Emails show Fed pressed BofA to do Merrill deal

By Kim Dixon
WASHINGTON (Reuters) - Emails from Federal Reserve officials appear to back assertions by Bank of America Chief Executive Kenneth Lewis that he was under pressure, to the point of losing his job, to complete the purchase of Merrill Lynch, despite worries about its financial condition.
Republican lawmakers on Wednesday released excerpts of documents, including an email from Richmond Fed President Jeffrey Lacker that cites Fed Chairman Ben Bernanke on Lewis' intent to exercise a "material adverse change" (MAC) clause to exit the Merrill deal.
"Just had a long talk with Ben ... Says they think the MAC threat is irrelevant because it's not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone."
A congressional hearing on Thursday will examine Lewis' assertion that he was pressured by then U.S. Treasury Secretary Henry Paulson and the Fed to complete the deal and keep quiet about Merrill's condition.
Bernanke has said he "absolutely did not" ask Lewis to obscure any information that should have been reported.
A spokeswoman for Paulson has said Paulson told Lewis that both the Treasury and the Fed believed there was no legal basis for Bank of America to terminate the deal.
The U.S. House Oversight and Government Reform Committee hearing will feature Lewis as the sole witness and examine when Bank of America knew Merrill was on its way to a $15.84 billion fourth-quarter loss.
The panel will also examine the government's role in the January 1 purchase, and the $20 billion in additional taxpayer bailout money given to Bank of America that month.
The committee subpoenaed internal Fed documents after the Fed would not make copies of them for lawmakers.
Shareholders of Bank of America and Merrill voted in favor of the companies' merger last December 5. Lewis has said it was only later that month that he learned how fast Merrill was deteriorating, and then threatened to pull out of the merger.
A briefing paper by the committee's Republican staff cites an analysis commissioned for the Fed by investment management firm PIMCO that found "substantial deficiencies in the due diligence" carried out by Bank of America before the merger.
PLACING BLAME
Democrats want to focus on the role of Lewis and whether he notified investors in a timely manner, while Republicans are more focused on whether regulators exceeded their authority, according to lawmakers' aides.
Republicans want Fed and Treasury officials to come before the committee.
"Unfortunately this hearing is an imperfect forum... because not all the key players have been invited," the Republican briefing paper said. It accused Paulson and Bernanke of "putting a gun to the head" of Bank of America's CEO and its board. Continued...
Source: Reuters