Bank Of America CEO: The Bush Administration Made Me Do It!
New York Attorney General Andrew Cuomo's office is at it again. They've been investigating the circumstances that led to the merger of Bank of America and Merrill Lynch and the subsequent bonus payments to executives. In a letter to Senator Chris Dodd (D-CT), chairman of the Senate Banking Committee, Cuomo quotes Bank of America CEO Ken Lewis as saying that former Treasury Secretary Hank Paulson threatened him with removal from his position and mass firing of the board and senior management if he didn't allow the merger to go through.
The trouble with Paulson came in December, when Merrill Lynch's projected fourth quarter losses began to skyrocket. Lewis met with Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Bank of America's CFO, and other officials to discuss whether or not Bank of America could invoke an escape clause in their contract that protected them from a material adverse event. (This is called the "MAC" clause.)
From Mr. Cuomo's letter:
Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced:
[W]e wanted to follow up and he said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' —as I recall him saying "the government," but that mayor may not be the case -"does not feel it's in your best interest for you to call a MAC, and that we feel so strongly," —I can't recall if he said "we would remove the board and management if you called it" or if he said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me talk to our board." And the board's reaction was of"That threat, okay, do it. That would be systemic risk."
Lewis advised the board of the threats made by the Treasury and they agreed to go ahead with the merger in order to avoid any systemic threat to the financial system. The letter goes on to say that while Paulson corroborates Lewis' story, he claims to have made the threat at the request of Fed Chairman Ben Bernanke.
Further, Lewis also claims that he didn't disclose this information to shareholders at the request of Paulson and Bernanke... a charge that Bernanke apparently denies.
You can read Cuomo's letter and examine the documents he's provided to the Senate:
Exhibit A: IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA -MERRILL LYNCH (PDF)
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Comments:
Doesn't surprise me, given the other stories that have come out regarding how banks weren't offered TARP funds, they were forced to take them. On top of that, the government refusal to allowing willing and able banks to pay the money back now is pretty telling of how much control they want to exert over private business. The sad/odd thing is all this started under a Republican president, who in theory should have been against Govt. involvement in private business.
Not that I trust Paulson or Bernacke, but Lewis is full of sh*t. I find it hard for a person and a company with more lawyers than employees to suffer from not being able to get out of something or being forced to do something. Lewis just like other CEO's in the banking business is passing the buck so there is no whiplash like Thain and others got.
But a very select few made billions off of this crash of the banks and Freddie/Fannie/Goldman/Lehman/Bear Sterns/ etc.
Could "the government" have actually done that?
Andy - you're the man. An anonymous internet commenter said so.
@umbriago:
I'm not sure. BAC is a bank holding company, which is regulated by the FDIC. I'm not terribly familiar with the FDIC rules, but I suspect that they might actually have some say in Bank management in certain circumstances.
So who is lying to us? A CEO or a major company or the Federal Government?
All three men are full of shit.
Essentially, MER had to be saved or the market was going to tank to hell. BAC was the only private company with the capital to save them and the desire to get involved.
Ken Lewis' bargaining chip going into this is walking away with his banking business and leaving the bag for saving MER with taxpayers.
The Feds' barganing chip going into this is the overall threat to the banking system - which BAC is a part of.
They negotiated a deal. This whole supposed debate and investigation is eyewash for the media. Just like nothing was done about the bonuses, nothing will be done about this. The White House and Congress are trying to weaken these companies and, consequently, their backers in Washington. That's because they have to limit the resistance to sweeping regulatory changes in both the credit card and investment space. Keep in mind that banks have powerful lobbies.
Hooray for Democracy, and populist dipshits being led around by their noses.
Isn't Lewis' only jobs to protect shareholder value and maximize profit ?...looks like instead he put his (and his board's) jobs ahead of the corporation and shareholders...pretty typical of the lousy business management we currently have in this country. He should have invoked the MAC to help his company and if he lost his job in the process, so be it. That's what he's paid to do.
Blaming Bush only works for politicians. duh.
Well lets put this through the courts and finally throw someone in jail. It would be nice to see Paulson and Bernanke behind bars or in a highway chain gang picking up litter.
Wait, this can't be. Obama is the Facist but Socialist, the too soft, but too hard on civil rights, president. The bailouts, pressure, etc. and facism could have never come from Bush. That unpossible.
Bush made it clear that he was going to avoid a recession at all costs during his presidency. That's why he didn't enforce regulations, cut rates to zero, etc. The economy was hurting, but he was trying to prop it up for his legacy. He almost made it too.
@ADismalScience:
"Hooray for Democracy, and populist dipshits being led around by their noses."
And hooray for self-righteous blowhards looking theirs at the rest of the country, as if they were somehow superior.
Wasn't Obama president in December 08? So why the headline of Bush?
