Treasury and Federal Reserve officials pressured Bank of America CEO Ken Lewis not to back out of a planned merger with Merrill Lynch in December, Lewis will testify on Thursday, according to a copy of his remarks obtained by the Huffington Post.
Lewis had previously testified that Treasury and Fed officials pressured him to keep quiet about the troubles Merrill was having stemming from a fear that the news could drive the economy over the cliff. Lewis made the claim in a deposition conducted for New York Attorney General Andrew Cuomo in February; the Wall Street Journal was shown a copy of the transcript in April.
The story he plans to tell Thursday before a House oversight panel will be his first public accounting of the government role in pushing the merger to closure.
Lewis has come under attack from Bank of America shareholders for the merger; Merrill's losses rapidly accelerated around the time BofA took it over, threatening the stability of the bank. The decision to acquire Merrill, Lewis will testify, was made in September and approved by shareholders on December fifth. It wasn't until mid-December, he'll testify, that he realized it could go up in flames.
He told Treasury and Fed officials he was thinking of backing out of the deal. "Treasury and Federal Reserve representatives asked us to delay any such action, and expressed significant concerns about the systemic consequences and risk to Bank of America of pursuing such a course," he'll testify.
The government offered taxpayer assistance for the deal, according to Lewis' testimony, which reduced the risk of the merger, convincing the bank to go through with it.
"Officials of the company, the Treasury Department, and the Federal Reserve discussed a plan to close the transaction, with the government providing assistance. For its part, Bank of America concluded that there were serious risks to declaring a material adverse change, and that proceeding with the transaction, with governmental support, was the better course," reads the testimony.
A Treasury spokeswoman declined to comment. Lewis will testify before the House Oversight and Government Reform Committee on June 11th.
Here's Lewis' full testimony and below is the portion regarding the Merrill merger:
In mid-December, after the shareholder vote, I became aware of significant, accelerating losses at Merrill Lynch, and we contacted officials at the Treasury and Federal Reserve to inform them that we had concerns about closing the transaction. At that time, we considered declaring a "material adverse change," which as a matter of contract law can, if upheld, allow an acquirer to avoid consummating a deal. Treasury and Federal Reserve representatives asked us to delay any such action, and expressed significant concerns about the systemic consequences and risk to Bank of America of pursuing such a course. We commenced discussions to determine whether governmental support could limit the risk of proceeding with the transaction. Both the government and Bank of America were aware that the global financial system was in fragile condition, and that a collapse of Merrill Lynch could hasten a crisis.Officials of the company, the Treasury Department, and the Federal Reserve discussed a plan to close the transaction, with the government providing assistance. For its part, Bank of America concluded that there were serious risks to declaring a material adverse change, and that proceeding with the transaction, with governmental support, was the better course. This course made sense for Bank of America and its shareholders, and made sense for the stability of markets. We viewed those two interests as consistent.
I believe that committed people of good intentions, in both the private sector and the government, worked desperately hard in late 2008 to prevent a collapse of the global financial system that would have resonated throughout the global economy. Even six months later, it is easy to forget just how close to the brink our system came. I will never forget, and I believe those efforts will be remembered long after any current controversy is forgotten.