TOPICS > Economy

‘Frontline’ Investigates Bank of America Deal

June 11, 2009 at 6:30 PM EDT
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An excerpt on Frontline's upcoming report on Bank of America and the government's new role in the banking system, told from the perspective of CEO Ken Lewis and the financial reporters who covered the story.

JIM LEHRER: The Bank of America deal is also the subject of
the next “Frontline.” It chronicles what happened behind the scenes
in the wake of the collapse of Lehman Brothers.

It’s told through the eyes of Ken Lewis and the financial
reporters covering the story.

Here’s an excerpt.

NARRATOR: The merger was approved. But, by mid-December, the
truth about Merrill’s balance sheet was unavoidable.

CHARLES DUHIGG, The New York Times: Ken Lewis has a meeting
where he is told the projections for the losses that Merrill Lynch will have to
report in the fourth quarter. And the losses are enormous. They’re over $15
billion. They’re larger than anything that has been announced previously.

NARRATOR: Ken Lewis now knew the Merrill merger could break
his bank.

WOMAN: I don’t think he anticipated the market
deteriorating the way it did. And, certainly, he did not anticipate how
stunning the losses would become.

Second thoughts

CHARLES DUHIGG: I believe that's when Ken Lewis felt, youknow what, I made a mistake here. And this is happening at a time when Bank ofAmerica doesn't have a lot of excess capital to offset those losses. So, it'svery, very bad news.

ANDREW ROSS SORKIN, The New York Times: Ken Lewis wanted outof the deal. I think there was a view that there truly was what they called aMAC, a material adverse change. Something material had changed that they didnot see coming.

NARRATOR: Ken Lewis told Paulson he was considering invokingthe MAC to get out of the Merrill deal. Paulson was stunned. He told Lewis tocome to Washingtonimmediately.

DAN FITZPATRICK, The New York Times: So, Lewis goes to Washington, D.C.,on December 17 to meet with Bernanke and Paulson, and tells them: We can't dothis. The losses are too big. We're going to pull out.

KEN LEWIS: I can't say a lot about the negotiations. Butwhat I would say is, they had their view of both what that would do to Bank ofAmerica and what that would do to the financial system.

MAN: Hank Paulson and Ben Bernanke say, if you do that, youwill destroy the tiny shard of a banking system that we still have leftremaining. You can't pull out of this deal.

SUSANNE CRAIG, The Wall Street Journal: Keep in mind, theseare men who had been through Lehman Brothers. They don't want this. They don'tneed it. And it can't happen.

Limited options

NARRATOR: Lewis' options were limited. His new powerfulpartner, the secretary of the treasury, was calling the shots.

JOE NOCERA, The New York Times: The government already had$20 billion inside -- in Bank of America. It's its regulator. It's a bank. It'sreally kind of hard to tell the government to go shove it when it says: We needyou to do this deal.

SUSANNE CRAIG: He is in a really tough spot. He's almostdamned if he does and damned if he doesn't.

NARRATOR: Paulson got tough.

ANDREW ROSS SORKIN: He's got a very strong voice, got a verystrong will. And I think he could convince anybody -- and, in this case, KenLewis -- that, if you don't follow along, if you don't go along with theprogram, you won't be part of the program anymore, meaning: We will toss youright out.

MAN: You have to buy Merrill. And we will make sure thathappens, up to and including removal of management, removal of the board.

SUSANNE CRAIG: From where Ken Lewis sat, I have had severalpeople describe to me that Bank of America thought it was a threat and theyneeded to do this.

KEN LEWIS: There was a time where that discussion washeld. And -- but we -- we, in fact -- we, in fact, decided, on our own, not --not anything to do with that, that it was the best interests of all -- allinvolved to go ahead and -- to go forward.

Lewis blinks

DAN FITZPATRICK: Ken Lewis blinked. The full force of thegovernment is being brought upon him. The rules of the game had changed. You know,Ken Lewis is on top of the financial services world, but he's not in charge.The government holds all the cards, at the end of the day.

NARRATOR: Paulson then explained the offer that Lewis couldnot refuse: another $20 billion and a promise to cover another $118 billion onMerrill's toxic assets. The deal was kept a secret -- from stockholders, fromWall Street, and the taxpayers, for almost one month.

JIM LEHRER: You can watch the full "Frontline"program, "Breaking the Bank" on most PBS stations on Tuesday. Pleasecheck your local listings for the time.