Bonuses From Companies Bailed Out By TARP Could Be Taxed

By Laurel Brishel Prichard University of New Mexico/ Talk Radio News Service

Sen. Barbara Boxer (D-Calif.) and Sen. Jim Webb (D-Va.) introduced a bill that would tax bonuses distributed by financial institutions bailed out by the Troubled Assets Relief Program (TARP) during a press conference Thursday afternoon.

The bill would place a 50 percent tax on bonuses over $400,000. Some of the companies that would be hit include Bank of America, Citigroup, Goldman Sachs, Merrill Lynch, Morgan Stanley, JP Morgan and Wells Fargo.

The bill would require a tax on the bonuses even if the companies have already paid back the money initially received through TARP.

“If your going to get that kind of bonus, you can share it 50-50 with the people who helped bail you out. We believe that's fair, reasonable and its not any example of what people will call class warfare,” said Webb.

Both Senators hope for bipartisan support on the bill.

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.”


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.

Congress Seeks An Answer For Executive Bonuses

By Aaron Richardson-Talk Radio News Service

The House Financial Services Committee inquired today as to why, with the economy in recession, CEO's are still receiving millions of dollars in bonuses. 

"What have you discovered about the $5 billion in bonuses given to Merill Lynch?" Rep. Maxine Waters (D-Calif.) asked the panel of witnesses, which included Brian Breheny, the SEC's Deputy Director of Corporate Finance; Scott Alvarez, Federal Reserve System General Counsel and  Gene Sperling, the Counselor to the Secretary of Treasury.

Sperling ,who answered the majority of the questions, could not answer, and only replied, " I would have to go back, and would be happy to do so, and get what our administrations best understanding of that dispute is."

Rep. Gene Green (D-Texas) brought the Committee’s attention over to what was at stake for the citizens in his district if fiscally irresponsible behavior, including exorbitant salaries for the executives of flailing companies, continues.

"What they are losing is their money for education, money to pay their house notes and money to sustain themselves. I find it quite disenchanting to know that there are those who want them to receive cuts and not want us to look at the compensation these executives are receiving,” said Green.

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.