Bank of America chief executive Kenneth Lewis told the New York attorney general he believed former US treasury secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to keep quiet about the worsening terms of the bank’s acquisition of Merrill Lynch, according to testimony reviewed by the Wall Street Journal.
The New York attorney general’s office planned to release the testimony yesterday to federal regulators and overseers of bailout funds and banks, the newspaper reported after reviewing a transcript.
Lewis testified in February to New York Attorney General Andrew Cuomo’s office, which has been trying to determine whether Merrill Lynch and Charlotte, North Carolina-based Bank of America failed to provide adequate disclosures to shareholders about the more than US$15 billion in losses that Merrill incurred in the fourth quarter and hefty bonus payments.
Had they had that information, Bank of America shareholders might have voted down the deal.
The Journal said in yesterday’s edition that Lewis did not say in the transcript that he was told specifically to remain silent about Merrill’s burgeoning losses.
But the paper quotes Lewis as testifying that disclosing that information “wasn’t up to me,” and that he was warned by Paulson and Bernanke that failing to complete Merrill’s takeover would “impose a big risk to the financial system.”
Citing a person familiar with the matter, the newspaper said Paulson told the New York attorney general’s office last month that Lewis may have misread some remarks about the Treasury’s disclosure requirements as instead pertaining to his bank’s obligations.
The US government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under and insurer AIG received its initial government support. Both the government and Wall Street were under substantial pressure to contain the financial meltdown.
Bank of America had received US$25 billion in federal bailout funds, but was later given an additional US$20 billion as Lewis showed trepidation about completing Merrill’s purchase and said the bank needed help offsetting the losses it was absorbing from the troubled brokerage.
Just a few weeks after the deal was completed, Bank of America’s earnings report showed the major hit its balance sheet would take on the Merrill transaction, quickly making Lewis the target of much shareholder fury.
Two of the nation’s largest state pension funds are seeking to lead a class action lawsuit against Bank of America, alleging the bank’s management “misstated or omitted” important information about Merrill’s financial health before the deal was completed.
And Finger Interests Number One Ltd, which owns about one-fifth of one percent of Bank of America stock, is asking shareholders to vote against re-electing Lewis as well as lead director O Temple Sloan and Jackie Ward during the bank’s annual meeting on Wednesday.
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