8.2 million are currently unemployed and another 4.8 million are attempting to survive with part-time jobs, because they cannot find full-time employment. Since the Bush administration took office in January 2001, some 2.3 million US jobs have been eliminated. While corporate profits are up 30 percent since the official end of the 2001 recession and dividends paid by Standard & Poor’s top 500 companies have increased 19 percent over the past two years, weekly earnings for the average worker in 2003 rose by just half of one percent over two years, after adjusting for inflation.
Some 760,000 people have exhausted their unemployment benefits, which normally last for only 26 weeks. Last December, Congress allowed a temporary program extending the duration of jobless pay to expire.
Not only are the top executives at Fleet giving themselves massive payouts in advance of the layoffs of thousands of their employees, they are doing so under conditions in which both Fleet and Bank of America are mired in scandals relating to fraudulent trading practices. In recent weeks, Fleet has been scrambling to settle a number of fraud investigations so as to clear the way for its acquisition by Bank of America.
The two banks recently agreed to pay $675 million between them to settle civil fraud charges related to improper mutual fund trading. The agreements were reached in connection with investigations being pursued separately by the US Securities and Exchange Commission and New York Attorney General Eliot Spitzer into widespread abuses in the mutual fund industry.
The mutual fund arms of both Bank of America and FleetBoston are accused of secretly allowing certain big investors to make rapid-fire trades in their mutual funds, in some cases after the legal close of the trading day. This practice, called market-timing, enables crony firms and individuals to profit from short-term discrepancies between valuations on a fund’s underlying holdings and the fund’s overall fund share price. Market-timers hurt long-term investors—for the most part, small investors—because their speculative profits tend to come at the expense of the overall financial position of the mutual fund.
In his complaint filed last September against Bank of America, Spitzer said the bank provided a New Jersey hedge fund with a “state-of-the-art electronic late-trading platform” that enabled the hedge fund to make illegal late trades in “the hundreds of mutual funds that the bank offers its customers.” Spitzer said that the bank also gave the hedge fund permission to rapidly trade in and out of its funds. Bank of America took in millions of dollars in fees servicing the hedge fund, while the hedge fund made tens of millions in profits from the improper and illegal trading.
Fleet’s mutual funds are the target of state and federal investigations into similar practices. The SEC and Spitzer filed fraud charges in February alleging secret market-timing arrangements at Fleet’s two mutual fund subsidiaries, Columbia Management Advisors and Columbia Funds Distributor. Fleet’s mutual fund managers permitted rapid-fire trading involving $2.5 billion over a five-year period. The bank expects to pay at least $25 million to long-term shareholders who were hurt by the market-timing arrangements.
Spitzer said in the suit filed in federal court in Boston: “Columbia managers and executives knew that making arrangements with market timers was harming long-term investors, but they facilitated it because it was a lucrative source of revenues.” His statement said Fleet secretly promoted the market-timing arrangements by “favored institutional clients in return for infusions of assets that generated management fees.”
Brian T. Moynihan, who oversees Fleet’s Columbia mutual funds, received $4.5 million in 2003 in salary, bonuses and stock, plus another $3.2 million in stock in February—the same month that Spitzer and the SEC filed fraud charges. Despite the massive fraud that occurred under his watch, Moynihan has been tapped to head the combined mutual fund operations of the two banks following the merger.
But allegations of fraud and illicit insider trading extend beyond the mutual fund operations of the two banks. On March 10, the SEC censured Bank of America and fined it a record $10 million in relation to a separate case involving SEC allegations against the bank’s securities brokerage unit. The SEC charges that the former director of the brokerage traded stocks in advance of the publication of research reports, with market implications, prepared by company analysts.
The fine was for the bank’s refusal to turn over documents related to that probe. The bank said some of the documents were missing when they weren’t, and deleted certain e-mail exchanges that had been sought by the SEC. Other documents were destroyed one week after the SEC asked the Bank of America unit to produce them.
Finally, Bank of America is under investigation for its role in the collapse, amidst massive accounting fraud, of the Italian dairy giant Parmalat.
