Pressuring bank buyout

WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress Thursday he didn’t pressure Bank of America into acquiring Merrill Lynch in a deal that ultimately cost taxpayers $20 billion.

Bernanke told a House committee investigating the matter that he did not threaten action against Bank of America’s CEO Kenneth Lewis or the bank’s board members if they decided to abandon the takeover.

"I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management” if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances.”

Earlier this month, Lewis testified that his job was threatened after he expressed second thoughts about the deal. Lewis said then-Treasury Secretary Henry Paulson and federal regulators made clear that if Charlotte, N.C.-based Bank of America Corp. reneged on its promise, that he and the bank’s board members would be ousted.

Bernanke said no member of the Fed ever urged Bank of America to keep quiet about Merrill Lynch’s financial problems. Not divulging that information would have violated Lewis’ fiduciary duty to shareholders.

"Neither I nor any member of the Federal Reserve ever directed, instructed or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses or any other related matter,” the Fed chief said.

It marked Bernanke’s first public comments since the House committee launched an investigation earlier this year into whether he or other government officials bullied Bank of America to combine the two financial powers after Lewis found out about Merrill’s financial woes.

The committee’s ranking member Darrell Issa, R-Calif., accused the Fed of having "deliberately kept other regulators in the dark regarding the negotiations with Bank of America. The Federal Reserve’s cover-up of important information and willingness to exclude key regulatory partners” such as the Securities and Exchange Commission and the Office of the Comptroller of the Currency "raises troubling questions,” he said.

Rep. Jason Chaffetz, R-Utah, said of Bernanke’s denial that he threatened Lewis’ job: "With all due respect, I’m just not buying that.”


by the associated press