Below is a letter sent yesterday by NY Attorney General Andrew Cuomo that outlines how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced BofA’s (BAC) acquisition of Merrill. Highlights:
- BofA knew Merrill’s losses were far more substantial than believed prior to closing the merger. It wanted to invoke a “material adverse change,” or MAC, clause in order to back out of the deal.
- Paulson threatened to fire Lewis and BofA’s whole board if they backed out of the merger.
- Paulson confirmed that he made the threat and said it came at the request of Ben Bernanke.
- Ken Lewis argues that, over the “short-term,” he knew closing the merger would expose BofA shareholders to substantial losses lurking on Merrill’s balance sheet. In the long-term it’s still a good fit because Merrill has assets that fill strategic holes.
But if BofA wanted to fill strategic holes, why not follow the Barclays/Lehman model (BCS), letting Merrill fall into liquidation and feasting on its carcass? True, Bernanke/Paulson clearly didn’t want to let that happen. But Lewis was stupid enough to sign a merger agreement with Merrill in September. This after the disastrous acquisition of Countrywide in early ‘08. It’s amazing this man and his board still have their jobs.
Expect lots of shareholder litigation over this.
(ht Carey H, via ZeroHedge)