Splitting commercial banks from investment banks and Ken Lewis

CORRECTION: It seems Ken Lewis doesn't advocate separating commercial banks from investment banks. Bloomberg corrects the original story, with Lewis claiming he was misinterpreted. Bloomberg reports:

Bank of America Corp.’s Chief Executive Officer Kenneth Lewis said he doesn’t advocate a legal division of commercial and investment banking and that his comments about separating the two referred to rhetoric and public perception.

“I was talking about the rhetoric, not physically separating the two,” Lewis said in an interview with Bloomberg Television. “We have an investment bank, we have a commercial bank as well that is the fabric of every community in which it operates.”


hmm...


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Original post follows...


Ken Lewis, CEO of Bank of America, suggested that he will advice Barack Obama to split commercial banks from investment banks:

Bank of America Corp. Chief Executive Officer Kenneth Lewis said today the U.S. should consider separating commercial lenders from investment banking activities.

Lewis made the comment on his way to a meeting with President Barack Obama and U.S. banking chiefs. Asked what he would tell Obama if given the chance, Lewis said it would be that “commercial banks are the fabric of any community in which they operate and we probably need to separate the commercial banks from the investment banking activities.”


I have held a similar view for a long time--basically I think the anyone that finances the shadow banks should be detached from normal banks--but the question I have is the following. If that is what Ken Lewis, who I actually think is a good CEO, says then why did he, acting on behalf of Bank of America, purchase Merrill Lynch? Is this an opinion he formed after getting entangled in Merrill Lynch's toxic assets or did he hold that view before?

Ken Lewis almost bankrupted Bank of America, which largely avoided the toxic mortgages and various other toxic assets, when he purchased Merrill Lynch. Granted, Merrill Lynch may not be a pure investment bank like Goldman Sachs or Lehman Brothers. It is more of a broker and was once affectionately known as America's broker (it was considered the average citizen's broker.) Nevertheless, it probably does belong in the investment bank category more than the commercial bank one. I don't know why Ken Lewis purchased Merrill Lynch.

Before someone mistakens what I'm saying, let me say that I am not as critical of Ken Lewis as many others. Some are calling for his head, for the buyouts of Merrill Lynch and Countrywide, but I think he should be given time. Do note, though, that I'm speaking as an observer and not as a shareholder.

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