When Ken Lewis, CEO of Bank of America, purchased Merrill Lynch last Fall did he put country first but his shareholders’ interests second? The WSJ Reports Lewis Testifies U.S. Urged Silence on Deal.

The BofA purchase of Merrill did not feel “right” to me from the outset. Why? Recall that at the time of this deal, Lehman had just failed and other investment banks’ stocks (Merrill, Morgan Stanley, Goldman Sachs) were plummeting. Given that dynamic, why did BofA pay a fairly sizable premium for a firm in distress? Merrill’s stock was trading somewhere in the mid-teens but BofA paid the equivalent of $29 a share. It is said that Lewis paid such a premium in order to retain the renowned Merrill retail brokerage staff, but it struck me as more directed by Uncle Sam than anything else.

In early February I questioned What Really Happened With Merrill and B of A. I summarized then that normal business decisions and strategy do not occur when operating in uncharted waters. Well, in the last two and a half months our economy and financial industry have moved into even deeper waters.

In looking back at the height of the waves swamping the Merrill ship, the WSJ report reminds us:

Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren’t normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill — which eventually totaled $15.84 billion for the fourth quarter — could have given BofA’s shareholders an opportunity to stop the deal and let Merrill collapse instead.

“Isn’t that something that any shareholder at Bank of America…would want to know?” Mr. Lewis was asked by a representative of New York’s attorney general, Andrew Cuomo, according to the transcript.

“It wasn’t up to me,” Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would “impose a big risk to the financial system” of the U.S. as a whole.

Mr. Lewis’s testimony suggests how aggressively federal regulators have been willing to behave in their fight to fix the U.S. financial system. The testimony for the first time spreads some of the blame to Messrs. Paulson and Bernanke for Mr. Lewis’s decision to keep problems at Merrill under wraps.

The immediate question I have is whether the shareholders at Bank of America can bring action against Lewis, Paulson, and Bernanke. Can the shareholders in turn bring action to remove the board at B of A?

These are questions which will likely remain unanswered. However, the mere thought that they are being raised is amazing. If ever there were an individual who held leverage over Uncle Sam it was Ken Lewis. Or did he? When Lewis indicated he wanted to slow the merger process and further review the deal, Paulson pressured him. As the WSJ reports:

Mr. Lewis described a conversation with Mr. Paulson in which the Treasury secretary made it clear that Mr. Lewis’s own job was at stake. Mr. Lewis still was considering invoking his legal right to terminate the Merrill deal. Mr. Paulson was out on a bike ride when Mr. Lewis phoned to discuss the matter, according to the transcript.

“I can’t recall if he said, ‘We would remove the board and management if you called it [off]’ or if he said ‘we would do it if you intended to.’ I don’t remember which one it was,” Mr. Lewis said. “I said, ‘Hank, let’s de-escalate this for a while. Let me talk to our board.’ “

Lewis has experienced enormous pressure from every corner. Where have Paulson, Bernanke, and now Geithner been when he needed support?

Is Ken Lewis a “great American” serving the interests of his country, or a mere pawn in the hands of a government official and central banker?

Check out additional interesting viewpoints on this topic at Memeorandum.com.


  • arran Madison

    For a recap of bailout money received by BofA and date of receipt, here is the record that I’ve found:

    –$25B, in fall 2008

    –$20B, 1-16-2009

    –$5.2B channeled through AIG,(and what’s with that route?), 3-15-09

    for a total of $50.2B.

  • Portia Elizabeth Crockett

    If what Lewis is saying now is true, can’t Bernanke and Paulson be prosecuted for criminal fraud?

    • arran Madison

      Portia–I don’t think in actuality Bernanke or Paulson will, or can, be held liable.

      Ken Lewis has to stand before his shareholders, of which I am one. Many are calling for his resignation, of which I am not doing with the information I have at present.

      In December, Lewis did consult with his legal counsel to determine whether BofA could be released from the Merrill merger via a MAC, material adverse clause, when information about Merrill’s massive 4th quarter losses ($21.5B) were recorded. The US government forced him to allow the merger to be completed.

      • FranSC

        No one is mentioning Ken Lewis’s 60-Minutes interview with Leslie Stalh in Dec 2008 in which Lewis talked about how BofA didn’t need the bailout money they received because some years back they had made the decision NOT to participate in the sub-prime mortgage market. That was the reason he was giving for the good health of BofA. And, I thought he said they used that money to buy Merrill Lynch the weekend BEFORE ML went into bankruptcy.

        This meant BofA paid full market price for the company instead of letting it go into bankruptcy and getting it for far less money. His reasoning for that was they preferred to buy it straight out and not have to deal with the government calling the shots in bankruptcy court. Little did he know.

        As a former BofA marketing employee in the 80’s, I was very pleased to be privy to that interesting piece of information.

        Not six weeks later, BofA was reeling from their stock going to next to nothing, going to the government for MORE bailout money, and Lewis’ job was on the line. The explanation was Merrill Lynch was in much worse shape than originally thought. ML probably participated in the sub-prime mess plus giving their execs those much begrudged bonuses.

        It sounds a lot like what happened to Wachovia which found itself in the first wave of failed banks due to a similar company they bought at the height of the market in 2006. That company had nothing BUT sub-prime mortgages that caused the Wachovia failure.

    • oowawa

      Here’s another take on this from an angry market analyst:


    • they should be.

  • I’m afraid that Ken Lewis is just another self-serving individual who puts his own survival above that of the country.

