In Merrill Lynch Probe, Lawmakers Order Fed to Relinquish Documents
Wednesday, June 10, 2009
A congressional oversight committee issued a subpoena yesterday to force the Federal Reserve to turn over internal documents related to Bank of America's acquisition of Merrill Lynch, part of a growing investigation into whether government officials pressured the bank to withhold details about the deal from investors.
The subpoena, which was issued by the House Oversight and Government Reform Committee, is highly unusual and the first issued by the panel this year. It comes after the Fed refused to send the committee internal e-mails and notes related to its role in the purchase.
A Fed spokesman said the central bank was already complying with the subpoena. The agency had previously allowed congressional investigators to review 6,000 pages of documents but would not give them copies because the documents were of "a confidential and supervisory nature," the spokesman said.
In written testimony prepared for a committee hearing tomorrow, Bank of America chief executive Kenneth Lewis says he informed Treasury and Fed officials that he "had concerns about closing the transaction" in mid-December after he "became aware of significant, accelerating losses at Merrill Lynch."
"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," Lewis said in the testimony, which was obtained by The Washington Post. "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."
Fed Chairman Ben S. Bernanke and other regulators have previously denied pressuring Lewis to withhold any information about the deal.
But lawmakers and financial analysts have suggested that Bernanke and former Treasury secretary Henry M. Paulson Jr. forced Bank of America to acquire Merrill Lynch despite ballooning losses at the brokerage firm. The deal went through in January, the same month that the government agreed to guarantee up to $118 billion in losses by Bank of America, which has received $45 billion from the government bailout, more than all but one other bank.
"The marriage between Bank of America and Merrill Lynch was a shotgun wedding pushed by the Federal Reserve," said Darrell Issa (Calif.), the ranking Republican on the oversight committee.
Scott Silvestri, a spokesman for Bank of America, declined to comment on the subpoena. In his prepared testimony, however, Lewis said he eventually concluded that there was no reason to reveal details about the concerns to investors.
"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," the testimony says. "This course made sense for Bank of America and its shareholders, and made sense for the stability of markets."
In an unrelated development, the bank said yesterday that it was paying the legal fees for Angelo Mozilo, the former head of mortgage giant Countrywide, who was charged last week with insider trading and securities fraud. Silvestri said the agreement that Mozilo had with Countrywide, which was acquired by Bank of America last year, required the firm to cover legal expenses for actions taken while he was an employee.