BofA's Lewis: Feds urged Merrill purchase

By IEVA M. AUGSTUMS and STEPHEN BERNARD, AP Business Writers Ieva M. Augstums And Stephen Bernard, Ap Business Writers – 29 mins ago
CHARLOTTE, N.C. – New York's attorney general said Thursday government officials pressured Bank of America Corp. CEO Ken Lewis to complete the bank's purchase of Merrill Lynch, threatening his job security.
A letter from New York State Attorney General Andrew Cuomo's office sent Thursday to Congressional leaders and federal regulators said Lewis testified in February that former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke threatened to oust Bank of America's management if the bank tried to back out of buying Merrill Lynch.
The government helped orchestrate the acquisition of the investment bank by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off one of the most intense periods of the financial crisis.
Bank of America completed its purchase of New York-based Merrill Lynch on Jan. 1.
The bank has repeatedly defended its acquisition to shareholders and investors amid revelations of huge losses at Merrill Lynch before completion of the deal.
"We believe we acted legally and appropriately with regard to the Merrill Lynch transaction," Bank of America spokesman Scott Silvestri told The Associated Press Thursday.
Representatives from the Treasury Department had no immediate comment.
Lewis' testimony came in response to questioning by the attorney general's office about bonuses paid to Merrill Lynch employees in December, before BofA completed its acquisition of the investment bank. The attorney general's office was trying to determine the timing of the bonuses and whether BofA failed to provide adequate disclosure to shareholders about them.
The investigation's focus has since broadened to encompass the transparency of the government's $700 billion bailout program, which it launched last fall to help unclog credit markets. The attorney general's office continues to investigate the bonus payments, but is now also running a parallel investigation into potential securities fraud tied to Bank of America's purchase of Merrill Lynch.
Bank of America has received $45 billion from the government's Troubled Asset Relief Program. As part of that money, the bank received $20 billion in January after Lewis requested it to help offset mounting losses at Merrill Lynch.
Neil Barofsky, the special government inspector general assigned to oversee the Troubled Asset Relief Program, said Thursday he will be issuing audits of various bailout transactions, including government assistance provided to Bank of America in connection with its acquisition of Merrill Lynch. He said his office is also conducting an investigation involving Bank of America.
"I would caution anyone from leaping to too many conclusions about what Secretary Paulson or Chairman Bernanke said until we've looked at all the facts and reported on them," Barofsky, who said he witnessed Lewis' testimony, told the economic panel. "The conclusion that one may draw that it's black and white that there was an order from the United States government not to disclose this information, I don't think it's as crystal clear."
Lewis has admitted in recent months that he had trepidations about completing the purchase of Merrill Lynch. In December, just before it was sold to Charlotte, N.C.-based Bank of America, Merrill Lynch said it lost more than $15 billion in the fourth quarter.
According to the testimony, Lewis had several discussions with government officials over his concerns about the deal, including his desire to scuttle it. Purchase deals typically allow companies to back out if there are significant changes in operations or performance.
But Secretary Paulson advised Lewis in late December that if Bank of America terminated the deal, the company's management and board would be replaced.
Lewis told the attorney's general's office during his testimony that Secretary Paulson said to him: "I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but ... we would remove the board and management if you called it."
Paulson essentially confirmed Lewis' testimony when he was questioned by the attorney general's office, according to the letter Cuomo sent to government officials on Thursday. But Bernanke and the Federal Reserve have declined to discuss the conversations with Lewis over the Merrill Lynch purchase. The Fed has invoked its bank examination privilege to avoid divulging what it told Lewis to do regarding the purchase of Merrill Lynch, according to the letter.
A government official on Thursday said Bernanke did not advise Lewis or Bank of America on questions of disclosure and their responsibilities in that arena. The official spoke on condition of anonymity because of sensitive legal issues raised in the New York proceeding.
Just a few weeks after the deal was completed, Bank of America's fourth-quarter earnings report showed the hit its balance sheet took on the Merrill Lynch transaction, making Lewis the target of much shareholder fury. In January, Bank of America reported a $2.39 billion fourth-quarter loss.
During Lewis' testimony before the attorney general's office, he said he never considered resigning because Paulson and Bernanke had applied pressure to him to complete the deal. Lewis also admitted the deal was likely to hurt Bank of America shareholders over the next two to three years.
Two of the nation's largest state pension funds are seeking to lead a class action lawsuit against Bank of America, alleging the bank's management "misstated or omitted" important information about Merrill Lynch's financial health before the deal was completed.
And Finger Interests Number One Ltd., which owns about one-fifth of one percent of Bank of America stock, is asking shareholders to vote against re-electing Lewis as well as lead director O. Temple Sloan Jr. and director Jackie Ward during the bank's annual meeting next week in Charlotte.
On Monday, Bank of America warned of worsening loan default problems even as it posted a first-quarter profit of $2.81 billion. The amount of its problem loans more than tripled to $25.7 billion, and Lewis said he couldn't predict when the bank's credit morass would end.
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Stephen Bernard reported from New York.

U.S. planning to reveal data on health of top banks: report

Wed Apr 15, 1:28 am ET
(Reuters) – The Obama administration is drawing up plans to disclose the financial condition of the 19 biggest banks in the country, the New York Times said, citing senior administration officials.
The administration has decided to reveal some sensitive details of the "stress tests" now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest, the paper said.
The stress tests, announced in February, were designed to see if banks are adequately capitalized. Banks that are found to need more money would then have six months to raise it, or take funds directly from the government in a new round of capital injections.
But government officials have been less than clear about how the details of the test results will be released.
The Treasury Department and the Federal Reserve have asked banks not to discuss the exams publicly out of concern that information will trickle out inconsistently and create market chaos, a source familiar with the talks between the government and the banks told Reuters.
While all of the banks are expected to pass the tests, some are expected to be graded more highly than others, according to the paper.
Officials have deliberately left murky just how much they intend to reveal - or will encourage the banks to reveal - about how well the banks would weather difficult economic conditions over the next two years, according to the paper.
Indicating which banks are most vulnerable still runs some risk of doing what officials hope to avoid, the paper said. "The assessments are not yet complete," the paper cited Stephanie Cutter, a spokeswoman for the Treasury, as saying. "When they are, we'll work with the banks on how best to release the appropriate data and on what time-frame to ensure fairness and minimize market uncertainty."
(Reporting by Ajay Kamalakaran in Bangalore; Editing by Muralikumar Anantharaman)