MADDOCKS: Bank of America accuses JPMorgan and Goldman Sachs of cheating on stress test
By Philip Maddocks
Fri May 15, 2009, 10:44 AM EDT
In a dispute that is threatening to divide the banking community, Bank of America this week accused JPMorgan Chase and Goldman Sachs of cheating on the government’s stress test and demanded that failing grades be assigned to the two banking giants.
"It boggles one’s mind and strains everyone’s credulity to find that such screw-ups as JPMorgan and Goldman are deemed healthy while other screw-ups like B of A are branded as failures," said an enraged Kenneth D. Lewis, the chief executive of Bank of America.
Mr. Lewis said he is convinced the answers given by JPMorgan Chase and Goldman Sachs "were too good to be true."
"They add up, which should raise suspicions right there, but it’s more than that," fumed Mr. Lewis. "It’s the way they add up — not too good, and not nearly as bad as ours. Numbers like that just don’t happen in our business. It’s as if they knew ahead of time what the questions were."
The Bank of America executive went on to say that JPMorgan Chase and Goldman Sachs each have a long history of cheating and of juvenile behavior, including picking on smaller, less popular banks and forcing them to give up their lunch money.
Mr. Lewis suspects that one evening last month, after government regulators and economists had gone home, JPMorgan and Goldman gained entrance the Treasury building. And while lesser known financial institutions stood sentry in hallways, JPMorgan and Goldman entered Treasury offices and used stolen keys to break into Treasury Secretary Timothy Geithner’s filing cabinet.
From there, Mr. Lewis speculates the banks stole the calculated estimates of potential losses over two years, along with the estimates of potential earnings over the same period that were to be used on the stress tests. According to Mr. Lewis, the thieves also made off with a French press coffee maker.
Then, Mr. Lewis suggested, JPMorgan and Goldman used their advanced knowledge to substitute their own numbers while the banks were taking the stress test.
Last week JPMorgan Chase and Goldman Sachs were deemed stronger than their peers by regulators. Bank of American is among the 10 banks that were ordered to raise a combined $75 billion in equity capital as a buffer against potential losses should the economy deteriorate and to raise enough cash to buy Mr. Geithner a new French press coffee maker.
This week JPMorgan Chase and Goldman Sachs defended their actions — "whatever actions those actions might have been" — and sought to put a positive spin on their test figures. They characterized Mr. Lewis’ gripes as sour grapes.
"It’s not about cheating, it’s about results. And the fact is that our results are better than Ken’s and he doesn’t like it," said one Goldman Sachs executive. "If Ken wants to say we are better cheaters than he is, he’s welcome to it. And it’s not far from the truth."
A spokesman for the Treasury said the government is taking Mr. Lewis’ charges seriously even if it is less inclined to do so with Mr. Lewis himself.
"He always wants to hold someone else accountable for his mistakes," said one regulator
Red-faced and unrepentant, Mr. Lewis continued to question the motives of Treasury officials and regulators, suggesting that they are using the stress test to show that banks of privilege like his are not above abject failure.
He insisted that none of the 19 banks given the stress test had spent much time studying for the exam, especially JPMorgan Chase and Goldman Sachs. He said he knew for a fact that the night before the big test, those two financial giants had been out until the early morning hours partying, using billions in federal bailout money to fund their debauch.
He said a hung-over JPMorgan Chase had shown up for the test the next day reeking of alcohol, and he wasn’t entirely certain that Goldman Sachs had shown up at all.
"I heard," Mr. Lewis said, "they got some brainiac bank from Canada to take the test for them."
(Philip Maddocks can be reached at email@example.com.)