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WSJ: BofA CEO says was told to be quiet on Merrill

NEW YORK (AP) — Bank of America Chief Executive Kenneth Lewis told the New York attorney general he believed former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to keep quiet about the worsening terms of the bank's acquisition of Merrill Lynch, according to testimony reviewed by The Wall Street Journal.

The New York AG's office plans to release the testimony on Thursday to federal regulators and overseers of bailout funds and banks, the newspaper reported after reviewing a transcript.

"We believe we acted legally and appropriately with regard to the Merrill Lynch transaction," Bank of America spokesman Scott Silvestri told The Associated Press Thursday.

He declined further comment about the report.

Lewis testified in February to New York Attorney General Andrew Cuomo's office, which has been trying to determine if Merrill and Charlotte, N.C.-based Bank of America failed to provide adequate disclosures to shareholders about the more than $15 billion in losses Merrill incurred in the 2008 fourth quarter and hefty bonus payments. Had they had that information, BofA shareholders might have voted down the deal.

The Journal said in Thursday's edition that Lewis doesn't say in the transcript that he was told specifically to remain silent about Merrill's burgeoning losses. But the paper quotes Lewis as testifying that disclosing that information "wasn't up to me," and that he was warned by Paulson and Bernanke that failing to complete Merrill's takeover would "impose a big risk to the financial system."

Citing a person familiar with the matter, the newspaper said Paulson told the NY AG's office last month that Lewis may have misread some remarks about Treasury's disclosure requirements as instead pertaining to his bank's obligations.

The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under and insurer AIG received its initial government support. Both the government and Wall Street were under substantial pressure to contain the financial meltdown.

Bank of America had received $25 billion in federal bailout funds, but was later given an additional $20 billion as Lewis showed trepidation about completing Merrill's purchase and said the bank needed help offsetting the losses it was absorbing from the troubled brokerage.

Just a few weeks after the deal was completed, Bank of America's earnings report showed the major hit its balance sheet would take on the Merrill transaction, quickly making Lewis the target of much shareholder fury.

Two of the nation's largest state pension funds are seeking to lead a class action lawsuit against Bank of America, alleging the bank's management "misstated or omitted" important information about Merrill's financial health before the deal was completed.

And Finger Interests Number One Ltd., which owns about one-fifth of one percent of Bank of America stock, is asking shareholders to vote against re-electing Lewis as well as lead director O. Temple Sloan and Jackie Ward during the bank's annual meeting April 29.

Bank of America warned of worsening loan default problems this week even as it posted a first-quarter profit of $2.81 billion. The amount of its problem loans more than tripled to $25.7 billion and Lewis said he couldn't predict when the bank's credit morass would end.



Government ultimatum sealed Merrill deal: Cuomo letter
Paulson threatened to oust Bank of America CEO if he pulled out of acquisition

By Alistair Barr, MarketWatch
Last update: 2:12 p.m. EDT April 23, 2009

SAN FRANCISCO (MarketWatch) -- The government threatened to oust Bank of America Chief Executive Ken Lewis if the bank didn't go through with its acquisition of struggling investment bank Merrill Lynch, according to the results of an investigation by New York Attorney General Andrew Cuomo released Thursday.
Hank Paulson, Treasury secretary at the time, told Lewis in December that the management and board of directors of Bank of America would be removed if the deal wasn't closed, Cuomo said in a letter summarizing his findings to regulators and legislators.

Paulson told Cuomo's office that he made the threat at the request of Federal Reserve Chairman Ben Bernanke, according to Cuomo's letter.

https://news.fidelity.com/news/news.jhtml?cat=Corp.MNA&articleid=200904231254MRKTWTCHNEWS_SVC_B8E72006-7E48-402A-BC65-589141E2E520&IMG=N

This and other facts unearthed by the probe raise questions about the transparency of the government's Troubled Asset Relief Program, as well as corporate governance and disclosure practices at Bank of America, Cuomo wrote.

Cuomo's findings show how aggressive the Treasury and the Fed have been in trying to stabilize the financial system in the face of the worst credit crisis and recession for decades.

Paulson told Lewis that if Bank of America pulled out of the Merrill deal, that would create "systemic risk," Cuomo said in the letter. Systemic risk usually refers to a damaging domino effect in which the collapse of a major financial institution leads to more failures.

The revelations may also put Lewis in a more precarious position. Bank of America's annual meeting is on April 29 and some shareholders have been calling for Lewis to step down.

CtW Investment Group, which helps union pension funds be more active investors, is calling for Bank of America shareholders to vote against Lewis, lead director O. Temple Sloan and governance committee chair Thomas Ryan at the meeting.

CtW said Thursday that Cuomo's findings suggest Lewis went ahead with the Merrill deal to protect his job, rather than because it was in the best interests of Bank of America investors.

"Mr. Lewis and the board owe their fiduciary obligation to the corporation and its shareholders, not to the regulators who reportedly pressed them to close the deal," CtW said in a statement. "He and his board violated their legal duties to shareholders in order to protect their own employment interests."

A Bank of America spokesman didn't immediately respond to an email seeking comment on Thursday afternoon.

Alistair Barr is a reporter for MarketWatch in San Francisco.

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