RTTNews - The House Oversight and Government Reform Committee Tuesday said they've subpoenaed the Federal Reserve for documents, including e-mails to and from Fed Chairman Ben Bernanke, to explore the genesis of Bank of America's December purchase of the flailing Merrill Lynch & Co after the panel was unable to obtain them through a request last week.
On Thursday, the Committee is hosting Kenneth Lewis, former Chief Executive Officer of Bank of America, at a hearing as part of a growing investigation into whether government officials pressured the bank to withhold details about the deal from investors despite ballooning losses at the brokerage firm.
Committee Chairman Edolphus Towns (D-N.Y.), along with Rep. Dennis Kucinich (D-Ohio), who heads the domestic policy subcommittee, requested detailed information last week from both the Treasury and the Federal Reserve regarding their role in that merger.
The subpoena, issued by Towns and Kucinich along with Rep. Darrell Issa (Calif.), the senior Republican on the oversight panel is highly unusual and the first issued by the panel this year, and it came after the Fed refused to send the committee internal e-mails and notes related to its role in the purchase.
A Fed spokesman said the central bank was already complying with the subpoena and the agency had previously allowed congressional investigators to review 6,000 pages of documents but could not provide them copies because the documents were of a confidential and supervisory nature.
Lewis, who has been under intense pressure from BofA shareholders for not disclosing the depth of Merrill's financial difficulties before the merger, in 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.
Charlotte, N.C.-based Bank of America (NYSE:BAC), which is the second-largest bank in St. Louis, completed its deal for New York-based Merrill Lynch January 1, the same month that the government agreed to guarantee up to $118 billion in losses by BofA, which has received $45 billion from the government bailout, more than all but one other bank.
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