Bank Of America Executives Defend Merrill Lynch Deal

By Ravi Bhatia - Talk Radio News Service

Bank of America (BOA) executives, including two members of the bank’s board of directors, testified Tuesday in front of the House Oversight Committee to explain how a private deal between BOA and Merrill Lynch turned into a federal bailout.

The $50 billion deal between the two banks occurred in September, 2008 and saved Merrill Lynch from bankruptcy. A January 2009 report of its earnings, however, showed that Merrill Lynch lost $21.5 billion in the fourth quarter of 2008, requiring the government to subsequently provide it with an emergency $15 billion preferred stock investment through the Troubled Asset Relief Program.

Committee Chairman Rep. Edolphus Towns (D-N.Y.), claimed during Tuesday's hearing that the government did not force Bank of America to take the bailout. Towns noted that it was former Bank of America Chairman Ken Lewis who asked former Treasury Secretary Hank Paulson on Dec. 17, 2008 to intervene.

“That one phone call put everything in motion,” Towns said. “Lewis claimed that he believed Bank of America could back out of the deal with Merrill Lynch based on the Material Adverse Change clause in the merger agreement - the so-called ‘MAC clause.’ [Former Bank of America General Counsel Timothy J.] Mayopoulos was suddenly fired nine days later without explanation and replaced by a senior insider who had not practiced law in years.”

Mayopolous testified Tuesday that, “Based on information [that was] already disclosed to shareholders, a reasonable investor would have been on notice that Merrill Lynch might well suffer multi-billion dollar losses in the fourth quarter of 2008.”

During his prepared remarks, Mayopolous also denied involvement in Bank of America's approving Merrill Lynch to pay billions of dollars in bonuses to its employees. However, he did advise Steele Alphin, Bank of America’s Chief Administrative Officer, that Merrill Lynch, not Bank of America, should determine year-end bonuses for Merrill Lynch employees.

“I also advised Mr. Alphin, however, that it was appropriate for him to make clear to the Chair of Merrill’s Compensation Committee that it would be inappropriate for John Thain, Merrill Lynch’s CEO, to be paid a year-end bonus,” Mayopolous said. “My advice was not legal advice that such a bonus would be illegal, but rather my business judgment as to what would be best for the combined company.”

Bank of America’s President of Consumer and Small Business Banking Brian Moynihan said Tuesday he was proud of the role his firm has played in the economy “during this period of economic difficulty,” and that Bank of America's acquisition of Merrill Lynch helped prevent a further financial collapse.

“We have extended $759 billion in new credit since we filed our first report in the fourth quarter of 2008,” he said. “That represents almost $17 for every dollar of the $45 billion of taxpayer assistance to the Bank of America.”


Nervous Paulson Gets Grilled On Controversial Bank of America-Merrill Lynch Merger

A visibly nervous Henry Paulson, former US Secretary of the Treasury, testified before the Oversight and Government Reform Committee to defend his decision to harshly warn Bank of America CEO Ken Lewis that backing out of the merger with Merrill Lynch, was the best thing to save the American economy.

Though the unemployment rate is currently at 9.5% and is expected to rise, Paulson continued to affirm that if Ken Lewis were to invoke a Material Adverse Change Clause (MAC), which would stop the merger, it would have been detrimental to the economy.

In the first two hearings held to discuss the controversial merger, it was concluded that Ken Lewis must have known about the major fourth quarter losses that Merrill Lynch suffered after the shareholders voted to go ahead with the merger, which would explain his attempt to invoke a MAC clause. Rep. Dennis Kucinich (D-Ohio) asked how Paulson could shoot down the MAC clause (a legal action) and ignore the possible illegal action of Lewis’ withholding vital information from Bank of America shareholders.

“Nothing in Mr. Paulson’s testimony today justifies the Government’s decision to ignore evidence that Bank of America withheld information from its shareholders about mounting losses at Merrill Lynch before the crucial shareholder vote on December 5-- a potentially illegal action,” said Kucinich in his opening statements.

In response, all Paulson said was that he simply did not see any illegal actions.

Rep. Jim Jordan (R-Ohio) said that there is a “clear pattern of deception and intimidation” in terms of the relationships between Lewis, Paulson, the merger and U.S. Federal Reserve Chairman, Ben Bernanke.

“People need to see this situation because it sheds light on where we are headed...it is important we see what happens when you give this kind of involvement to the federal government,” said Jordan.

It was revealed during the hearing that Paulson did in fact share information about the merger with U.S. Securities and Exchange Commission Chairman, Christopher Cox and FDIC Chairman Shelia Bair. In his closing statements, Chairman Edolphus Towns (D-N.Y.) said that he will invite them to testify on their involvement with this merger after the August recess.

Bank of America CEO Grilled By Oversight Committee

By Annie Berman -- Talk Radio News Service

Bank of America CEO Ken Lewis apparently did not disclose information about Merrill Lynch’s huge losses to his shareholders before the announcement of the company’s merger earlier this year.

“We hope to better understand what happened in the four months between September 15, 2008, when the merger was announced, and January 16, 2009, when the public learned that Bank of America had received $20 billion in taxpayer money,” said Rep. Edolphus Towns (D-N.Y.), during a hearing with the Committee on Oversight and Government Reform.

Previously, Lewis had claimed that the government told him that he would be terminated, along with his board, if he did not keep quiet about the deep financial difficulties at Merrill Lynch.

“Just nine days after the shareholders voted, he discovered a $12 billion loss at Merrill Lynch. Mr. Lewis then told Treasury Secretary Hank Paulson that he was strongly considering backing out of the deal. According to Mr. Lewis, Paulson ultimately told him that if he didn’t go through with the acquisition, then the board would be fired,” said Towns in his opening statements, citing a disposition taken by New York Attorney General Andrew Cuomo.

Bank of America disclosed Merrill Lynch’s 2008 fourth quarter loss of $13.1 billion more than a month after Bank of America shareholders voted to approve the merger on December 5, 2008.

On September 15, 2008, it was announced that the merger between Bank of America and Merrill Lynch would proceed. On January 16, 2009, it was announced that Bank of America had received $20 billion in Troubled Assets Relief Program (TARP) money.

Lewis apparently wanted to use a Material Adverse Change Clause (MAC) to terminate the merger of the two companies.

A MAC clause gives the buyer the power to terminate a contract if the buyer feels that the assets it is acquiring are in trouble or are detrimental to the buyer.

Lewis claims to have been surprised by the huge losses suffered by Merrill Lynch.

Rep. Gerry Connolly (D-Va.) asked Lewis when he decided to disclose the losses. Lewis responded by saying “I don’t decide on disclosures. We have securities lawyers and many times they talk to external counsels to determine that…we disclosed the losses at Merrill Lynch consistent with the agreement and consistent with announcing our earnings on January 16, 2009.”

Towards the close of the hearing, Rep. Dennis Kucinich (D-Ohio) challenged Lewis, telling the CEO that he had to have known about the Merrill Lynch losses before the merger, and that using a MAC clause was not credible.