Bank of America CEO Ken Lewis is facing renewed calls for his resignation after testifying that threats by the Bush administration forced him to keep shareholders in the dark about the dangers of purchasing a hemorrhaging Merrill Lynch.
In his testimony to the New York attorney general, Lewis said then-Treasury Secretary Henry Paulson threatened him on Dec. 21, 2008, 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 losing money.
Some shareholders have been angry at Lewis for months, claiming the Merrill takeover pushed the stock down more than 70 percent in 12 months. They also hold him responsible for allowing Merrill Lynch to pay its executives $3.6 billion in bonuses just prior to the merger.
But Thursday's allegations added a new layer of anger, contributing to a sense among shareholders that Lewis was dishonest about the company's fiscal health and put his own interests before those of the shareholders.
"There is absolutely no question he had an obligation to be honest to the shareholders," said Richard W. Clayton, spokesman for the Change to Win Investment Group, which manages 33 million Bank of America shares, or about one half of one percent of the bank's stock, for the Teamsters, the Service Employees International Union and other trade groups.
With an eye to a shareholders meeting scheduled for next week, CTW called again for Lewis and other executives to step down.
"Bank of America needs a CEO and board of directors that will put the interests of shareholders ahead of their own interest in self-preservation," CTW said in a written statement.
" Voting against Chairman and CEO Ken Lewis, Lead Director O. Temple Sloan and Governance Committee chair Thomas Ryan at the bank's April 29 annual meeting is the necessary first step in this process," the statement read.
"Mr. Lewis and the board owe their fiduciary obligation to the corporation and its shareholders, not to the regulators who reportedly pressed them to close the deal and who may or may not have also pressed them not to disclose manifestly material facts," the statement read.
In January, Sloan, the bank's lead director, reiterated the board's support for Lewis.
"The board today during [its] regular meeting expressed support for Ken Lewis and the management team, noting their experience in managing through challenging environments and in assimilating mergers," he said.
At the time, Sloan also told the Wall Street Journal that the question of Lewis' job security "is not expected to be reopened."
Lewis's admission that he was pressured into the deal is a stark contrast from his comments at the time.
In September, Bank of America announced it would acquire Merrill for $29 a share, or about $44 billion, and a seemingly ascendant Lewis, who briefly appeared to be saving Wall Street, bragged to reporters: "We are good at this."
In reality, Lewis, now says the government forced him to go through with the merger.
On Dec. 14, 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 documents lay out in detail a troubling set of conversations, e-mails 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 admitted 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.
Calls to Bank of America for comment were not returned.