Bank of America Bonus Payments
Questions raised about Merrill
Lynch losses prior to merger
Bank of America Corp. (BAC) Chairman and Chief Executive Kenneth Lewis said
in testimony before New York's attorney general that Federal Reserve Chairman Ben S. Bernanke and former
Treasury Secretary Henry M. Paulson pressured him not only to move ahead with a merger with Merrill Lynch
despite reservations, but also to stay quiet about the mounting losses at the crumbling investment
bank,The Wall Street
Transparency has long been a cornerstone of both democracy and the free market,
but Lewis's testimony that implies the CEO of one of America's largest financial institutions - an institution that
received more than $20 billion in taxpayer money - neglected to alert investors and potential shareholders to the
full scope of Merrill's losses prior to his company's acquisition. It also implicates two prominent government
officials in that decision.
Lewis made the comments in testimony given before New York's attorney general as
part of an investigation into bonus payments at Bank of America. The Journal reviewed a transcript of that
testimony, the paper reported today.
Bank of America merger with
The merger, originally valued at $50 billion, was announced on Sept. 15, about an
hour before Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt. Afraid the collapse of Merrill Lynch would cause further deterioration of
panic-stricken markets, the government helped facilitate the deal with $25 billion of capital -$15 billion in
October and another $10 billion in January - from the U.S. Treasury Department's $700 billion Troubled Asset Relief
Shareholders of Merrill Lynch and Bank of America voted to approve the merger on
Dec. 5. Lewis said in his testimony that he first considered backing out of the deal on Dec. 13 when Bank of
America Chief Financial Officer Joe Price informed him that projected after-tax losses were "about $12 billion,"
the Journal reported.
Merrill Lynch actually lost $15.84 billion in the fourth quarter. BofA posted a
fourth-quarter loss of $1.79 billion, but was forced shift more weight to the U.S. taxpayer, as the government
agreed to guarantee $118 billion of Bank of America assets, including commercial and real estate holdings and
credit default swaps. Bank of America was required to absorb the first $10 billion of losses from its pool of
Nearly 13% of the first $350 billion in TARP funds went to Bank of
"As we saw the anticipated loss accelerating, we reevaluated our rights under the
deal," Lewis said in BofA's fourth-quarter conference call. "The government was under the view that walking away
would cause significant concerns and serious systemic harm to the financial markets."
Keeping quiet about Merrill Lynch
Lewis elaborated in his testimony, saying that while he was not explicitly
instructed to keep quiet about Merrill's losses but that Paulson and Bernanke suggested his job would be
jeopardized if he did.
"I was instructed that 'We do not want a public disclosure.'" Lewis
Lewis went on to describe the conversation he had with Treasury Secretary Paulson
in which he expressed his desire to abandon the deal:
"I can't recall if he said, 'We would remove the board and management if you
called it [off]' or if he said 'we would do it if you intended to.' I don't remember which one it was," Mr. Lewis
said. "I said, 'Hank, let's de-escalate this for a while. Let me talk to our board.'"
When asked by investigators if Paulson was "really asking Bank of America
shareholders to take a good part of the hit of the Merrill losses," Lewis said "Over the short term,
BofA shares have lost three-quarters of their value since the Merrill Lynch
acquisition was announced.
Bank of America shareholders will vote on whether Lewis will keep his position as
chairman and CEO at their annual meeting on April 29.