    I’ve long stated that from the outset Henry Paulson was too anxious to get an ok on the TARP deal, and his and Bernanke’s actions of “the sky is falling” plea to congress was suspect. I wouldn’t trust either of these men to take out my garbage, much less to put them in charge of so much money and the future of my children and grandchildren.

    Ken Lewis’ wail of “he made me do it” gets no sympathy from me. He has proven he has no backbone, and he and the whole board of directors of BofA should be terminated immediately. The fear of losing their jobs meant more to them than the integrity of their decision.

    Henry Paulson and Ben Bernanke both belong in jail. Together they have put the United States of America in the worst place than she has been in for ages. This does not absolve George Bush for being so stupid for buying their act. (Or was he in on it?)

    I don’t foresee congress taking any action against anyone who is culpable of wrong doing in this matter, because they are all tied up in dirty deals themselves. The fact that fraud was perpetrated against the shareholders doesn’t seem to count for very much.

    Could there be any connection here for the reason Obama is so loudly proclaiming that he will give Chris Dodd all the help he needs in his re-election bid? The fact that he stated that Dodd is going through a “bad patch” doesn’t strike me as reason enough. Obama never goes out on a limb for anyone unless there is something in it for him.

    • Paula Revere

      I heard that there is big news about Freddie and Fannie, and that’s why the CFO of Freddie “killed himself.” (Yeah, right). Dodd is way deep in Freddie and Fannie, and so is the Fraud. I’m sure it’s another pay to play, keep your mouth shut deal. But I don’t see Dodd getting re-elected. What a creep.

  • arran Madison

    To clarify my comments above:

    After his investigation, Andrew Cuomo wrote a letter dated today to Chris Dodd, Barney Frank, Mary Schapiro (SEC), and Elizabeth Warren (Congressional Oversight Panel).

    • oowawa

      In forming judgments on this matter, we should read all pertinent accounts.

      Your point is well taken, arran. I, for one, am often prone to leap to conclusions, and I know I shouldn’t. When you’re always angry, it’s hard to do the necessary research before venting.

      • elise

        There is an epidemic of anger right now. I’m wondering if this will give Lewis “leverage” as LD suggested? Mr Cuomo is really making a name for himself. Is he planning to run for the Senate or run against Patterson for governor? Patterson’s approval rating is pretty low right now. Wall Street’s behavior has been despicable debauchery, but the government is messing where “it don’t belong”. The idea of the Secretary of Treasury using extortion to force a CEO to make vital decisions without informing the shareholders is more cause for concern than the relative straight forward fraud and mismanagement. I was sorry to hear of the suicide of the CFO of Freddy. Maybe he did something wrong and maybe he didn’t, but the lynch mob mentality directed at executives on Wall Street effectively takes the focus off Paulson, Bernake, Giethner and the rest of our esteemed government.

        • FranSC

          Cuomo is no doubt positioning himself to run for governor just like Eliott Spitzer did. Spitzer, like Cuomo, was the NY Attorney General when he made a name for himself going after all the ‘prostitution rings’ and prominent NYers who were participants. Karma can be a reeeeeal bitch!

          • FranSC

            Cuomo did seem to be very interested in Hillary’s Senate seat. Perhaps the fact Patterson did not give it to him and remove him as his own opponent for the governor’s race was because Cuomo needed more time to make this name for himself he’s trying to make. Then he can run against the less well-known upstate NY legislator that Patterson named to the seat.

            But, I’m thinking Cuomo might prefer to follow in his Dad’s footsteps to the Governor’s mansion.

  • arran Madison

    Larry Doyle–I’m not a subscriber to the WSJ so I wasn’t able to read all the link you provided.

    In the Charlotte Observer (online) today is the post, “Federal officials threatened BofA CEO’s job security”, and under that headline is a link to Andrew Cuomo’s letter. In forming judgments on this matter, we should read all pertinent accounts.


    “Federal officials threatened BofA CEO’s job security”

    “Read documents on BofA-Merrill merger (pdf)

  • oowawa

    In one of the funniest moments in Blazing Saddles, the bearish Mongo (played by Alex Karras) gazes vacantly off into space and experiences an epiphany: “Mongo just pawn in game of life . . . ”

    In that context I read this question:

    Is Ken Lewis a “great American” serving the interests of his country, or a mere pawn . . .

    Presumably this shrewd character is a bit more slick than poor oxlike Mongo . . . A pawn? LMAO! On the other hand, my cynical nature will not let me believe that national interest was his motivation . . . So the “either-or” question doesn’t work for me. Now if there were another “or” option–“or acting out of self interest in a way that is not immediately clear,” now I would want to check that choice.

  • DaddysDarlin

    Because Lewis didnt stand up and shout, do all he could to prevent this, at least make it public to the shareholders, he failed as a human being and as an American.
    He stood by and did nothing. He allowed this to become a reality, without so much as a word to those whom this affected.
    Now, he is being used as a pawn, if you don’t play by the rules, lying, cheating, stealing, the Obama way, you will be used and abused until your dying day.
    This man could have done something, instead his silence spoke volumes about the kind of person Lewis truly is.
    Look out for number One, it seems that is all that mattered.

  • It is Fascism people. it started with Bush and is expanding with Obama.

  • Tom Cat “wodie j” Jefferson Esq

    If Lewis had stood up for what is right he would be not just a great American, but a person with integrity. He didn’t so he is neither.