NEW YORK – Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson threatened to remove the management and board of Bank of America unless it acquired ailing investment house Merrill Lynch late last year, according documents released Thursday by New York State Attorney General Andrew Cuomo.
Ken Lewis, the chief executive of Bank of America, told investigators he wanted to back out of the merger, because “devastating losses” at Merrill Lynch would have been a detriment to his own company, the documents show. But the threat from Paulson changed his mind, Lewis told the attorney general’s office.
Paulson told New York investigators that he made the threat to remove the leaders of Bank of America at the request of Bernanke, the documents state. The two men were gravely concerned about the danger to the wider financial system.
Lewis did not immediately inform shareholders about the losses at Merrill Lynch or the pressure from the federal government.
The accounts contained in the documents highlight the lengths to which senior officials have gone in seeking to save the global financial system from collapse – even if this comes at the expense of disclosing the severity of troubles to shareholders. Some shareholders have claimed that this violated the government’s own securities laws requiring the disclosure of information.
Bank of America is obligated to inform its shareholders of any decisions that could materially impact the firm’s fortunes. Breaking that obligation could make the company legally liable to its shareholders. Even if the action was not illegal, it is already reinforcing shareholder anger about Lewis’ leadership. Several prominent shareholder groups are trying to remove Lewis, who serves as the company’s chairman and chief executive, from one or both of those roles at the annual meeting next week.