Bernanke e-mail claim in Merrill sale saga
By Greg Farrell in New York and Tom Braithwaite in Washington
Published: June 11 2009 00:41 | Last updated: June 11 2009 00:41
Ken Lewis, chief executive of Bank of America, used the threat of invoking a “material adverse change” clause to break off his agreement to buy Merrill Lynch last December because he wanted to negotiate a lower price, Federal Reserve chairman Ben Bernanke claimed in an e-mail.
Mr Lewis, who is scheduled to testify about the matter on Thursday at a congressional hearing, only dropped his threat after being told by former US Treasury secretary Hank Paulson that regulators, including Mr Bernanke, would remove him and his board if BofA tried to invoke the “MAC” clause.
The House committee on oversight and government reform has been investigating whether federal regulators put undue pressure on Mr Lewis to complete an agreed deal last year to buy Merrill Lynch.
After the Fed initially refused to comply with the committee’s request for documents and e-mails in the matter, the committee took the extraordinary step of issuing a subpoena on Tuesday to obtain material from the Fed that concerned the deal.
One person familiar with the Fed’s history could remember only one previous occasion when it had been served with a subpoena.
The Financial Times has learned that Mr Bernanke, in an e-mail, described Mr Lewis’s threat to invoke the “MAC” clause as a “bargaining chip”, and a “foolish move”, before concluding that “the regulators will not condone it”.
A staffer at the Federal Reserve bank in Richmond, Virginia, said in an e-mail that top executives at BofA, including the bank’s chief financial officer, Joe Price, “want the transaction to go through but have to protect their shareholders”.
Since January, when BofA revealed that it only completed the Merrill transaction following a promise of $20bn in taxpayer support from Mr Paulson, BofA shareholders have complained that Mr Lewis kept them in the dark about mounting losses at Merrill.
Several have filed suit, and the Securities and Exchange Commission, as well as the government watchdog responsible for tracking funds paid out of the troubled asset relief programme (Tarp), are also investigating the matter.
In January, following the disclosure that Merrill had payed $3.6bn in bonuses in late December, a month ahead of schedule and days before BofA completed is purchase of the firm, the New York state attorney-general, Andrew Cuomo, began an investigation.
While conducting his probe into the bonuses paid out at Merrill Lynch, Mr Cuomo has investigated the interactions between Mr Lewis and his federal overseers. Mr Cuomo published his findings in a letter to Congress in April.
http://www.ft.com/cms/s/0/3fb98672-5614-11de-ab7e-00144feabdc0.html?nclick_check=1
