The CEO and Chairman of Bank of America says he was threatened by the Bush Administration's Secretary of Treasury when he tried to back out of a deal to rescue Merrill Lynch, according to testimony he gave to New York Attorney General Andrew Cuomo .
The stunning disclosures of a behind the scenes power play by top government officials are the talk of Wall Street and Washington today.
In his testimony, Bank of America CEO Ken Lewis told New York's Attorney General that then-Treasury Secretary Henry Paulson threatened him on December 21st with the prospect of removing the management and Board of Directors of the bank if Lewis refused to complete the merger with Merrill Lynch even though Merrill was hemorrhaging money.
Just a few days earlier, on December 14th, Lewis's Chief Financial Officer had told him that Merrill's projected fourth quarter losses had "skyrocketed" from $9 billion to $12 billion in just six days, according to a cover letter Cuomo sent along with the testimony and other documents to senior government officials overseeing the bank bailout.
The letter and the testimony was sent to the Chairman of the Senate Banking Committee, the Chairman of the House Financial Services Committee, the Chairman of the Securities and Exchange Commission and the Chair of the Congressional Oversight Panel.
Senator Chris Dodd (D-CT), chairman of the Senate Banking Committee is "deeply concerned about these troubling allegations," according to his office. "He has talked today with Attorney General Cuomo about his findings and will carefully assess the documents provided to him by the Attorney General. He will decide on next steps soon," said Dodd's spokesperson, Justine Sessions.
The Congressional Oversight Panel would not comment on the letter, saying they have yet to 'formally' receive it.
Cuomo said he sent the information because of serious concerns about the transparency with which the Troubled Assets Relief Program and other elements of the federal bailout plan are being run, because of his office's responsibility to enforce the securities laws, and because of the "unprecedented circumstances" in which the Merrill – Bank of America merger took place.
The documents lay out in detail a troubling set of conversations, emails, and meetings in which federal regulators and senior bank officials admit that they agreed not to alert shareholders at Bank of America to circumstances that could materially affect their investments, admitted not having alerted the Securities and Exchange Commission to discussions which came within its regulatory scope, and in which Lewis, the Chief Executive Officer of a bank, admits he went forward with a deal knowing full well that it could have a negative impact on a large number of shareholders.
The Federal Reserve released a statement late Wednesday denying any allegations that officials there were involved in any decisions over disclosure. "No one at the Federal Reserve advised Ken Lewis or Bank of America on any questions of disclosure. It has long been the Federal Reserve's view that questions of this nature are best addressed by individual institutions and their legal counsel, as they are in a position to understand clearly their obligations and responsibilities, said spokesperson Michelle Smith.