Bernanke Denies Improperly Pressuring BofA Over Lynch Deal

June 25, 2009— -- Federal Reserve chairman Ben Bernanke today acknowledged that while he did have concerns about Bank of America's management, the Fed never threatened the jobs of the company's CEO Ken Lewis or the board members if they decided to back out of their merger with Merrill Lynch last winter.

"I never made any threat to Mr. Lewis regarding removing the board and the management," Bernanke said this morning before the House Oversight & Government Reform Committee.

But those claims were met with great skepticism from lawmakers on both sides of the aisle.

"With all due respect, I'm just not buying that," Rep. Jason Chaffetz, R-Utah, told the Fed chief.

At the outset of today's session, the panel's chairman Ed Towns said, "Much of what the Fed, the Treasury and other agencies did in these transactions remain shrouded in secrecy. It's time to yank the shroud off the Fed and shine some light on these events."

But despite a number of stand-offish exchanges, what really happened with the merger remained cloaked in darkness and bogged down in semantics after today's three-hour hearing.

Bernanke acknowledged that when it came to Bank of America's management, "I did have concerns, yes." Chaffetz pointed out that it would have been "reasonable" for Lewis to interpret Bernanke's concerns as a threat toward the bank's management.

Ranking member Darrell Issa, R-Calif., said the panel's investigation, including two subpoenas that helped obtain around 100 documents, including e-mails from Bernanke, Lewis and Treasury Secretary Tim Geithner, led to a similar conclusion.

"We have learned the federal government -- led by both Chairman Bernanke and then Secretary Paulson -- made certain threats against Ken Lewis," Issa said.

Bank of America officials reportedly indicated they considered citing a Material Adverse Charge, or MAC clause, which would allow the bank to possibly cancel the acquisition after the bank learned Merrill Lynch had lost billions of dollars at the end of last year.

But in one e-mail obtained by the committee, the president of the Federal Reserve Bank of Richmond, Jeffrey Lacker, wrote, "Just had a long talk with Ben. Says that they think the MAC threat is irrelevant because its not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone."

In a tense exchange, Rep. Dan Burton, R-Ind., asked Bernanke if Lacker was lying. The Fed chief responded that Lacker was just "summarizing a long conversation."

"You didn't say anything like that?" Burton pressed.

"I don't know or not," Bernanke said, and when pressed further he added, "I'm sure I can't remember."

Issa accused the Fed of orchestrating a "cover-up" by withholding information from other agencies, including the Securities & Exchange Commission.

"You hid the ball," said Rep. Jackie Speier, D-Calif.

Other lawmakers pointed the blame elsewhere.

Rep. Mike Quigley, D-Ill. said the Fed's concerns about Bank of America's management were warranted. Lewis, he argued, was "a wily CEO gaming the system."

Whatever happened during those mysterious days in December, Bernanke said he has no regrets about it right now.

"I have nothing I regret about the whole transaction," he said. "It was a very successful operation overall."

Lewis would agree. Despite their disastrous fourth quarter, Merrill bounced back last winter, accounting for 75 percent of Bank of America's profits during the first quarter of this year.

The CEO took his turn in the hot seat June 11. Now that Bernanke has made his case, former Treasury Secretary Henry Paulson is on deck. Paulson will come before the committee at a date yet to be determined.