NEW YORK (MarketWatch) -- If Ken Lewis is telling the truth -- and he'd be foolish to lie to New York State Attorney General Andrew Cuomo -- then Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson were more than concerned about the financial crisis. They were panicking. Why else would the two most important administration officials presiding over the financial crisis play hardball backroom politics with Lewis, the chief executive of Bank of America Corp. ( , who had taken significant risk by acquiring Merrill Lynch & Co. last September? Lewis testified that Paulson used threatening language to push through the deal, according to a letter released by Cuomo's office Thursday. "'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help'," Lewis claims Paulson told him, according to testimony released Thursday. Lewis said he considered invoking a material adverse change, or MAC, clause to pull out of the Merrill deal in December, reasoning that Merrill's financial picture deteriorated severely in just three months' time. But he adds he was warned by Paulson to stick with Merrill. "I can't recall if he [Paulson] said, 'We would remove the board and management if you called [a MAC],' or if he said, 'We would do it if you intended to'," Lewis testified. Lewis backed down in the December showdown and was left to take the blame when Merrill reported a stunning $15 billion loss for the fourth quarter, after the deal closed at year's end. If his testimony is correct, the story seems to vindicate Lewis, in part, for his decision to go through with the deal. One could argue Lewis should have called Paulson's bluff, but when you're facing two regulators threatening your job and your bank, well, one can't blame Lewis for taking the escape route offered to him. As for Paulson, his legacy is further tarnished by the heavy-handed tactics charged by Lewis. Paulson's alleged wishes that the backroom agreement would not be a "disclosable event," or that he would remove the board of a public company, suggest power run amok. Bernanke's reputation is tarnished worse. He stepped aside and let Paulson play bad cop even though he clearly had doubts about how the Bank of America situation was being handled. Bernanke still leads the Fed. But his influence and judgment have suffered self-inflicted wounds. http://www.marketwatch.com/news/sto...EB66-4F70-BBD2-3FC3DF5443DF}&dist=SecMostRead Banana republic
And how the market rallies in the face of news like this is beyond me. Not quite an economic confidence booster. Seems like the ostriches are going to have to pull their heads out of the sand very soon.
They were panicking. This C-span video indicates why http://www.youtube.com/watch?v=_NMu...kanjorski-550-bi.html&feature=player_embedded http://online.wsj.com/article/SB122142278543033525.html Rep. Kanjorski said the withdrawals happened about Sept 15 which was a Monday. The BOA and ML merger was announced that day. My guess is that the run on the bank happened on Thursday the 11th although Kanjorski said only that it was a Thursday. If that is the case, and I haven't been able to find any reference to nail that down, then they were trying to stop a runaway when the BOA/ML merger was done over the weekend.
Look foolish - they look criminal. Threatening to fire Lewis if he does not follow their orders is extortion.
Its not, its part of the Fed regulatory duty, they routinely fire management, demand dividend cuts, capital raises,etc http://www.federalreserve.gov/newsevents/press/enforcement/2009enforcement.htm
The difference here is that the federal reserve has no authority to order one public bank to take on the risks and liabilities of another public bank through a buyout. BofA was not the bank in trouble so the authority that the fed had over BofA would be limited. In this case the Fed imposed direct harm on the bank and their investors to protect another bank - not value.
Lewis as a banker behaved in a way that threated the stability of US banking, the fed has a case for banning him. If he cancels the merger knowing that this would lead to a run on MER and crash the financial system then he is not supposed to be a banker because that is against his OWN interest. Its like if GS had a merger planned with LEH and they got cold feet and allowed them to fail, this would endup hurting GS and the financial system, a CEO who did this would be so nuts you ought remove him from banking Furthermore the government has reimbursed BAC through guarantees on bad assets