BofA's Ken Lewis defends Merrill deal

The Bank of America CEO told lawmakers that risks to the financial system and promise of more federal aid convinced him to go ahead with the Merrill purchase.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By David Ellis, staff writer

Bank of America CEO Ken Lewis defended the Merrill Lynch purchase in front of regulators, saying "it is easy to forget hust how close to the brink our system came."

NEW YORK ( -- Bank of America chief Ken Lewis told lawmakers Thursday that pressure from federal regulators played an important part in the company's decision to continue with its planned acquisition of Merrill Lynch late last year.

Testifying before the House Committee on Oversight and Government Reform, Lewis said that threats by regulators to remove management or board members were not only credible, but indicated just how strongly the government felt it was to carry out the acquisition.

But he added that this was not the only reason why Bank of America decided to go ahead with the deal. "[Pressure from the government] was a strong influence on my decision, but not the only influence," Lewis told lawmakers.

Lewis, who was peppered with questions from Congressional members from both parties about the deal, said he also worried about the potential negative impact that backing out of the acquisition could have had on the nation's financial system and Bank of America.

He also acknowledged that the promise of additional government aid helped convince the company from declaring a "material adverse change", which would have allowed Bank of America to walk away from the purchase.

Who knew what? And when?

Exactly what role the government played in the Bank of America-Merrill Lynch deal has been a topic of intense scrutiny for several months now.

In mid-December, Lewis approached regulators, including then-Treasury Secretary Henry Paulson and current Federal Reserve Chairman Ben Bernanke, threatening to scuttle its planned purchase after discovering the scope of Merrill's losses.

After some behind-the-scenes wrangling, the group reached a final agreement with BofA receiving $20 billion in aid in January, on top of the $25 billion it received as part of the Troubled Asset Relief Program, or TARP. It also got loss guarantees on $118 billion in assets to help the company absorb its purchase.

A subsequent investigation by the New York Attorney General's office on bonuses paid out to Merrill Lynch workers revealed that Paulson told Lewis there would be a change in management should Bank of America back out of the deal. Investigators also learned that Bernanke asked Paulson to threaten Lewis' job.

Emails between Federal Reserve officials regarding Bank of America's (BAC, Fortune 500) bid for Merrill that came to light Wednesday, however, suggested that Lewis may have used the threat of scuttling the Merrill deal as a so-called "bargaining chip" for more government assistance.

"In short, the Treasury Department had provided a $20 billion dowry for a shotgun wedding. But the question may be, 'Who was holding the shotgun?' " committee Chairman Rep. Edolphus Towns, D-NY said Thursday.

Those emails, obtained by Congressional subpoenas of the Fed, also revealed comments by central chief Ben Bernanke, who suggested to another Fed official that Bank of America's "management is gone," if the bank abandoned the deal and later on needed further government assistance.

Lewis said Thursday that regulators had the best intentions in mind, reminding lawmakers of just how dire conditions in the financial markets were last September.

"Even six months later, it is easy to forget just how close to the brink our system came," Lewis said in his prepared remarks.

Concerns that Lewis was asked to keep secrets

Still, some members of the House committee worried whether regulators may have overstepped their powers.

"We're here because there's been a serious allegation," said Rep. Darrell Issa, R-Calif, the committee's ranking member. "A number of pieces of evidence have arisen that make us believe that government officials felt necessary to use the power, influence and...potentially threats in order to consummate this deal."

Lawmakers indicated Thursday that the committee planned to call a second hearing to look at the issue, and could ask for Bernanke and Paulson to appear.

The issue of disclosure, specifically whether or not Bernanke and Paulson asked Lewis to withhold details of his discussions with regulators, has also come into question.

During the investigation conducted by the New York attorney general earlier this year, Lewis said Bernanke and Paulson asked him to not disclose the extent of his discussions about the need for more federal support to complete the Merrill purchase with shareholders. Paulson and Bernanke have denied that this was the case.

On Thursday, however, Lewis said that he was never told to keep information that should have been disclosed publicly a secret.

The decision to reveal the Merrill losses and further government aid when Bank of America reported its fourth-quarter loss in mid-January was coordinated simply to announce everything at once, Lewis added.

Nevertheless, that news sparked outrage among company shareholders who faulted Lewis for not telling investors how bad things were at Merrill.

Shareholders acted on their frustration in late April, with a slim majority of them voting to strip Lewis of his title as chairman at the company's annual shareholder meeting.

Despite the scandal surrounding the purchase, there have been indications that the Merrill Lynch purchase is already providing a boost to Bank of America's bottom line.

Bank of America reported a profit of $4.2 billion in the first quarter, helped by Merrill's investment banking and wealth management businesses.

"It seems that much of the public is under the mistaken impression that Merrill Lynch has been costing us money," said Lewis. "That is just not so." To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.