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4 Ingenious Ways You Can Do With Richard Fairbank | richard fairbank

Richard Fairbanks was once at the helm of one America's biggest banks. Currently, as the CEO of America s biggest bank, Richard Fairbanks bragged about how low-risk mergers and acquisitions are now in vogue. According to him, these mergers will enable banks to become bigger and more profitable. But, what's most important to Mr. Fairbanks is that the banks not be able to act like “pirates” when it comes to sharing their information with other companies.

Recently, I had an exchange with a seasoned executive officer of a financial products company. This individual reminded me of a comment that the late Steve Jobs made regarding the need to beware of “evil banks”. Apparently, Mr. Jobs was referring to the merger between Air Force One and GE Capital. The resulting combined company would create the largest jet-company ever.

Well, now it appears that the CEO of GE is correct on this point, although the media may have been unable to catch Mr. Jobs on this point during his speech. But, what about the larger banks? Will they be punished for providing undervalued products to consumers? Or, will they be immune from any civil penalties under the new proposed FTC rules? Or, perhaps, will the largest banks be able to receive a bailout from the government because they can provide housing and transportation to our nation's population? If so, will that be a good thing or a bad thing?

Well, let's put this in perspective. Did you know that Mr. Fairbanks is the ex-chairman and current CEO of GE Capital? Also, he is also an ex-hedge-man. In other words, he has the knowledge needed to understand the merger discussion and how to negotiate an acceptable capital one for the company. No one has doubt that we need capital and that any financial services company that can provide it can be highly successful, but as with most things, there is a fine line drawn.

If Mr. Richards' goal is to break up the banks, which he apparently wants to do by creating a smaller company where he can acquire a smaller number of shares, this is a smart move. However, the stockholders at GE don't want him to do this and as a result, they've taken their complaint to the FTC. According to their complaint, the directors of GE did not take reasonable action to demonstrate that they were considering breaking up the bank, in fact they took the opposite approach. They simply waited too long to offer a competitively-priced dividend and an appropriate exit strategy.

The next question is why this matters. Simply put, if you are an investor in a company that you believe to be fundamentally sound and will continue to be profitable over the long term, then do what you can to ensure you are acquiring a company with an adequate capital one. That is true irrespective of whether you are an institutional investor or a self-directed retail investor. If the management team and the board of directors have an understanding of their own personal financial circumstances, then the answer should be obvious. Don't wait for the third time to do what you must do.

So, why did Mr. Fairbank violate the Code? According to his own explanation, it was not because he had a fiduciary duty to give the shareholders their requested dividend and an exit strategy. He stated, instead, that heerred to the company's board of directors and their recommendation to approve the merger. As a matter of fact, the CEA Richards had already advised the company's management and the board of directors that the deal would be approved. The fact that he did not make this recommendation to the management was immaterial to the corporation's shareholders or the review of the Merger Price. Had he known that his recommendations might have caused the company to be deemed to be in violation of the anti-trust laws, he never would have made the recommendation to the board.

The reason why Mr. Fairbanks was terminated from his position as CEO and CFO was not because he violated any laws or fiduciary principles of corporate governance. Rather, the reasons given to him by the CEA (in their letter of October 4th) were based on a review of the Merger Price, which found certain aspects of the transaction to be in violation of the Federal Trade Commission's anti-trust regulations, namely, a clause requiring that the company provide its buyers with an explicit consent to purchase the acquired shares. Because the complaint was based on the exclusion of such an agreement, and because Mr. Fairbanks had not taken a formal position in that regard, the dismissal of his case was subsequently overturned on appeal. As the result of this precedent-setting decision, there is no longer a basis for directors to avoid providing their shareholders with a detailed annual statement regarding their company's activities and circumstances.


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