So when the Obama interferes with "the free market", it's called Socialism (or Fascism for the historically blind). When Republicans do it, it's called virtuous gumption?
Nice double standard, there.
@ADismalScience: Yup.
Considering the havoc created when Lehman was allowed to fail, Merrill being allowed to do the same was a non-starter. Even assuming the global economy didn't freeze midstep, gasp then collapse dead dead dead immediately, it surely would have caused a run on the sector far worse than BofA taking one for the team*.
The best to make of a horrid, horrid situation. We're not nine-year-olds. Or, let me rephrase: some of us are, but those running things aren't (hopefully).
And the worst thing to come out of this (and BOY are there some bad things coming out of this) is to not slap a foot on the finance industry while they're down, and split them up into smaller entities small enough to fail. Restore Glass/Steagal. Boost reserve requirements. Get back mark-to-market once pricing forces on the affected instruments recover some of their realistic value. Then set 'em free and let the market work.
* Of scalliwags: don't get me wrong.
I feel dumb, but I think I need somebody to explain to me why this is important, other than the generalized shadiness.
@HomersBrain: Tee hee. That's so adorable.
Here, lemme pat your head... Oh wait, you're not ten years old.
OK. That's sorta sad.
To BofA's credit, would a global firestorm twice as bad as what happened after Lehman failed affected stock prices much? In a downward direction? Would shareholders be happy? Is there a potential for a Greater Good here? Even though - admittedly - the CEO caving for personal reasons is pretty damn rank?
Life is sometimes more complicated that we'd like to have hoped back when we thought girls had cooties and Schwin made the best vehicles e-v-a-h.
At least the Obama administration is doing it out in the open. With Bush, you got screwed behind your back...
@ARP: I recall reading somewhere that one of his staffers (Rove?) lamented that they knew the economy was going to take a dive past 20,000 leagues, but expressed disappointment that their timing was off by nine months. Regret over the timing, not the cataclysm.
Rank bast*rds.
@HomersBrain: Ditto exactly what you said. The merger was not in the best interest of BoA, but it was in the best interest of the CEO and the BoD, so we went through with it. Management Fail!
@Eyebrows McGee (on Twitter: LPetelle): Meh. It's not when you think about it. Bush needed to broker some kind of deal to keep merril from going under altogether. Rather than nationalize, which would be seen as anti-free market, Paulson and Bernanke attempted to control the crisis by brokering deals backed by the government on a case by case basis. In theory, this allows the solution to the crisis to stay as much in the commercial/free market arena as possible.
So for Ken Lewis to be upset about a threat to his or his board's position(s) is totally disingenuous. Without Government backing the deal wouldn't exist, and the systemic failure would have caused BOA to go under anyway.
I would counter that the failure of the banking system subsequent to a MER collapse was in the interest of those shareholders. Also, in looking at Q1 earnings at BAC, MER is contributing substantially to the bottom line. Comprehension fail!
@tc4b: If what separates us from beasts is the functioning of the higher-order portions of our brain, and if what ADismal wrote versus what you just did reflects both your quality of thought, then yes, he is superior.
Sorry about that.
@Hobz: With no strings.
Jeezus, the GOP's original proposal - thankfully shot down by the loyal opposition - was all $700 Billion spent by Paulson, no review, with the other two branches locked out.
I agree with you here:
Do what's best for the company
vs
Save our own necks
And guess which won?
@stephennmcdonald: I know that b/c I just bought two commeritive plates from Buy.com! Seriously, I did.
They all are up to no good. Paulson, Bernacke and Lewis. Paulson was part of an admistration that made Richard Nixon look like a saint. Is this behavior shocking?
It is totally out of line for Bernacke to even suggest a threat and he should resign immediately. As far as Lewis, the man has been reported to be one of the worst managers out there.. BofA should toss him out NOW.
@Trai_Dep: Who (citation needed) was applauding Republicans for their "virtuous gumption" interfering with the free market? What? Nobody? Great. Take your strawman to a hotel and make love to it.
@Trai_Dep: Dear lord please bring them back! Half the people I talk to didn't even know who controlled congress in '08!
This is a nice situation in a perverse way.
Bank of America is having conditions forced upon them without their consent and they are suffering for it.
Kind of like when they started charging me $18.00 a month because I had under a certain amount in my checking, or when they jacked up my credit card rate for no reason.
I wish this had been posted before yesterday's Jeopardy came on. I couldn't remember which Cuomo was in this position.
@woolygator: If this is a troll, it's a brilliant one and you should be congratulated.
If it's not, you should be summarily shot.
@exconsumer9: It's basically important because his job is up on the block today, and the shareholders are not very happy with him.
This is his way of deferring blame for their losses on ML and hopefully keeping his position as chairman and CEO.
Stay classy Feds.