RTTNews - Emails from Federal Reserve Chairman Ben Bernanke and others indicate the Fed and Treasury officials went out of their way to pressure Bank of America (BofA) to conceal information from the shareholders about the bank's worries of the flailing Merrill Lynch's ballooning losses and to complete the purchase of the brokerage firm, according to a document written by House Republicans.
According to media reports, the Emails and others documents, which were subpoenaed by the U.S. House Oversight and Government Reform Committee after the panel was unable to obtain them through a request last week, were referred in a memo written for Republicans on the Committee to support their stance ahead of a hearing Thursday where former BofA chief executive Ken Lewis is to testify.
One email shows pressure from the Fed on Lewis to stay the course on the deal, or have management removed. The memo said that Jeffrey Lacker, the president of the Richmond Federal Reserve, wrote in a December 20 e-mail that Bernanke intended to make it even more clear that if they play that card and they need assistance, management is gone, referring to Lewis' intent to exercise a material adverse change (MAC) clause to avoid consummating the deal. Bernanke indicated he saw the threat as not credible, the memo said.
That was a gun placed to the head of BofA to go through with the merger, the Republican memo said, adding government officials overstepped their authority by applying inappropriate pressure on a private institution to consumate the deal.
The Republican memo said e-mails indicate BofA's relationship with federal regulators would be severely damaged if it failed to go through with the merger, and that Bernanke saw the company's threat as a bargaining chip.
The revelations contradicts an April letter written by Bernanke to Representative Dennis Kucinich, chairman of the committee's domestic policy subcommittee, in which he said the Fed acted with the highest integrity during its discussions with BofA on Merrill Lynch and didn't seek to withhold any information from the public on the brokerage firm's losses. Merrill Lynch reported a $15.8 billion loss during the fourth quarter.
Bernanke further added the Fed never threatened to terminate or take supervisory action against anyone at BofA if they disclosed any of the company's or Merrill Lynch's information on losses or other matters.
BofA officials reportedly declined to comment on the e-mails when contacted by media.
Lewis in a written testimony prepared for a committee hearing Thursday, says that after he learnt of significant, accelerating losses at Merrill Lynch he informed Treasury and Fed officials in mid-December that he had concerns about closing the transaction.
At that time, we considered declaring a 'material adverse change,' which as a matter of contract law can, if upheld, allow an acquirer to avoid consummating a deal, Lewis says in the testimony.
He says Treasury and Federal Reserve representatives asked BofA to delay any such action, and expressed significant concerns about the systemic consequences and risk to the bank of pursuing such a course.
Earlier in February, Lewis testified under oath before New York Attorney General Andrew Cuomo that Bernanke and then-Treasury Secretary Henry Paulson pressured the bank not to discuss its increasingly troubled plan to buy Merrill. The deal, originally billed as a private transaction, eventually required $20 billion in federal funds to complete.
Lewis said he believed Bernanke and Paulson were instructing him to keep silent about Merrill's financial problems, including the $4 billion in bonuses the brokerage firm intended to pay its employees, amid fears that the revelations could anger BofA shareholders and kill the acquisition deal.
However, Bernanke and other regulators have previously denied pressuring Lewis to withhold any information about the deal.
Since September 12, 2008, the last trading day before the Merrill purchase was announced, BofA shares have declined 64 percent to $11.98 in New York Stock Exchange composite trading while the 24-member KBW Bank Index of large U.S. banks has declined 48 percent during that same period.
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