During last year's transition period between presidential regimes, Obama economic aides Timothy Geithner and Larry Summers signed off on the Bush administration's deal to bail out Bank of America if it finalized its merger with ailing investment bank Merrill Lynch, according to bank documents obtained Tuesday by ABC News.
However, both the White House and Treasury today disputed that Summers and Geithner ever agreed to any financial decisions made during this time period.
"Mr. Summers received occasional briefings by Federal Reserve officials during the transition, but he did not make, review, or approve decisions regarding financial institutions during that time," White House spokesman Matthew Vogel said in a statement.
Treasury spokesman Andrew Williams said, "After being named as Treasury Secretary nominee, Geithner was recused from any issues involving individual banks, including Bank of America. It was perfectly natural and appropriate that the incoming Treasury secretary would be kept apprised of key developments, but he was not making decisions for the government."
In January, when the Obama administration took over, Summers became National Economic Council director and Geithner replaced Henry Paulson as Treasury secretary.
The Bank of America documents detail internal bank discussions as the merger unfolded last December. One document consists of talking points that the bank's general counsel, Brian Moynihan, prepared for CEO Kenneth Lewis to use on a conference call with board members on December 22.
As a preface to the talking points, Moynihan acknowledged, "Some of the characterizations of what Hank or Ben said are from our notes, so we may have not had the exact thoughts correctly stated, but we tried to catch the gist of the conversations." In the document, "Hank" refers to then-Treasury Secretary Paulson, and "Ben" is Federal Reserve Chairman Ben Bernanke.
The conference call came as the bank was talking with federal regulators about backing out of the merger, worried about Merrill's substantial fourth-quarter losses last year. To scuttle the deal, the bank intended to cite the Material-Adverse Change clause, known as a MAC.
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"Every day the numbers get worse" at Merrill, the bank's general counsel said in the talking points.
Still, another bank document acknowledged that a taxpayer bailout could change the bank's intentions and prompt them to go through with the merger.
"We might not be recommending a change of course from declaring a MAC in absence of government assistance," the document said.
On the Dec. 22 conference call, Lewis was set to detail recent discussions between the bank and federal regulators -- discussions that had been heating up in the days prior to the call.
Three days earlier, on Dec. 19, Lewis had told Bernanke and Paulson of the bank's intent to invoke the MAC clause, only to be met with "strong opposition and admonitions from the regulators."
Paulson later warned Lewis that backing out of the deal using the MAC clause could result in the removal of the bank's board and management, and said the Fed shared this view.
When Lewis spoke to Paulson, the Treasury chief "made it clear that the Treasury and the Fed were prepared to deliver an assistance package."
According to the talking points, "Hank made it clear that he had the concurrence of the Fed and Tim Geithner and others" and "Ben also stated that Geithner and, in addition, Larry Summers, were both on board with the transaction."
A subsequent note on the conference call, taken by board member Gen. Tommy Franks, says that board members were told that the "incoming team at Fed and Treasury [was] in agreement".
In an e-mail written the night of Dec. 22 from the bank's chief financial officer Joe Price to a Fed official, Price mentioned the prospect of receiving $45 billion in government support. Price wrote that Lewis had told him that "there was some $45 billion still out there, clearly enough to replenish the capital loss at Merrill."
One week later, on the 29th, Bank of America chief financial officer Joe Price wrote in an email -- recapping a conversation with a Fed official -- that the bank had "the strongest assurances" that they would receive taxpayer money. Price said the bank was also assured that Bernanke "will survive the administration change" and Geithner and Paulson "were all aware and in agreement with the representations" made to Lewis about the merger.
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Ultimately, the bank proceeded with the Merrill merger and received $45 billion.
Kurt Bardella, spokesman for Rep. Darrell Issa, D-Calif., the ranking Republican on the House Oversight and Government Reform Committee, decried the actions of the government and the bank in what he called a "shotgun wedding."
"The Bank of America-Merrill Lynch merger was the outcome of a collaborative effort orchestrated by Ken Lewis, Henry Paulson, Ben Bernanke, Timothy Geithner, and Larry Summers," Bardella said in a statement. "As a result of this collaboration, the taxpayers ended up footing the bill so Bank of America didn't have to absorb Merrill's losses."
On Wednesday, the House panel will hold its fourth hearing on the merger, featuring FDIC chief Sheila Bair, Securities and Exchange Commission boss Mary Schapiro, and former SEC boss Christopher Cox. Two Bank of America board members had also been set to testify, but they have been excused from the hearing, a committee source said Tuesday evening.