Grading U.S. choice.

• Author: Gearino, G.D.
• Position: FINEPRINT

Without meaning to, two North Carolina banks this year turned themselves into unwitting participants in a business-school case study that MBA candidates will chew on for years to come. In fact, let's kick this off by framing the topic as an exam question: What decision made individually by Bank of America Corp. and First Citizens Bancshares Inc. caused them to have wildly different fortunes during the Great Financial Panic of 2008-09?

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Answer: The first chose to become the federal government's partner and suffered; the second chose to put as much distance as possible between it and the feds and avoided the pain.

Of course, describing the federal government as Charlotte-based Bank of America's "partner" requires an elastic definition of the word. The relationship is uniquely and profoundly complicated. The government is an investor in BofA, thanks to $45 billion in Troubled Asset Relief Program money over the past year or so. But it is also--depending on the day of the week--a regulator, policymaker, prosecutor, compensation auditor and invisible power whispering instructions from behind a curtain. The appearance of any one of those multiple personalities usually is invoked by the actions of another. The invisible power pushes BofA to complete the acquisition of Merrill Lynch & Co., which prompts the regulator to punish the bank for not revealing information that would have killed the deal the whisperer ordered.

Conducting business in an environment like that is akin to navigating a maze of mirrors. Every time you think you're headed in the right direction, you collide with something. You quickly learn that you can't believe what you see (or in this case, what you hear from your "partner"). A little more than a year ago, BofA's list of challenges was no longer than that facing any other major financial institution. It had toxic assets but enough tensile strength in its balance sheet to put $4 billion on the table to buy Countrywide Financial in July 2008. How does BofA look now? It's being investigated by the New York attorney general and a congressional committee; a federal judge wants the scalps of bank executives; CEO Ken Lewis has said he'll quit by the end of the year (if he isn't forced out sooner); and for good measure, its federal "partner" demanded $425 million when BofA said it wanted to unwind one relationship with the government--essentially imposing a prenup agreement after the marriage.

All those woes...