Posted on 04/25/2009 12:59:16 PM PDT by SeekAndFind
Bank of America (BAC) CEO Ken Lewis is fighting to keep his job because earnings at his company have plummeted. BofA's acquisition of Merrill Lynch has been a large part of the problem. Now, understanding that he is being made out to be the fall guy, he has fessed up that BofA was coerced into the deal.
Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.
Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead.
"Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript.
"It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.
Mr. Lewis's testimony suggests how aggressively federal regulators have been willing to behave in their fight to fix the U.S. financial system. The testimony for the first time spreads some of the blame to Messrs. Paulson and Bernanke for Mr. Lewis's decision to keep problems at Merrill under wraps.
"Everybody -- Lewis, Paulson, Bernanke -- eventually agreed that any public discussion of the situation at Merrill would have adverse consequences for the system," according to an individual close to BofA.
A person in government familiar with Mr. Bernanke's conversations with Mr. Lewis said Wednesday that the Fed chairman didn't offer Mr. Lewis advice on the question of disclosure. Instead, Mr. Bernanke suggested Mr. Lewis consult his own counsel.
Mr. Paulson repeatedly told Mr. Lewis that "the U.S. government was committed to ensuring that no systemically important financial institution would fail," according to his spokeswoman.
All of this should be quite alarming to American citizens because it demonstrates the lengths to which our government has gone to conceal the true nature of this financial crisis. I do want to point out that BofA was apparently coerced into the Countrywide deal as well as I said in a March post.
This past Monday, I posted an article about comments made by Kansas City Fed Chair Hoenig which have received zero press despite their significance. Here they are (I have bolded the significant part):
The Treasury Department, the Federal Reserve and other regulators have also arranged bailouts and mergers for large struggling or insolvent institutions, including Fannie Mae and Freddie Mac, Bear Stearns, WaMu, Wachovia, AIG, Countrywide, and Merrill Lynch. But other firms, such as Lehman Brothers, have been allowed to fail.
Now, I don't know about you, but I certainly do not remember hearing about the Bank of America transactions with Countrywide and Merrill Lynch as deals foisted upon BofA by the government. In essence, Hoenig is suggesting that Bank of America is a US-equivalent of Lloyds Bank.
If you recall, HBOS, a very reckless lender in Britain, was on the verge of collapse after Lehman Brothers declared insolvency in September. Gordon Brown, desperate to save his legacy as Chancellor during the asset bubble, coerced Lloyds into taking over HBOS without proper due diligence. This deal has failed spectacularly as HBOS has many more writedowns than was anticipated and Lloyds has effectively been nationalized along with Royal Bank of Scotland (not before the executives involved came under criticism).
If one looks across the pond at Bank of America, Countrywide and Merrill Lynch, circumstances are not too dissimilar. To my mind, it makes sense that no one has gone to jail if the government basically foisted Countrywide and Merrill on to Ken Lewis and BofA in return for assurances down the line that the government would not make waves.
BofA is to Lloyds as Merrill and Countrywide are to HBOS. In both cases, the government was desperate to consummate a merger which prevented the collapse of a systemically-important financial institution. Unfortunately for shareholders of BofA and Lloyds, these mergers have been quite destructive to shareholder value. Ken Lewis' revelations certainly demonstrate that BofA shareholders have reason to complain.
More here :
Cuomo’s Revelation: Bernanke and Paulson Strongarmed BofA’s Purchase of Merrill
The article above states :
Below is a letter sent yesterday by NY Attorney General Andrew Cuomo that outlines how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced BofA’s (BAC) acquisition of Merrill. Highlights:
* BofA knew Merrill’s losses were far more substantial than believed prior to closing the merger. It wanted to invoke a “material adverse change,” or MAC, clause in order to back out of the deal.
* Paulson threatened to fire Lewis and BofA’s whole board if they backed out of the merger.
* Paulson confirmed that he made the threat and said it came at the request of Ben Bernanke.
* Ken Lewis argues that, over the “short-term,” he knew closing the merger would expose BofA shareholders to substantial losses lurking on Merrill’s balance sheet. In the long-term it’s still a good fit because Merrill has assets that fill strategic holes.
But if BofA wanted to fill strategic holes, why not follow the Barclays/Lehman model (BCS), letting Merrill fall into liquidation and feasting on its carcass? True, Bernanke/Paulson clearly didn’t want to let that happen. But Lewis was stupid enough to sign a merger agreement with Merrill in September. This after the disastrous acquisition of Countrywide in early ‘08. It’s amazing this man and his board still have their jobs.
Expect lots of shareholder litigation over this.
What's that old saying -- something like "He who sups with the Devil should use a long spoon!" ;-)
I agree completely. Ken and the BOD have failed at the only thing they are really hired to do...look out for the fiduciary interests of the shareholders. This will be in court for decades.
"Expect lots of shareholder litigation over this."
Ø's judges will make this go away. Shareholders are just Capitalist Pigs, and their wealth must be redistributed. I'm sure no one will see a penny from this. Ø will spin it to be Bush's fault, as much as he can, but remember, Paulson is a Democrat. I'm not sure what Bernanke is, but he isn't a Ludwig Von Mises Conservative.
My decision to leave BofA is proven to be the correct decision (daily)
TT
Did you leave BoFA as a depositor, shareholder, or as employee ?
And his term is up next year. O can go either way, depending on whether he wants to reappoint him, or has something more radical in mind.
I think the most important point to be made of all of this is that we can not believe anything Paulson and Bernake say about anything.
If they would enter into this agreement or plot, knowing that it is against the law to mislead stockholders, then they are totally without ethics and will lie again.
Do we want liars at the head of our fiduciary system?
We have a problem. A liar for president, a liar at treasury, a liar at the fed.......
But never mind. No problem. We have Barney Frank and Chris Dudd in congress to keep them on the straight and narrow.
Makes a person wonder about the Federal Reserve. I understand that no one oversees or not one audit has ever been performed on the Federal Reserve. That politicians in the past who have called for an audit have always been defeated come election time.
**** “Did you leave BoFA as a depositor, shareholder, or as employee ?” ****
I was 2 outta three and the Wife was an Associate and she she even cashed out her Retirement.
TT
bump
“Paulson threatened to fire Lewis and BofA’s whole board if they backed out of the merger.”
Under what authority did Paulson have to fire Lewis and the entire BofA board?
Was it because BofA had taken TARP money?
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