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Thursday, March 28, 2024 | Back issues
Courthouse News Service Courthouse News Service

BofA’s CEO Goes Before Skeptical Committee

WASHINGTON (CN) - Members of Congress bombarded Bank of America's CEO Kenneth Lewis with questions Thursday about the company's merger with Merrill Lynch. Committee members were particularly interested in pressure put on Lewis by former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

Lewis said Henry Paulson, the Treasury Secretary under George W. Bush, had hinted at wholesale dismissal of Bank of America's board if the bank tried to back out of the merger. "If in fact you do," Lewis quoted Paulson, "we could remove the board of management."

Lewis refrained from calling the statement a threat, saying that he just described it, adding that the House Committee on Oversight and Government Reform could call it whatever it wanted to.

"That sounds like a threat to me," Utah Republican Jason Chaffetz said, smiling at Lewis.

In the high ceilinged room with fluorescent lights, Arizona Republican Jeff Flake made unorthodox use of the word in calling it "incredulous" to think the statement was anything other than a threat. What would be a threat, he asked, if not the statement from Paulson, "Kidnap the family dog? Release your college GPA scores?"

Bank of America acquired Merrill Lynch after the financial services company got mauled by the economic crisis, but after finding $12 billion of unexpected losses within Merrill Lynch's mortgage-backed securities, the bank considered backing out of the deal.

Other committee members argued that Lewis had instead tricked the government, saying that Lewis threatened to back out of the merger in order to squeeze the government for TARP funds.

Lewis defended himself, and said that the bank had not acquired Merrill Lynch to get government money, "We did so without any promise or expectation of government support."

Massachusetts Democratic Representative Stephen Lynch said he thought Lewis was "playing a game."

Bank of America's bargaining power came from the fact that backing out of the merger would have been a further blow to a reeling economy. Ultimately, Bank of America followed through with the merger, but secured $20 billion in TARP money tied to the Merrill Lynch losses.

That amount was in addition to $15 billion in TARP funds already collected by Bank of America in October of 2008.

Democrats questioned whether Lewis credited the government for the merger only because completion of the merger after finding billions in losses may have violated Lewis' fiduciary duty to the shareholders.

Lewis said he had been pressured by the government, but agreed that the decision to continue with the merger was ultimately his and the board's.

Shareholders had approved the merger, but had not known about the enormous losses of Merrill Lynch.

Vermont Democratic Representative Peter Welch asked Lewis if he had told his shareholders that the deal they voted on was different from the one that went through.

He replied that he told shareholders about the losses after the merger was complete.

Committee members also questioned the role of Fed Chairman Bernanke in the merger. Lewis said the two government heavyweights both applied pressure to keep the merger from unraveling.

Representative Edolphus Towns, a New York Democrat and committee chair, said the committee will invite Paulson and Bernanke to testify. He said the committee has a "willingness to issue subpoenas."

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