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B of A CEO Lewis Hammered On Hill Over Merrill Lynch Merger

UPDATED at 1:30 p.m.:

Rep. Edolphus Towns (D-N.Y.) just wrapped up the three-and-half-hour hearing of his Oversight committee grilling of Bank of America chief executive Ken Lewis, trying to determine if he felt pressured by federal officials to conclude his merger with troubled brokerage Merrill Lynch when he considered backing out of it.

Lewis said that Fed Chairman Ben Bernanke threatened to remove Lewis and his bank's board if he didn't go through with the deal and further said the former Treasury Secretary Hank Paulson implied that Merrill's huge losses should not be immediately disclosed, for fear of spooking a shaky financial system.

Towns concluded with the most meaningful words of a testy, juicy hearing: "This committee needs to hear from Mr. Bernanke and Mr. Paulson before we draw any hard and fast conclusions."

Kucinich Hammers Lewis With E-Mail

1:15 p.m.: Rep. Dennis Kucinich (D-Ohio) relaunched his attack on Bank of America chief executive Ken Lewis, who is testifying before the House Oversight committee, which is trying to figure out if federal government officials threatened to fire Lewis if he pulled out of his deal to buy Merrill Lynch.

Kucinich is alleging that Lewis asked the Fed for a letter saying it forced him to go ahead with the Merrill deal, which he denies. Kucinich produced this e-mail from a Fed staffer to Fed Chairman Ben Bernanke, dated Dec. 23, 2008:

"All that said, I don't think it's necessary or appropriate for us to give Lewis a letter along the lines he asked. First, we didn't order him to go forward--we simply explained our views on what the market reaction would be and left the decision to him. Second, making hard decisions is what he gets paid for and only he has the full information needed to make the decision so we shouldn't take him off the hook by appearing to take the decision out of his hands."

On the surface, that looks pretty damaging. However, remember this: It is not proof that Lewis asked for such a letter. It is a staffer saying Lewis asked for a document -- which Lewis has admitted to -- and the staffer is recommending the Bernanke not do it.

What was the nature of what Lewis wanted from the Fed? We don't know that yet.

Lewis has said he asked Bernanke for a letter to give to his board of directors detailing what Bernanke believed the solution should be for Bank of America buying Merrill.

Lewis said that his board was concerned that everything that had been discussed with the Fed and Treasury was verbal and they wanted something in writing.

Lewis said he asked Bernanke for such a document and he said, "Let me think about it," Lewis said.

"The next call I got was from [former Treasury Secretary] Hank Paulson and he told me that, first of all, if they gave us any kind of agreement, it would be so watered down the board would not find it satisfactory. And secondly, they did not want disclosure."

That's a second key point of this whole hearing: Did Paulson and Bernanke try to prevent Lewis from disclosing Merrill's huge losses in order to keep from further spooking an already fragile financial system? Lewis says yes, but Bernanke has strenuously said no. Haven't heard from Paulson.

Kucinich finished his time by invoking the p-word -- perjury -- and yelling at Lewis: "You're trying to change the scenario to you as a victim!"

Lewis Backed Into Bad P.R. Corner

12:12 p.m.: Rep. Peter Welch (At-large, Vt.) just backed Bank of America chief executive Ken Lewis into a bad p.r. corner in testimony underway before the House Oversight committee moments ago.

Welch was trying to get at this: Bank of America shareholders voted to approve the $50 billion merger with Merrill Lynch on Dec. 5. After the vote, Lewis discovered what he called "accelerating losses" at Merrill Lynch, but did not tell shareholders about them.

Welch wondered why.

"Did you tell your shareholders you had come up with this information that this deal they voted on was not the deal that went through?" Welch asked.

"That discovery came later," Lewis said.

"You think that after-the-fact information is not of interest to your investors?" Welch asked.

"When our lawyers tell us that disclosure is necessary..." Lewis began, before Welch interrupted, asking again why he, Lewis, did not tell shareholders about the huge Merrill losses.

"I leave that decision to our securities lawyers and outside counsel," Lewis said.

"Are you not the CEO?" Welch asked, making his point just as his time ran out.

The hearing is in recess until about 12:30 p.m.

Kucinich Attacks

11:17 a.m.: Rep. Dennis Kucinich (D-Ohio) just got finished grilling Bank of America chief executive Ken Lewis on whether he told shareholders about the mounting losses at Merrill Lynch before they were set to vote on the merger, and then pressed him on whether he asked the government for a letter saying it forced him to go through with the deal.

"Did you tell shareholders" about the losses at Merrill "before the shareholder vote on December 5?" Kucinich asked.

"We take disclosure very, very seriously..." Lewis began, before Kucinich interrupted him.

"Were there supplements to the proxy" that would have told shareholders about the Merrill losses, Kucinich asked.

"If anyone in our legal team suggested supplements, we would have added them," Lewis said.

"So there was no suggestion for supplements?" Kucinich asked.

"No," Lewis said.

