Bank of America (BAC) CEO Ken Lewis told Congress that government officials threatened him with removal if he pulled out of a $50 billion deal to buy Merrill Lynch last year.

Appearing before the House Oversight Committee, Lewis also faced pointed questioning from Rep. Dennis Kucinich (D-Ohio) and others over when he learned about losses at Merrill Lynch, which mounted rapidly last November and December. They asked whether Bank of America explored scuttling the acquisition in order to pressure the government to provide more assistance for the deal.
Despite sporadic moments of drama, many of the broad strokes of the Federal Reserve and Treasury Department's involvement in the Bank of America-Merill Lynch deal have been known for a while. The Wall Street Journal reported on clashes between Lewis and Fed and Treasury officials in February, and an investigation by New York Attorney General Andrew Cuomo wrapped up in April concluded that the Bank of America CEO could've been ousted if the company abandoned its purchase of Merrill.


What's new, then? Lewis' testimony under oath puts in public view for the first time discussions between the company and federal officials over whether BofA executives would seek to torpedo the Merrill deal due to huge losses which could have been seen as a "material adverse change" in the brokerage's financial health, potentially nullifying the merger agreement between the firms.

"It is true that we were told that if we went through with calling a [material adverse change], the government would remove the management and board," Lewis testified.

A good deal of the hearing's intrigue stemmed from several sharply worded emails exchanged between Fed Chairman Ben Bernanke and his staff questioning whether Lewis was using the possibility of withdrawing from the Merrill deal as a "bargaining chip."

The emails also show that Fed officials saw Lewis' claim that he was surprised by Merrill's losses as "somewhat suspect."

It's possible more hearings on the BofA-Merrill deal may be in the works. Rep. Darryl Issa (R-Calif.) suggested the oversight committee could call Bernanke and former Treasury Secretary Herny Paulson to testify as well.

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