For its part, Fleet agreed earlier this month to pay $59.4 million to settle an investigation into trading abuses by its Fleet Specialist market-making arm. The suit charges Fleet brokers with trading their own shares ahead of those of their clients.
Putting the matter diplomatically, David Marder, an attorney at Robins, Kaplan, Miller & Ciresi LLP in Boston and a former SEC enforcement official, commented, “When you have a merger of two companies, both of which are accused of serious misconduct, you need to wonder what kind of ethics the resulting entity is going to have.”
But neither the multiple fraud investigations, nor the obscene payments to Fleet’s top executives, nor the massive destruction of jobs has created a serious obstacle to the merger of the two financial giants. It was approved by both the Justice Department and the Federal Trade Commission, and on March 8, a week after Fleet’s 10-K filing revealing the multimillion-dollar windfalls for the company’s top executives, the Federal Reserve Board, in a 6-0 vote, including that of Chairman Alan Greenspan, gave its approval, clearing the way for the legal consummation of the deal on April 2.
The sordid facts surrounding this mega-merger demonstrate that, notwithstanding the highly publicized conviction of Martha Stewart and the prosecution of a handful of executives involved in more serious abuses (Enron, Tyco, WorldCom), the socially destructive and rapacious practices of the US corporate elite continue apace. The Bank of America-FleetBoston deal highlights the fact that corruption, fraud and parasitism are pervasive features of American capitalism.
http://www.wsws.org/articles/2004/mar2004/flee-m22.shtml
The IMF, World Bank, GATT, 'Gobblization' and International Banks Feast On Argentina As It Plunges Into Famine:
In His Thanksgiving Address Bush Sees Argentina As His Model For the U.S. And The World
By CRAG FAMIN
NOVEMBER 30, 2002
BUENOS AIRES, Argentina/Washington, DC (AP) — After a hearty lunch and a couple of drinks at the hotel, I swagger out into the Argentine heat. It's nearly midday and the tin-roofed dining hall of the Los Piletones soup kitchen is starting to fill up for lunch: mothers with hungry infants arrive, then empty-bellied schoolchildren in search of a square meal.
With bowls in hand, the line of youngsters awaiting a simple plate of corn mush and meat stew soon spills out from the building into the surrounding dirt lanes of Villa Piletones, one of the growing slums ringing Buenos Aires.
Like the vampire bats of the Altiplano, the World Bank, IMF, the International Development Bank and other terrorist organizations with training camps at the University of Chicago and Harvard University, have sucked the life's blood from Argentina. And even though Argentina's 37 million are starving the IMF still demands its vig.
Likewise George Bush sent a warning to the American people on Thanksgiving. One day after announcing that he would cut the Federal pay raise and give the money to his cronies who will serve as contractors for the new Homeland Security Agency, Bush told Americans that they were going to have "to fend for themselves." "There will be no big Federal government trough for the needy under my watch, " he announced after creating the largest government bureaucracy in the history of the country. "Big government is wrong. That has always been a credo of the Republican Party."
"Talk about pork! We'll have to use the earth's axis for a spit to handle this hog!" yelped long time Bush sponsor, Sam Wyly. "Sheeeeat! I'm gonna lick the spit clean on that sucker and shove the iron up Venezuela's butt."
Meanwhile back in Argentina, so-called ``solidarity networks'' have sprung up in a country in crisis, filling the gaps left by a cash-strapped government unable to satisfy dire social needs amid a four-year economic slump.
Bush alluded to the U.S. being a little "strapped " too when he said, "many more people will struggle every day — men, women, and children facing hunger, homelessness, illness, addiction, or despair, because of policies my handlers implemented. But tough titties."
Meanwhile in Argentina, ``I was so worried before I came here how I was going to find food for my baby since my husband lost his job,'' said Rosa Diaz, 24, who cradled her 7-month-old daughter in her arms.
The volunteers at Los Piletones say the number of people receiving three meals a day at the soup kitchen has doubled to 1,600 during another year of IMF 'austerity'. Some journey two hours each way for a meal. Others take what little money they have, purchase weapons, and prepare to take back their lives.
