|Originally Aired: June 11, 2009
Lawmakers Examine Bank Purchase of Merrill Lynch
|Officials from the Treasury Department and Federal Reserve pressed Bank of America into purchasing Merrill Lynch last year, the bank's chief executive Ken Lewis told a House committee. Spencer Michels reports on the hearing. |
SPENCER MICHELS: The role of the government and how much was
known about Merrill's losses before they were made public were the subject of a
House hearing today.
Lewis, the lone witness, was asked whether the government
threatened him if he invoked a clause to exit the deal -- a so- called MAC, or
material adverse change, provision.
REP. EDOLPHUS TOWNS, D-N.Y.: Did you move forward with the
Merrill deal because of pressure from government officials, or because you
thought it was in the best interests of Bank of America and its shareholders?
KEN LEWIS, chief executive officer, Bank of America: Yes,
There's been a lot of lot of talk about the -- the pressure
from the federal government. It is true that we were told that if we -- if we
went through -- or I -- I can't exactly remember the exact words, so please
give me license with word for word.
But, basically, if we -- if we went through with calling the
MAC, that the government could or would remove management and the board. And I
have -- I have said in the past that it was -- the threat -- the threat was not
what gave me concern. What gave me concern, that they would make that threat to
a bank in good standing.
REP. EDOLPHUS TOWNS: So, you were pressured?
KEN LEWIS: It -- it's hard to find the exact right word to
describe what I just described. So, I have found, as I have tried to have
different words, that it's best just to describe it, and let people come to a
'Management is gone'
SPENCER MICHELS: According to an e-mail from a Virginia
Federal Reserve employee, Chairman Ben Bernanke made it clear that, if Lewis
backed out of the deal and needed government assistance -- quote --
"Management is gone."
But Lewis resisted repeated efforts by lawmakers to
characterize Bernanke's or former Treasury Secretary Henry Paulson's role as
REP. JEFF FLAKE, R-Ariz.: If this wouldn't be considered a
threat, if I might just ask you, what would be considered a threat? I mean,
kidnap the family dog, release -- release your college GPA scores? What -- what
-- what is a threat, if this is not a threat, the firing and the firing of your
KEN LEWIS: I'm -- I'm just trying to describe the
circumstances and not put one word to it myself.
REP. JEFF FLAKE: Well, this -- it -- it seems -- from this
vantage point, it seems there's sort of a -- kind of a Stockholm syndrome thing
going here. I mean, you're still regulated by these entities. And -- and it
seems that you have identified with your captors, or your regulators, in -- in
some way here.
Leveraging for taxpayer dollars
SPENCER MICHELS: Democrat Stephen Lynch of Massachusetts asked Lewis about a December
e-mail in which Fed Chairman Bernanke characterized Lewis' move to pull out of
the deal as a bargaining chip to get more government money.
REP. STEPHEN LYNCH, D-Mass.: They think you're -- you're
throwing this out as a -- a red herring, and that they think what you're really
trying to do, and what people suggest you might have been doing, is to leverage
taxpayer support by falsely putting this MAC out there. Did you use this --
this MAC as leverage to force Bernanke and -- and Paulson to come in with
KEN LEWIS: This was not some wild bluff. We thought we had
the real possibility of a MAC.
SPENCER MICHELS: Democrat Peter
Welch wanted to know why B-of-A shareholders were not informed sooner of Lewis'
concerns about the Merrill deal.
REP. PETER WELCH, D-Vt.: If there is an event that you
consider so significant that it may allow you to invoke the material adverse
consequence -- contract clause, do you not think that same event is of interest
to shareholders and requires you, in your fiduciary duty, to disclose it?
KEN LEWIS: I would leave that decision to our security
lawyers and our outside counsel.
REP. PETER WELCH: You're not CEO?
KEN LEWIS: I'm not a securities lawyer.
SPENCER MICHELS: Committee Chairman Towns announced both
Federal Reserve Chair Bernanke and former Treasury Secretary Paulson would also
be called to testify.