Pressure from Fed and Treasury chiefs to complete purchase of Merrill Lynch despite ‘staggering’ losses
Merrill Lynch Chairman and CEO John Thain, left, shakes hands with Bank of America Chairman and CEO Ken Lewis, at a news conference last autumn. The deal between the banks has proved controversial Photo: AP
Ken Lewis’s position at the helm of Bank of America looked increasingly uncertain on Thursday after it emerged he stopped short of pulling out of the deal to buy loss-making Merrill Lynch after Treasury Secretary Hank Paulson threatened to oust him and his entire board.
Mr Lewis BoA’s chairman and chief executive, also knowingly hid the state of Merrill Lynch’s “staggering” losses from shareholders at the behest of former Treasury Secretary Paulson and Federal Reserve chairman Ben Bernanke.
The revelations were contained in a batch of BoA board minutes and testimony from Mr Lewis and Mr Paulson sent by New York Attorney General Andrew Cuomo to the Securities and Exchange Commission and Congressional leaders Chris Dodd and Barney Frank.
Bank of America chief ‘told to buy Merrill or face sack’
Bank boss claims US treasury told him to seal $50bn deal and keep quiet about brokerage’s huge losses
The US government threatened to eject the entire board of Bank of America if the firm pulled out of a $50bn (£34bn) takeover of troubled Merrill Lynch in December, according to new documents set to inflame a bitter shareholder dispute at America’s wealthiest bank.
In potentially explosive testimony to regulators, Bank of America’s chief executive, Ken Lewis, has claimed the US treasury ordered him to press ahead with a buyout of Merrill and to keep quiet about the Wall Street brokerage’s mounting losses.
Full article here: The Guardian
Mr Cuomo, who released details of the exchanges yesterday, has been investigating BoA after Merrill paid $3.6bn (£2.45bn) of bonuses to its staff just days before the acquisition was completed on January 1.
He believes he has uncovered “facts that raise questions about the transparency” of the Treasury’s $700bn bank bail-out programme “as well as about corporate governance and disclosure practices at Bank of America.”
Investors have already expressed serious concern that BoA did not attempt to pull out of the merger with Merrill, given the investment bank racked up losses of $15.84bn in the fourth quarter of 2008. The loss required BoA to take on an extra $20bn of Treasury funding as well as an $118bn loan-loss guarantee.
The documents paint all three men in a bad light. Mr Lewis, though initially keen to pull out of the Merrill deal after revealing the extent of what he calls the “staggering amount of deterioration in its finances,” claimed he caved in after being threatened by Mr Paulson on December 21, ten days before the sale was due to complete.
“That makes it simple. Let’s deescalate,” Mr Lewis told Mr Paulson, with reference to his original plan to invoke a material adverse clause (MAC) to get out of the Merrill deal.
Mr Paulson later testified to Mr Cuomo that he only threatened Mr Lewis “at the request of Chairman Bernanke.”
As part of his testimony, Mr Lewis claimed that he was told by the two men not to disclose that he had considered invoking the MAC, and admitted that over the short term BoA shareholders were being asked to shoulder some of the damage from the Merrill losses.
At a later board meeting, on December 30, the BoA board stressed it was not influenced by the threat of removal and that it was only going along with the government’s requests because of “serious concerns regarding the status of the US financial services system” were it to pull out of the Merrill deal.
The disclosures will provide investors already seeking to oust Mr Lewis at next week’s annual general meeting on April 29 extra ammunition.
A BoA spokesman said: “We believe we acted legally and appropriately with regard to the Merrill Lynch transaction.”
By James Quinn, Wall Street Correspondent
Last Updated: 9:40AM BST 24 Apr 2009
Source: The Telegraph