E-mails show U.S. pressured BofA to buy Merrill Lynch

McClatchy NewspapersJune 10, 2009 

WASHINGTON — Internal Bank of America documents and e-mails among federal banking regulators show that federal officials leaned on the bank to seal the acquisition of Merrill Lynch in December or else face a management upheaval if the company wanted government assistance.

The internal documents, subpoenaed this week by a House oversight committee, also show that Ken Lewis, Bank of America's chief executive, may indeed have been in danger of losing his job — and the bank's relationship with regulators — if he failed to go through with the $50 billion deal.

Internal Bank of America documents acknowledge the pressure.

Minutes from a specially called board meeting Dec. 22 report that the Treasury Department and the Federal Reserve had said that if the bank were to stop the Merrill Lynch deal, "the Treasury and Fed would remove the board and management of the corporation."

The documents, outlined in a Republican congressional memo obtained by McClatchy, will be released publicly Thursday on Capitol Hill. Lewis is expected to testify Thursday before the House Committee on Oversight and Government Reform.

In his prepared testimony, Lewis outlined why the deal turned out well for shareholders and taxpayers. He also said that although Bank of America considered ending the deal, the Charlotte, N.C., company decided it would be best for the financial sector to go through with it.

"This course made sense for Bank of America and its shareholders, and made sense for the stability of the markets," Lewis said in his prepared testimony.

Lewis testified to a grand jury in New York that he felt pressure from Fed Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson to go through with the deal, despite last-minute concerns about huge Merrill Lynch losses.

Documents obtained by the House oversight committee appear to confirm Lewis' recollection.

In one e-mail, a Federal Reserve employee writes that Bernanke will tell Bank of America that if it walks away from Merrill Lynch and needs government assistance, "management is gone."

Also among the documents is an e-mail from Bernanke, in which he calls Lewis' threat to withdraw from the Merrill Lynch deal a "bargaining chip."

"We do not see it as a very likely scenario so that we can explain to (Bank of America) with some confidence why we think it would be a foolish move and why the regulators will not condone it," read staff notes on the e-mail.

The documents also appear to question some of the bank's leadership.

In other documents, an outside analysis of the two financial companies reported in December to the Federal Reserve that Bank of America's contention that it learned late of Merrill Lynch's severe losses "is problematic and implies substantial deficiencies in the due diligence."

Neither Bernanke nor Paulson will testify on Thursday. Republicans on the committee have argued that the committee can't get a full picture of what transpired in December until they hear from Bernanke and Paulson as well.

MORE FROM MCCLATCHY

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McClatchy Newspapers 2009

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