Cuomo details how U.S. pressured BofA on Merrill deal
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New York Atty. Gen. Andrew Cuomo today blows the whistle on Bank of America Corp.’s desire to abort its takeover of Merrill Lynch & Co. late last year -- and how BofA was pressured by the government to stay silent about its misgivings.
The revelations may further inflame BofA shareholders who believe the bank made a mistake buying loss-ridden Merrill, a deal that forced BofA to seek a second large infusion of government capital.
Cuomo earlier this year launched a probe of the BofA/Merrill merger, focusing on controversial bonus payments made to Merrill employees at the end of last year.
But in a letter today to congressional leaders and the Securities and Exchange Commission, Cuomo writes:
‘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.’
Interviews Cuomo’s office had with BofA CEO Ken Lewis and with former Treasury Secretary Henry M. Paulson revealed that Lewis in mid-December began to consider pulling the plug on the bank’s deal to buy Merrill, after learning of a ‘staggering amount of deterioration’ in the brokerage’s finances.
But the government, Cuomo said, ‘pressured Bank of America not to seek to rescind the merger agreement’ because of fears it would trigger new turmoil in the financial system.
According to Lewis’ testimony to Cuomo, Paulson told Lewis that if BofA walked away from Merrill, the bank’s management and board would be replaced.
From Cuomo:
‘In an interview with this office, Secretary Paulson largely corroborated Lewis’ account. . . . Secretary Paulson informed us that he made the threat at the request of [Federal Reserve] Chairman [Ben] Bernanke. After the threat, the conversation between Secretary Paulson and Lewis turned to receiving additional government assistance in light of the staggering Merrill Lynch losses.’
Didn’t BofA shareholders have the right to know what was going on? Lewis testified to Cuomo that the question of disclosure was not up to him and that his decision not to disclose was based on direction from Paulson and Bernanke.
‘I was instructed that, ‘We do not want a public disclosure,’’ Lewis told Cuomo.
Paulson, however, told Cuomo that his discussions with Lewis about disclosure related to the Treasury’s own disclosure obligations.
As for Bernanke’s role, Cuomo said that he doesn’t have a ‘complete picture of the Federal Reserve’s role in these matters’ because the central bank has been unwilling to divulge what it says is privileged information.
-- Tom Petruno