Bank of America Corp CEO Kenneth Lewis was pressured by senior federal officials Henry Paulson and Ben Bernanke to accept a merger with troubled Merrill Lynch & Co, New York Attorney General Andrew Cuomo said on Thursday.
In a letter to senior members of congressional panels and the head of the U.S. Securities and Exchange Commission, Cuomo said Lewis met then U.S. Treasury Secretary Paulson and Federal Reserve chairman Bernanke in Washington on December 17. Cuomo said the SEC appears to have been kept in the dark about talks.
Cuomo, who released testimony by CEO Kenneth Lewis that was first reported in the Wall Street Journal on Thursday, said his office uncovered details during a probe into the circumstances of $3.6 billion of bonuses paid to Merrill executives before the completion of the Bank of America takeover on January 1.
As you will see, while the investigation initially focused on huge fourth quarter bonus payouts, we have uncovered facts that raise questions about the transparency of the TARP (Troubled Asset Relief Program), as well as about corporate governance and disclosure practices at Bank of America, Cuomo wrote.
The revelations are unlikely to relieve shareholder pressure on Lewis to give up his job as chairman, or even to step down as chief executive. A shareholder proposal at the bank's April 29 annual meeting calls for the bank to appoint an independent chairman to replace Lewis.
Cuomo sent the letter to SEC head Mary Schapiro, U.S. Senate Banking Committee Chairman Christopher Dodd, U.S. House Financial Services Chairman Barney Frank and Congressional Oversight Panel Chairwoman Elizabeth Warren. It was copied to Neil Barofsky, the inspector general of TARP.
In Washington, Barofsky said he was looking into the reports that Bank of America faced pressure to minimize public disclosure about the takeover of Merrill.
A Bank of America spokesman could not immediately be reached for comment.
PAULSON AND BERNANKE
Cuomo said in the letter that there were follow-up calls with both Paulson and Bernake and with Treasury and Federal Reserve officials.
During those meetings, the federal government officials pressured Bank of America not to seek to rescind the merger agreement, Cuomo wrote. We do not yet have a complete picture of the Federal Reserve's role in these matters because the Federal Reserve has invoked the bank examination privilege.
The Wall Street Journal reported on Thursday that Lewis testified Bernanke and Paulson told him that failure of the Merrill acquisition to go through would impose a big risk to the financial system of the United States.
Lewis also testified that Paulson and Bernanke pressured him to keep quiet about losses at Merrill.
According to Lewis's testimony made public on Thursday, Paulson told him the management and board of the bank would be replaced if it pulled out of the deal.
I can't recall if he said 'we would remove the board and management if you called' or if he said 'we would do it if you intended to', according to the transcript.
Cuomo said that, in an interview, Paulson largely corroborated Lewis's account.
Secretary Paulson's threat swayed Lewis, Cuomo said. The letter also stated that Paulson has informed us that he made the threat at the request of chairman Bernanke.
Bank of America halted its attempt to scrap the merger on December 21, the attorney general said.
He said Lewis told his office he was directed by Paulson and Bernanke that the question of public disclosure was not up to him.
I was instructed that 'we do not want a public disclosure', Lewis testified.
He also testified there was no discussion with the board about disclosure to shareholders.
Cuomo's office released a December 22 email by Lewis to the board that said: I just talked with Hank Paulson. He said that there was no way the Federal Reserve and the Treasury could send us a letter of any substance without public disclosure which, of course, we do not want.
A government source said on Thursday the Federal Reserve gave no advice to Bank of America or Lewis on any questions of disclosure.
(Reporting by Jonathan Stempel and Grant McCool; editing by John Wallace and Andre Grenon )