Then Kucinich went after Lewis on another tack.

"Was your threat to [call off the deal] a strategy to protect yourself from shareholder lawsuits?" Kucinich asked, producing a Dec. 23, 2009, e-mail from the Richmond division of the Fed, saying just that.

"No," Lewis said.

"Did you request a letter from the government" saying it forced you to go ahead with the Merrill deal, Kucinich pressed.

"That was not what I asked for," Lewis said.

"Are you sure that's your answer?" Kucinich threatened. "Your answer is 'no?' "

"Our board was concerned we didn't have anything in writing asking for assistance" from the government, Lewis said.

"You requested a letter from the government saying the government ordered you to close the deal," Kucinich said, turning from questions to statements.

"I don't recall such a letter," Lewis said.

"You're under oath," Kucinich responded.

"If I can't recall it," Lewis said, he couldn't characterize it.

This is starting to move into the absurd, or at least the Talmudical. Rep. Darrell Issa (R-Calif.) actually just made this statement: "We're arguing over when whether when you're threatened, you feel threatened."

Lewis: Feds Threatened To Remove Me If I Bailed On Merrill Deal

10:52 a.m.:
Bank of America chief executive Ken Lewis testified moments ago that the federal government "could or would" remove him and the bank's board if they tried to back out of their merger with troubled brokerage Merrill Lynch last year.

Lewis is testifying before the House Oversight committee right now and chairman Edolphous Towns (D-N.Y.) wasted no time in getting to the point: "Did you move forward with the Merrill Lynch deal because of government pressure or because you thought it was in the best interest of Bank of America?"

Lewis replied, under oath: "It is true that if we went through -- and I can't remember the exact words -- basically, if we went through [with trying to call off the merger] the government could or would remove management and the board. And I've said in the past, the threat was not what gave me concern. What gave me concern was that they'd make this great threat to a bank in good standing."

This echoes and says in stronger language what Lewis testified under oath to New York Attorney General Andrew Cuomo earlier this spring.

Towns came back at Lewis: "So you were pressured?"

Lewis replied: "It's hard to find the exact right word to describe what I just described, so it's best just to describe it and let people come to a conclusion."

Today, Lewis will make a number of references to the "MAC," which stands for "material adverse change," which is a legal challenge that enables an acquiring company to back out of a deal if it discovers really bad things about the company it wants to buy. When Bank of America considered backing out of the Merrill deal, it would have had to invoke the MAC and hoped it would win the challenge.

Who Held Shotgun in Shotgun Wedding?

10:15 a.m.: The House Oversight committee kicked off a hearing moments ago that will try to get to the bottom of this question: Did Fed Chairman Ben Bernanke and former Treasury Secretary Hank Paulson force Bank of America chief executive Ken Lewis to go forward with his merger with Merrill Lynch even as he was getting cold feet on the deal?

The merger was a "shotgun wedding," committee chairman Edolphous Towns (D-N.Y.) said. The committee wants to find out "who was holding the shotgun."

Internal e-mails from the Fed and B of A were revealed yesterday, and reported on here in The Ticker, that lead Republicans on the committee to believe that Bernanke and Paulson overstepped their authority to force the merger, which they saw as critical to stabilizing a teetering financial system last fall.

Check back here as The Ticker live-blogs this hearing.

-- Frank Ahrens
Sign up to get The Ticker on Twitter

By Frank Ahrens  |  June 11, 2009; 1:30 PM ET
Categories:  The Ticker  | Tags: Bank of America, Ben Bernanke, Hank Paulson, Ken Lewis, Merrill Lynch  
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Comments

The shot gun marriage between the Bank of America and Merrill Lynch with Ben Bernanke as best man, Hank Paulson as the padre and Ken Lewis as page boy has now produced some bastard children which will have to be raised and paid for by the US taxpayer. The USA needs to understand that the world is watching this circus and that she has to do better if the mantle of super power is not to slip off her badly beaten body. The honeymoon went on for too long with printed dollars being thrown around like confetti and now threatens to engulf the Anglo Saxon world and Europe in a slow grinding downward spiral where news headlines attempt to hide, twist and disguise the reality which people face on a daily basis.

Posted by: psouleles | June 11, 2009 11:01 AM | Report abuse

If Lewis and his Board went ahead with the deal simply because they were threatened with removal, then it is clear that these men placed their position above their duty to their shareholders. If Lewis had any sense at all he would have called their bluff which would then enable him to blow the whistle on the cover up of losses as well as revealing the threat. Lewis will have a hard time convincing anyone of his version of events as they are too self serving and questionable from the outset. Bernanke will escape this time as his demise would cause great market upheavel at this critical point. Then again, he has trodden too softly in warning about fiscal profligacy so as not to be seen as attacking the President's vision of renewal. Where is Rumsfeld to remind us that "absence of proof is not proof of absence." Thank God they can always fix things by printing a few more dollars.

Posted by: psouleles | June 12, 2009 8:09 AM | Report abuse

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