Thursday April 23, 08:47 PM
US pressured Bank of America to buy Merrill: probe
By Rob Lever
WASHINGTON (AFP) - US officials used threats to pressure Bank of America (NYSE: IKJ - news) to complete a takeover of ailing Wall Street firm Merrill Lynch (NYSE: MER - news) last year, documents from a state probe showed Thursday.
The documents released by New York state Attorney General Andrew Cuomo indicated that top US Treasury and Federal Reserve officials threatened to push out bank management and board members if the takeover were not completed.
The documents also showed regulators cautioned Bank of America chief Kenneth Lewis not to disclose the extent of Merrill's troubles because of fears of a "disaster in the financial markets."
The documents indicated Bank of America wanted to walk away in December from the deal announced in September to take over Merrill, which had been on the brink of collapse at the same time as Lehman Brothers (NYSE: LEH - news) , the Wall Street rival that went bankrupt and triggered a financial panic.
The documents showed Lewis had wanted to stop the Merrill deal because of a "staggering amount of deterioration" in the Wall Street firm's financial condition that had not previously been disclosed.
The disclosures came in a letter from Cuomo to US lawmakers, the Securities and Exchange Commission and the oversight panel establish by Congress for the Troubled Asset Relief Program (TARP).
"While the investigation initially focused on huge fourth-quarter bonus payouts, we have uncovered facts that raise questions about the transparency of the TARP program, as well as about corporate governance and disclosure practices at Bank of America," Cuomo said.
According to the documents, Lewis sought to break the merger agreement after learning on December 14 that Merrill Lynch's losses would be far wider than initially believed.
"In six days, Merrill Lynch's projected fourth-quarter losses skyrocketed from 9.0 billion dollars to 12 billion, and fourth-quarter losses ultimately exceeded 15 billion dollars," Cuomo said in his letter.
Lewis sought to break the deal by citing a "material adverse event" but was talked out of this by then-treasury secretary Henry Paulson, who summoned Lewis to Washington, according to Cuomo.
At a meeting with other executives and officials, Paulson and Federal Reserve chairman Ben Bernanke "pressured Bank of America not to rescind the merger agreement," the Cuomo letter said.
Lewis said he changed his mind about ending the deal after Paulson indicated that Bank of America's "board and management would be replaced" if the deal were terminated.
The Bank of America chief then recommended to his board on December 22 that the deal be completed.
Lewis cited statements from the Fed and Treasury that ending the deal would lead to "systemic risk" to the financial system, and a pledge of "committed assistance" from the US government.
After the deal had been finalized, Bank of America got a 20-billion-dollar government bailout in January to help it absorb Merrill. Earlier it had received 25 billion dollars in government capital to help it weather the global financial crisis.
Despite the deteriorating condition of Merrill Lynch, Lewis said he did not reveal the investment firm's problems at the direction of Paulson and Bernanke, according to Cuomo's letter.
"I was instructed that 'We do not want a public disclosure,'" according to testimony by Lewis revealed by Cuomo.
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