Margarita Barrientos and her husband, Isidro, who started the soup kitchen six years ago, say they dedicate endless hours to ensuring the program endures.
``The soup kitchen was designed by architects in Buenos Ares that were paid $400.00 an hour out of the meager grant as mandated by the IMF,'' said Margarita Barrientos, sitting at one of the long, wood-plank tables. ""After we paid the architects and had their suits dry-cleaned, there was very little left for food."
Adding urgency to volunteer efforts, newspapers here have been awash with reports for weeks of underfed children dying or being rushed to hospitals in a poor northern belt of Argentina hardest hit by the economic crisis. Since Nov. 14, eight malnourished children have died in the northern province of Tucuman.
Fabian Repetto, of the Interamerican Development Bank, said the economic despair has been the catalyst for a surge to seek him out and kill him, with volunteer assassins numbering in the hundreds.
Since the IMF introduced the recession in mid-1998, the number of volunteers has jumped by 12 percent, with close to 1.4 million Argentines now assisting the country's 105,000 revolutionary organizations.
``The increase in poverty and weakened ability of the state to respond has made any type of effective government action impossible. The trough is almost empty. Its time for the IMF to move on,'' Repetto said.
At Los Piletones, donation drives by private schools fearing the masses will rise up, as is only natural, keep the soup kitchen's pantries stocked with macaroni, rice and cooking oil.
Donors said fear triggered them to act. One mother, Sandra Garzzola, said even her 5-year-old child now collects food for children who lack what she has because starving people are desperate and inclined to desperate measures.
"The World Bank and IMF have finally perfected their program. They have taken a relatively prosperous country, and turned it into a land of beggars," smiled Milton Friedman. "Even their public officials have to beg; beg the IMF, beg the banks. This was the sort of society Bush Sr. was hinting at with his 1000 points of light. Where a few own everything and the rest satisfy themselves with a life of subsistence and acts of charity. Homeland Security is genius, you go to the trough while increasing your firepower to prevent anyone from doing anything about it."
The government, too, is helpless. President Eduardo Duhalde's government has joined with international charities this month in launching ``Operation Rescue,'' an emergency campaign to send food and doctors to the poorest provinces, a sign that the country has plunged into third world status like many pockets in the U.S.
Duhalde's wife, Hilda, in one of those public relations ploys designed to sell air time filled with sentimental nothings, was made to look like she took charge personally, recently joining mothers with underfed babies in Tucuman and announcing at a news conference on Tuesday that she would lead a ``house-to-house'' effort to combat hunger. After the news conference her public relations team flew back to New York and a meal at Sardi's paid for by the Argentine taxpayers, such as they are.
But a government that has defaulted on much of its $141 billion public debt has barely enough money to pay off the indigenous porkers much less 200 of Bush's closest felonious friends. Many Argentines hit hard by the January devaluation that saw their income cut by 70 percent against the dollar will be dead by spring. When asked about this, IMF president James D. Wolfesohn said, "Fooled you once. Shame on me. Fooled you twice. Shame on you. Fooled you repeatedly over a period of two decades and we just fuckin' had you." "Tough titties," he added, echoing the President.
Against such economic shocks, a new soup kitchen opens almost every hour in Argentina, usually by community or non-governmental groups. In his Thanksgiving Day address, Bush alluded to this. "We see Argentina as model for the U.S. Lots of soup. Big hot vats of soup. And everybody helping everybody else after my friends have stolen everything and moved on."
Looking back on a year marked by theft at the highest level, Manuela Jarry said acts of kindness cannot hope to stem the hunger. "You gringo journalists are full of shit. Always have been. Always will be. We should butcher and eat you."
Asked about all this, Don Rumsfeld gave his customary holiday reply, "Fuck the Argentines! Fuck the Americans! And fuck the allies while you're at it."
``This past year might have been one of the worst ever for Argentines,'' Jarry said. ``Where can we get some guns?"
"They're so corrupt, it's thrilling." Lenny Bruce