Fed Allegedly Threatens BoA CEO

June 11, 2009 – 12:51 pm – No Comment

Republicans say that the Federal Reserve threatened to oust Bank of America CEO Kenneth Lewis if they did not follow through with the plans to overtake Merrill Lynch & Co. This came after they reviewed investigation documents. They also said that there was evidence that the government withheld information related to the merger from the public, directly violating the Freedom of Information Act. Thankfully, there was no evidence that the government tried to get Bank of America to hide Merrill’s losses from shareholders.

The House Oversight and Government Reform Committee is currently looking into preliminary claims that several top government officials, including then Treasure Secretary Henry Paulson and Fed Chairman Ben Bernanke, tried to get Kenneth Lewis to go through with the Merrill acquisition and not disclose to shareholders how horribly Merrill Lynch was doing financially. Lewis is supposed to be testifying in front of the committee today.

Bank of America has received $45 billion in bailout funds, but as reported here a week or so ago, they have been working on raising capital to become independent of the government assistance. So far, they have sold $17 billion or more in extra stocks and raised at least that in liquidation funds. Some of the federal assistance was supposedly going to defer the losses they would incur by acquiring Merrill Lynch.

Republicans claimed in a memo that Paulson and Bernanke “put a gun to the head” of Lewis and the board of directors at Bank of America to force the merger between Bank of America and Merrill Lynch even though CEO Lewis supposedly “felt it was hi duty to his shareholders to try his luck in the legal system and back out of the deal.” Republicans refer to several documents including an e-mail by an employee at the Richmond Federal Reserve who said that Bernanke made it clear that if he backed out of the deal, “management is gone,” as proof of the threats.

Just a few weeks after the deal was completed, Bank of America released their fourth-quarter report where they reported a $2.39 billion loss whereas Merrill Lynch reported a loss of over $15 billion. So far, Merrill Lynch has fallen further in the depths of ‘no man’s land’ while Bank of America has been curbing losses with brilliant financial decisions and sales of company interest.