Thursday, June 11, 2009

Quick Notes for the Day - June 11

Do not miss the last item under today's notes regarding BofA CEO Ken Lewis.

Initial Jobless Claims Fall - The number of first-time claims for state unemployment benefits fell 24,000 to 601,000 in the week ended June 6, the Labor Department reported Thursday. The four-week average of initial claims fell 10,500 to 621,750. In the week ended May 30, continuing claims for benefits reached a new record high, rising 59,000 to 6.82 million from an upwardly revised level in the prior week. Continuing claims have set fresh record highs for 19 consecutive weeks. The four-week average of these continuing claims rose 57,250 to a record 6.75 million.

Retail Sales Rise - U.S. sales at retail stores increased 0.5% in May, but much of the seasonally adjusted increase reflected higher gasoline prices, the Commerce Department estimated Thursday. Sales rose for just the fourth time in the past 12 months. Compared with last May, sales are down 9.6%, reflecting the huge contraction in consumer spending as the recession tightened its grip. The 0.5% increase in May was less than the 0.7% forecast by economists, but upward revisions to March and April put total sales receipts in May close to expectations. Sales fell 1.2% in March and 0.2% in April. Gasoline sales jumped 3.6% in May, a function of higher prices at the pump. Motor vehicle sales rose 0.5% in May.

Household Wealth Drops - The net worth of U.S. households fell by $1.3 trillion in the first quarter, a seventh straight decline that has seen their wealth drop by nearly $14 trillion, the Federal Reserve reported Thursday. Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 billion, the lowest in more than four years. U.S. families have lost 22% of their wealth since the peak. On the bright side, households and businesses reduced their outstanding debt during the quarter. Total private-sector debt fell at a 0.4% annual pace, the first time that private-sector debt had declined since the Fed's records begin in 1952. *** Note - The debt being lowered is not really a surprise after seeing the dramatic turn in the savings rate over the last 6 months. This is just a continuation of that trend. Also, the decline in the stock market and housing market also would have led to a negative wealth report.

BofA CEO Ken Lewis on Capitol Hill - Bank of America's CEO Ken Lewis appeared before a House subcommittee this morning to give testimony and answer questions regarding the Bank of America/Merrill Lynch merger. His prepared statement (you can view it here) outlines his time at BofA, BofA as a company, the acquisitions of CountryWide and Merrill Lynch, the reasons behind acquiring Merrill Lynch, and finally the issues around the completion of the Merrill Lynch deal. The question and answer period is still ongoing, and by his statements, it does seem that BofA was pressured.

The real meat though has come from The Wall Street Journal. The Journal published an article today (read it here) titled "Fed Emails Bash BofA Chief in Tussle Over Merrill Deal." It is definitely worth reading. Below are just a few quotes from the article:

"During the December standoff between the big bank and top government officials, Federal Reserve Chairman Ben Bernanke dismissed the pullout threat as a 'bargaining chip.' Fed attorneys called the bank's arguments 'not credible.' And a top examiner said Chief Executive Kenneth Lewis's own claim that the bank was surprised by Merrill's mounting losses 'seems somewhat suspect.'"

"A transcript of the documents, assembled by congressional investigators and reviewed by Dow Jones Newswires, indicates Mr. Bernanke was willing to threaten Mr. Lewis's removal."

"Mr. Bernanke related that Mr. Lewis raised the possibility the bank could face shareholder lawsuits for proceeding with the deal, given the deterioration in Merrill's finances. "I don't think that's very likely and said so," Mr. Bernanke wrote, referring to potential lawsuits."

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