House lawmakers from both parties ridiculed Bank of America CEO Ken Lewis’s explanation Thursday that he did not go forward with Bank of America’s purchase of Merrill Lynch out of concern for his job.
Lewis acknowledged the federal government threatened to remove him and the company's board if it pulled out of a deal to acquire Merrill Lynch in late 2008. Yet Lewis insisted concerns about his own job did not influence his bank’s decision to follow through on the purchase.
Lawmakers on the panel challenged Lewis's characterization.
"You just heard Republicans and Democrats say to some degree that whatever was said to you about losing your job and the board being dismissed, basically what we've said is we don't buy it," Rep. Elijah Cummings (D-Md.) told Lewis.
Rep. Darrell Issa (R-Calif.), the panel’s ranking member, said evidence suggests government officials pressured Lewis to finish the deal.
“We're here because there has been a serious allegation and a number of pieces of evidence have arisen that make us believe that government officials felt necessary to use the power, influence, and potentially threats, in order to consummate this deal,” he said.
Lewis said that he had considered citing a “material and adverse change" (MAC) to pull out of the Merrill deal after he found out that the failing brokerage firm's losses were dramatically rising.
Over a six-day period in late 2008, Merrill’s expected losses jumped from $9 billion to $12 billion, with the possibility that they would reach as high as $15 billion.
Lewis decided against citing the MAC, he said, after discussions with Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson.
Some lawmakers said they found it hard to believe that Lewis did not kn0w about Merrill’s losses earlier. They suggested he withheld that information from shareholders to get their approval for the deal. Other committee members wondered whether Paulson or Bernanke pressured Lewis to stay silent until the deal was done.
"I have to say, everything that was happening in the financial markets last fall — your claim that you had no idea about Merrill's losses until December are remarkable," said Rep. Edolphus Towns (D-N.Y.), the committee chairman.
In arguing that the Fed pressured Lewis to go through with the acquisition, Republicans have also cited an internal Fed e-mail in which Bernanke describes the MAC threat as a “bargaining chip” for Bank of America to get government bailout money in return for going through with the deal.
Lewis disputed that claim today.
“This was not some wild bluff,” he said. “We thought we had the real possibility of a MAC.”
Lewis acknowledged near the end of his testimony that there were discussions between Bank of America and government officials about not announcing Merrill’s losses until the acquisition — as well as a bailout package — was final. But he maintained that he did not know of Merrill’s losses until mid-December 2008.
“We were working on a goal of getting everything done at once so that we didn't have an announcement of something that would cause more damage to the economy, but no one ever told us that we should not disclose a disclosable event,” Lewis said.