Merrill Lynch-Bank of America Merger
Ethics is a branch of philosophy that focuses on the moral, philosophical characteristics of formal, systematic and ethical principles. Moral judgments are calculated from ethical principles which need to be applied as a standard for everyday choices in life and business. This is directly related to the decisions human beings make. Cavico (2009) states utilitarianism is more than just moral philosophy. It is a way of reformation and used extensively in government decision-making. This will be discussed further in the Bank of America-Merrill Lynch merger.
Utilitarianism is considered a scientific system of ethics and not just a philosophical theory of ethics. Utilitarian ethics follows the belief of maximizing the greatest good for the largest number of people. As utilitarianism is identified, one needs to learn that the greatest good could be based on aggregate principle or a distributive principle. The Bank of America-Merrill Lynch merger will be assessed in regards to who, what and how the greater good will be affected in this merger. Within utilitarianism, a moral philosophy is developed that focuses on the consequences of specific actions.
An action is done, then observed and then analyzed. After identifying all the people that were involved, one needs to ask the question, “Do the sum of good consequences outweigh the sum of the bad consequences? ” Quantify all the good and bad consequences in the scenario and if the good consequences are greater than the bad consequences then the action was moral and vice versa. In this paper, the actions of the Bank of America-Merrill Lynch merger will be discussed, evaluated and quantified with the Richard DeGeorge Utilitarian perspective.
Pinpointing the stakeholders in this case will show who was direct and indirectly affected and how they were affected. Furthermore, it will be discussed the overall affect it had on society from a global perspective, reaction from competitive markets and the economic impact it created within the United States and worldwide. Critical points and actions will dominate the course of action on how utilitarian ethics was applied in this situation. Identifying the individual people or groups that were in this scenario will be evaluated on a pleasure v. ain scale where it will show the extent of good or bad in the situation and the possible outcomes that followed. The pleasure v. pain comparison will then be quantified on a grading scale that represents extreme pleasures and pains in Bank of America-Merrill Lynch merger. After totaling up the good and the bad points, it will determine if the actions in this merger were moral. In late 2008, Bank of America and Merrill Lynch were in negotiations for a business deal. Bank of America was going to buy Merrill Lynch for one of the largest bank mergers and acquisitions in the world.
On the surface, Bank of America thought the merger was a good idea and a good business deal to pursue. Former Chief Executive of Bank of America, Kenneth Lewis, and the board of Bank of America saw this business deal as a way to expand into different sectors of the financial markets and strengthen many of its counterparts. With all the extensive financial records of both companies and balance sheet assessments, the deal looked great for smooth sailing. Catastrophically, the deal went through and contributed towards a massive failure in our financial markets that affected and crippled everyone worldwide.
The private deal that once seemed so good has now become a nightmare. All of a sudden, the government has stepped in and has announced it will give twenty billion dollars in assistance from tax payer’s money. Investors and the public were shocked something of this magnitude was happening and felt betrayed, cheated and crippled. Within all the mayhem, the actions that will be evaluated come from Merrill Lynch and Bank of America and their failures to disclose pertinent financial information that would have shown greater losses than expected.
United States (2009) stated the lack of transparency to investors and to the public showed that there was a negative atmosphere among them that they feared to disclose from the public. In addition to this, rumors circulated that the government had ties to this merger and flexed its power in order to make the merger happen. There were a great amount of people affected in this merger. Merrill Lynch as a company was being bought out in order to be saved financially. Merrill Lynch’s investors, shareholders and CEO, John Thain were a part of this corporation.
Bank of America was the number one candidate for purchasing Merrill Lynch at the time. Bank of America’s investors, shareholders and CEO, Kenneth Lewis were all a part of this major merger. United States (2009) includes the Secretary of the Treasury, Hank Paulson and Chairman of the Federal Reserve, Ben Bernanke were on the governmental side of this merger that apparently knew what was going on and forcefully made Bank of America buyout Merrill Lynch. This merger can also contribute to affecting the general public, global economies cross the world and the financial banking industry. As this case develops, there is uncertainty that Merrill Lynch and former CEO, John Thain, have to reveal massive amounts of losses and at one point a fourth quarter loss of fifteen billion dollars. In response, former CEO of Bank of America, Kenneth Lewis analyzes this and decides it may not be a good idea to pursue the merger. Secretively, the Fed, Paulson and Bernanke force Lewis to buy into the deal because if he doesn’t this could create a complete and total meltdown of the financial systems.
