Ex-Treasury Secretary Paulson says remarks to BofA's Lewis were appropriate

Former Treasury Secretary Henry Paulson is expected to tell a House committee on Thursday that he did not bully Bank of America Corp. chief executive Ken Lewis into buying Merrill Lynch, according to prepared remarks obtained by the Charlotte Observer.

"I believe my remarks to Mr. Lewis were appropriate," Paulson says in his written testimony. "I explained to him that the government was supportive of Bank of America, but that it felt very strongly that if Bank of America exercised the (escape clause in the Merrill deal), such an action would show a colossal lack of judgment and would jeopardize Bank of America, Merrill Lynch, and the financial system."

Paulson acknowledges that he told Lewis that the Federal Reserve could use its authority to remove management and the board, but he says he did not do so under the direction of Fed Chairman Ben Bernanke. In testimony last month, Bernanke said he did not tell Paulson to threaten Lewis on his behalf, although he, too, opposed use of the escape clause.

"I want to make clear that my words in speaking to Mr. Lewis were my own," Paulson says. "Chairman Bernanke never asked me to indicate any specific action the Federal Reserve might take."

Paulson adds that he believes the government never got close to booting management and that Bank of America, after its own consideration, acted appropriately in moving ahead with the deal.

The former Treasury secretary will be the solo witness before the House Oversight and Government Reform Committee, which is holding its third hearing on the events surrounding Bank of America's Jan. 1 purchase of Merrill. The panel has already heard from Lewis and Bernanke as it investigates the Charlotte bank's attempt to back out of the deal in mid-December and the government's role in fueling the deal.

Bank of America agreed to buy Merrill in September amid a global financial crisis but became increasingly worried about rising fourth-quarter losses at the New York investment house. Paulson and Bernanke opposed the bank's use of the escape clause, and the bank agreed to close the deal on Jan. 1, with a promise of additional government assistance that included a $20 billion infusion.

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