Material Adverse Change

Introduction: The Risks and Opportunities of Doing a Deal

Did any board member suggest that Bank of America should go ahead and invoke the MAC?

No, not at that point…most people thought the severity of the reaction meant that they (i.e., U.S. Federal Reserve and Treasury) firmly believed it was systemic risk.

—Ken Lewis, former chairman and CEO of Bank of America during U.S. Attorney Deposition on Executive Compensation February 26, 2009¹

On October 8, 2002, Fred Goodwin, then CEO of Royal Bank of Scotland (RBS), outbid Bob Diamond, the head of Barclays Capital, to conclude his long quest to purchase ABN AMRO Bank for $96.5 billion. Goodwin had built RBS from a small regional bank to a global powerhouse that was one of the largest banks in the world. For his efforts, Goodwin was voted “Businessman of the Year” by Forbes magazine in 2002. He had earned the name “Fred the Shred” for his ability to ruthlessly take out people while reducing the cost of operating the companies he acquired. Forbes proclaimed, “In a tough era for lenders, Fred Goodwin has built his bank into the world's fifth largest with a market cap of $70 billion.”² Goodwin had a pragmatic approach to acquisitions, leveraging his instinct and experience running businesses to buy and transform companies.

Five years later, this jewel of an acquisition did not live up to expectations. Credit losses in the ABN loan book, key employee departures, an inability to integrate the complex ABN AMRO computer systems, and ...