Paulson warned Lewis there could be mgmt. changes if he exercised the MAC clause

Hank Paulson, the former US Treasury secretary, returned to Capitol Hill on Thursday to defend his actions at the height of the financial crisis when he told Bank of America to complete its acquisition of Merrill Lynch or face management change.

Mr Paulson told a House oversight committee hearing that “our responses were not perfect but I am confident that they were substantially correct and that they saved this country from great peril”.

BofA had agreed to acquire Merrill last September but as the target bank’s losses continued to mount, chief executive Ken Lewis warned regulators in December that he was considering exercising a ‘material adverse change’ clause to pull out of the deal.

Mr Paulson said that a time when “the markets were driven by fear and uncertainty,” pulling out of the deal would have undermined both banks and the entire financial system. He warned Mr Lewis that there could be management changes if he exercised the MAC clause.

“I was attempting to send a very strong message to Ken Lewis in terms of how strongly the Fed and Treasury viewed this matter,” he told the hearing. However, he added that he did not seek to prevent BofA disclosing information to shareholders – another of the charges made by critics.

Jim Jordan, a Republican member of the committee, said there had been a “clear pattern of deception and intimidation”.

A Republican briefing memo – seen by the Financial Times – says that the BofA/Merrill actions by Mr Paulson formed part of the “Bush-Obama policies of bailout and nationalisation [which] are a threat to the free market and individual liberty and, as such, merit a thorough debate in the public square”.

By contrast, Dennis Kucinich, a Democratic representative on the committee, suggested that Mr Paulson and the Federal Reserve should have removed Mr Lewis. “In choosing to bail out Bank of America without also removing top management . . . the government sent . . . a dangerously destabilising signal that we will deeply regret,” he said.

http://www.ft.com/cms/s/0/06913d0a-721a-11de-ba94-00144feabdc0.html

 

good for him.