Cuomo Sums Up Bank Of America/Merrill Lynch Probe

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New York Attorney General Andrew Cuomo has released a letter summarizing the results of his investigation into the circumstances surrounding Bank of America's merger with Merrill Lynch.


From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel. Think back to the news last December for a moment. Bank of America was trying to get out of its deal to buy Merrill Lynch. You might remember stories about government officials pressuring the bank to go ahead with the deal despite Merrill's growing losses. Not much was known about exactly how the government got its way, only that it did.

Well, today the back story emerged. That's thanks to depositions conducted by New York's attorney general who's been looking into a related matter. And joining me now from New York is NPR's Jim Zarroli. Jim remind us - why were U.S. officials so anxious to see this deal go through?

JIM ZARROLI: Well, you have to go back to last September, actually. Lehman Brothers had gone bankrupt. The banks were really in crisis. Merrill Lynch was tethering. It had big mortgage losses. And U.S. officials were really determined not to let it fail like Lehman had. So they really quickly over a weekend engineered a deal to get Bank of America to buy Merrill.

Well, lo and behold, in December, before the deal had been finalized, the CEO of Bank of America, Ken Lewis, finds out that Merrill's losses were a lot greater than anyone thought. So he went back to Treasury Secretary Henry Paulson, he said, you know, I can't take this to my shareholders. We're really thinking seriously about backing out.

SIEGEL: And how did Secretary Paulson respond?

ZARROLI: Well, according to Lewis' deposition, which was released today, he went to - Lewis went to Washington and met with a bunch of people, including Paulson and Fed Chairman Ben Bernanke, and he spelled out his concerns. And their eventual response was, look, we really need you to go through with this. And if you try to back out, we can fire you and your entire board. And Lewis said he assumed they had the power to do this because, you know, there was such a huge risk to the financial system if the deal fell apart. By the way, Andrew Cuomo, who released the deposition, said that Paulson acknowledges that this conversation took place and pretty much agrees with Lewis' version of it.

SIEGEL: Well, it appears that Ken Lewis gave in to the government's demand or did he first try to fight it?

ZARROLI: He backed down right away and one of the reasons he did back down was he seems to have something to do with something else the government said. It essentially told him, don't worry, if you do what we want, if you agree to let this deal go through, we will make you whole later. Whatever losses the bank takes on by buying Merrill Lynch we will cover. Lewis was in a really awkward position. He knew Merrill had these losses and he knew he was supposed to be disclosing them to his shareholders, so he actually went to Paulson and he said, you know, will you put this in writing that you'll cover these losses later? And Paulson said, no, we don't want to put this in writing, but trust us. And that's what Lewis did. Then the Merrill Lynch deal went through.

SIEGEL: And how did Bank of America's shareholders respond when they found out what kind of shape Merrill Lynch was really in?

ZARROLI: Well, they haven't on the whole been happy about it. I mean, it has to be pointed out that the bank did get more bailout money. And Bank of America was actually profitable in the first three months of this year. But that hasn't changed the fact that a lot of shareholders are really angry at Ken Lewis. I mean, he is really on the hot seat right now. And not just because of the Merrill Lynch deal, Bank of America also acquired the mortgage company Countrywide last year, which a lot of people now think was a huge mistake.

There is a shareholders meeting next week in Charlotte, North Carolina, where the bank is headquartered. And there's been a pretty aggressive campaign to get rid of Lewis and some of the other board members. Two big pension funds have sued the bank for withholding information about Merrill, so Lewis is really paying a price for a deal he was essentially forced into.

SIEGEL: It's NPR's Jim Zarroli in New York. Thank you, Jim.

ZARROLI: You're welcome.

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