Utilitarian ethics was used by considering the global economy; the government had to step in to minimize the blow as best as they could to help the greater good of society. In addition to this, there has been speculation that if Lewis hides these huge losses before the merger and reveals them after the merger he could gain more government help in regards to the massive hit Bank of America now faces. Although the economy is in a meltdown and financial banks are getting hit harder than ever before, this merger may prove to save some of our largest financial institutions and lessen the blow of a complete loss for the global economy.
On one spectrum of the scale we have the financial banks abusing high leverage investments in order to gain more money without caring about negative consequences but then on the other hand, the nation is faced with minimizing damages and saving as much as it can because in a result of total loss, the public could be in a greater state economic loss. With Merrill Lynch being saved and Bank of America taking on the bigger role of keeping afloat, Merrill Lynch now has the opportunity to be bought out and saved compared to total collapse and bankruptcy.
In this case, it was a smart move for Merrill Lynch to be acquired by Bank of America and a foreseeable good in the future of the financial markets. Kenneth Lewis took the daunting task of acquiring Merrill Lynch and the bad debt expense that the company brought with it. Acquiring Merrill Lynch would provide a huge blow to Bank of America at first but restructuring and getting government help in the merger would prove to be a successful task that would provide foreseeable good in the future. Some people believe that Paulson and Bernanke used their governmental power to make this merger happen.
Bank of America’s Acquisition (2009) states they forced Kenneth Lewis to buy out Merrill Lynch and if not Kenneth Lewis and the board of Bank of America would have been terminated. Although this may have been a threatening action, it was in the government’s best interest to make this merger go through or a total collapse of the financial markets would be devastating for the American population and further seep into global chaos. It is a very tough situation to assess but following Utilitarianism considered the greater good of the population and this needed to be done.
In addition to this, individual investors were hit very hard with the downturn of the economy. In many cases, people lost more than fifty percent of their investments which sounds terrible but comparing it to a nongovernmental bailout, those individuals would be left with nothing. In this research study, it is needed to define the severity of good and bad consequences for each individual or group that was affected in this case on a numerical grading scale. Each individual or group will be considered according to the Richard DeGeorge Utilitarian approach.
The scale will be ranked from +5 being the best and -5 being the worst situation from a pleasure versus pain standpoint. Merrill Lynch being bought out by Bank of America is more of a good thing. Ranking it at +2 gives Merrill Lynch and Bank of America merger the positive side because without this merger people would be in greater amounts of trouble. Ranking a +1 for investors and shareholders of each company provides a positive side of this outcome. Although investors did lose over fifty percent of investments into the companies, this loss is better than losing everything that was invested.
Other financial markets were consolidated and restructured. By getting rid of bad assets, other financial institutions could start over and reinvest in the proper markets. This was also a learning lesson for the financial industry and for them to never repeat these careless mistakes again. A rank of +3 will be given to the financial markets. Hank Paul and Ben Bernanke did prove to show excessive force in making this merger happen but only in regards to saving the U. S. economy and limiting the blow that it could’ve potentially produced.
Giving the government a ranking of +2 shows they provided a better option for America and the possibility of avoiding a complete financial meltdown. Assessing our global economy by looking back at it over the past five years gives it a ranking of 0. This explains that as a country and globally, we have made minimal increases in our economy. One month says we are getting back on the right track while the next month says we are sinking deeper and deeper into recession. The economy shows a recovery in the stock market one month but the next month there is speculation that the European markets are going to crash and take everyone with them. Living in these highly volatile times gives uncertainly and fear for most investors which hinders potential growth and recovery. After summing up all the pleasure and pain rankings, the total equals +8. This shows that amidst all the chaos, deceiving and cheating, the outcome created a positive effect that saved our economy as best as possible rather than let it sink and destroy everything.
This tragic merger proves to be a morally correct standpoint regardless of the tough actions that were taken in order to achieve this outcome. No individual cheated the system or manipulated the system in order to gain financial strength. It was in the best interest of the individual companies and the U. S. economy to keep them intact or greater consequences could’ve occurred. Saving two of our largest banks provides us with a loss in investments but something that would be accepted rather than total and complete collapse of our financial systems.
Primary Source
- United States. (2009). Bank of America and Merrill Lynch: How did a private deal turn into a federal bailout? : joint hearing before the Committee on Oversight and Government Reform and the Subcommittee on Domestic Policy, House of Representatives, One Hundred Eleventh Congress, first session. Washington: U. S. G. P. O. Secondary
- Bank of America’s Acquisition of Merrill Lynch: A “Shotgun Merger”?. (2009, June 16). My Bank Tracker. Retrieved August 4, 2012, from www. mybanktracker. com/news/2009/06/16/bank-of-americas-acquisition-of-merrill-lynch-a-shotgun-merger/
