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 Bank of America Corp. (NYSE:BAC) CEO Ken Lewis is once again defending the acquisition of Merrill Lynch & Co., this time to a House committee, touting the synergies and profits that the deal has brought. Lewis has weathered a storm of criticism since the Merrill deal closed on January 1, with activist shareholders, most notably Jonathan Finger, urging his ouster at BofA's annual meeting, which resulted in his being stripped of the chairman title. (Click here to watch our widely viewed video with Finger, interviewed in April by The Deal's Suzanne Stevens.) Here's how he held up until scrutiny from Congress today. On pressure from the Fed and Treasury: In a phone call with Hank Paulson, Lewis said: " ... and I can't recall the exact word [it was either] could or would remove management [if a material adverse change was called]." "It is true that we were told basically that if we went through with calling the MAC, the government would go through with removing management and the board. But what really gave me concern was not the threat, but that they thought calling the MAC was so serious that they would make the threat." "Here was the government telling a bank in good standing that they were willing to do that. It was the seriousness with which they made it, not the threat itself." [Paulson and Bernanke's] concern was from the top, that is, for the financial system, but we are so intertwined in the financial system it would certainly effect us as well." "I do not [think anyone at Treasury or Fed took any improper action against myself or BofA management]. They spoke in strong terms, but I believe the concern was for the system as a whole. It was a strong influence on my decision [to not call the MAC], but it wasn't the only influence." In answer to whether he was pressured, Lewis said: "I've found it's best to just describe what happened and let others draw their own conclusions" Later he added that "I had no contact with Mr. Geithner. ... I personally had no involvement with Mr. Summers." On invoking the material adverse change clause: Lewis said in the end BofA concluded that the declaring a MAC was even more dangerous than going through with the deal. "Even six months later, it's easy to forget just how close our system came to the brink. I will never forget." When asked if the government wasn't at the table, would he have asserted the MAC or walked away, Lewis said, "It didn't happen that way, so I don't know what I would've done, but I was certainly considering it." "Bernanke expressed that he didn't want us to call the MAC several times." In an e-mail Bernanke said he thought BofA's threat of a MAC was a hollow threat, but that analysis was needed to convince BofA that calling the MAC was a "foolish move and why we will not condone it." Lewis replied that "[w]e grew more and more convinced there was a distinct possibility that we had a MAC because of the accelerating losses. This was not some wild bluff -- we thought we had the real possibility of a MAC." On Federal Reserve e-mails: The subpoenaed Federal Reserve e-mails opened a can of worms for Lewis, as e-mail from Bernanke indicated that Lewis wanted a letter from the Fed saying that the government forced BofA to close the deal. In the e-mail, Bernanke commented that he thought Lewis wanted the letter to protect himself against shareholder lawsuits and because he was worried about his job. Lewis responded that he did not recall requesting such a letter. On why he didn't see Merrill's losses coming: Lewis said that BofA decided to talk to regulators about the mounting losses at Merrill in December not because of the week-to-week losses, but, rather, because of the accelerating projection of losses they saw from November's numbers. "In mid-December, forecast losses accelerated dramatically. It's not that we didn't anticipate losses, but that they accelerated. "I was thinking that the losses accelerated to a point that they were out of line with the expectations of our institution [when considering calling the MAC]." "At some point you couldn't make it a viable deal. ... At $12 billion [in losses], it was workable." "We still felt very strongly that all the strategic issues that were being addressed by the merger were still viable." On disclosing information to shareholders: "Neither Secretary Paulson or Mr. Bernanke ever told me not to disclose anything that we thought should be publicly disclosed." "I don't decide on disclosures [to shareholders]. That is decided by our securities lawyers. I'm not a securities lawyers. We announced according to the schedules given to us by our lawyers. We were working on announcing everything at once so that we would not release information that would be make the economy even worse." On accepting TARP capital: "It is true that we did not think we needed TARP funds at the time we accepted them, but after hearing regulators, given what they were saying about the deterioration of the economy, we thought we should have a healthy fear of the unknown. ... No one thought it would get as bad as it did in the fourth quarter." You can see both Lewis' opening statement and subpoenaed emails from the Federal Reserve here. - George White
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