Bank Earnings Reveal Mixed Recovery on Wall Street

JIM LEHRER: Next tonight: What's behind some big profits and big losses for the banks on Wall Street? Jeffrey Brown has that story.

JEFFREY BROWN: In recent days, major banks have reported their third- quarter earnings, and it's a mixed picture. Several, including Goldman Sachs and J.P. Morgan Chase, reported considerable profits, while others continue to be hurt by loan losses and other problems in the broader economy.

Notable among the latter group is Bank of America, which is also plagued by the continuing fallout from its acquisition of Merrill Lynch late last year.

Joining us for an update is Clayton Rose, a senior lecturer at Harvard Business School.

Well, let's start with Bank of America. In what ways is it feeling the economy's continuing problems?

CLAYTON ROSE, Harvard Business School: The primary problem that they have is that their assets, their loans are tied to the consumer.

And, as long as the consumer is both unemployed at a much higher rate than we would all like, and as long as they continue to not purchase things and to shed debt, then firms that have a close tie to their fortunes, like Bank of America, are going to continue to suffer in terms of earnings.

JEFFREY BROWN: And B-of-A is particularly vulnerable in that area?

CLAYTON ROSE: They are. A substantial portion of their assets are related to loans, both mortgages, home-equity loans and credit card loans, that are very tied to the consumer.

JEFFREY BROWN: Now, in the meantime, the banks' executives and now the lawyers are — are still under something of a cloud over the Merrill acquisition. Tell us what has happened just in the last couple of days.

CLAYTON ROSE: Well, the fundamental issue there, Jeffrey, is that, or the issue at question here is, should Bank of America have disclosed in the fourth quarter of 2008 a year ago that the losses that Merrill was suffering during the fourth quarter were much higher than anticipated, and disclosed that to the shareholders in Bank of America before the vote was taken to formalize the sale of Merrill to Bank of America?

Bank of America chose not to disclose those losses before the vote was taken. And that's the issue, whether they should have done that and whether there was some either violation of law or disadvantaging the shareholders there.

In the last few days, Bank of America has reversed the position that they had had. And that is that they said that they were operating, their executives, under the guidance and advice of their lawyers, but that they were not willing to reveal what it is their lawyers had told them because of the attorney-client privilege.

And, for whatever particular reasons, Bank of America has reversed that position and is now going to allow the authorities, both in Congress and I believe in the New York Attorney General's Office, to review the advice that their attorneys had given them.