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.

Bernanke Says He Did Not Threaten Bank Of America CEO

By Annie Berman -- Talk Radio News Service

In a second hearing on the merger between Bank of America and Merrill Lynch, Federal Reserve Chairman Ben Bernanke testified that he did not threaten to fire Bank of America CEO Ken Lewis if the merge was not finalized.

In his June 11, 2009 testimony, Lewis claimed that he had decided to invoke a Material Adverse Change (MAC) clause, which would have stopped the merger between Bank of America and Merrill Lynch. Based on this information, it is possible that Lewis knew about Merrill Lynch’s major losses before the merger was finalized.

Bernanke claims that he was advising, not threatening, Lewis to not invoke a MAC clause because doing so would have been bad for the economy.

“[Bank of America] was obligated to make the choice they believed was in the best interest of their shareholders and company. I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management if they decided to proceed with the MAC. Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under these circumstances,” said Bernanke in his opening statements.

Lewis confirmed in his testimony that he wanted to invoke a MAC clause, but claimed that he had no prior knowledge of the huge fourth quarter losses that Merrill Lynch suffered in 2008. The committee concluded that Lewis would not have tried to invoke a MAC clause if he did not know about Merrill Lynch’s potential losses.

In this morning’s testimony, Bernanke also claimed that he did not know about Merrill Lynch’s losses prior to the merger.

“Mr. Bernanke, your staff believed that bank of America knew about Merrill Lynch’s accelerating losses in mid November, a full month before coming to you and weeks before it’s shareholders voted to approve the merger. Those 4th quarter losses rose to over $15 billion out of the pockets of Bank of America’s shareholders… The Fed knew what Bank of America knew [about the Merrill Lynch losses],” said Rep. Dennis Kucinich (D-Ohio).

Additional hearings regarding the merger are expected to take place in July. Treasury Secretary Hank Paulson is expected to testify in these hearings.

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.