WASHINGTON – Bank of America chief executive Ken Lewis' concerns about the rising losses of Merrill Lynch & Co. in mid-December came too late in the acquisition process to break the deal, Federal Reserve Chairman Ben Bernanke said today.
"When the CEO of Bank of America came and told us about the situation, they were just a very short time, days or a couple weeks, away from consummating the deal," Bernanke said in a speech to the National Press Club in Washington. "The deal had already been voted by the shareholders. Essentially at that point they were legally committed. We did not see any realistic legal way to break the deal."
Three months after agreeing to purchase Merrill Lynch, Lewis traveled to Washington to meet with Bernanke and Treasury Secretary Henry Paulson on Dec. 17, when it was clear that Merrill was in worse financial shape than BofA had realized.
Bernanke said the Fed consulted with other banking supervisors, such as the Office of the Comptroller of the Currency, about BofA's concerns.
"We felt very strongly that the attempt to break that deal would have resounded very negatively on the bank because of the uncertainty it would have created and the concerns it would have raised," he said. "Notwithstanding the pluses or minuses from a systemic perspective, it was our judgment there really was no option at that point but to consummate the deal."
Bernanke emphasized that the deal was "consummated freely" by the two companies.
"They had gone through all the due diligence and all the evaluations and the shareholder vote and everything else," he said. "The two companies had adequate time to do due diligence and clarify whatever issues remained."
Lewis has said Bank of America learned about problems with the deal in mid-December after the Dec. 5 shareholder approval and before the deal closed. The purchase officially closed Jan. 1.
Lewis has said he was looking at the bank's right to back out of the deal, but the government insisted the deal go through.
On Jan. 16, the government said it would provide the bank an extra $20 billion in capital and additional protection against loan losses. On the same day, the bank said it lost $2.4 billion in the fourth quarter, while Merrill's red ink topped $15 billion. Merrill chief John Thain resigned a short time later.
(Rick Rothacker of the Charlotte Observer contributed to this article.)
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