Congress Subpoenas the Fed Over Bank of America-Merrill Lynch Deal

Wednesday, June 10, 2009
By Anne Flaherty, Associated Press

Washington (AP) - House lawmakers on Tuesday said they have subpoenaed the Federal Reserve to hand over e-mails, notes and other documents related to its role in Bank of America Corp.'s acquisition of Merrill Lynch & Co.

The lawmakers' subpoena comes after claims that top government officials pressured Bank of America CEO Ken Lewis to complete the bank's purchase of Merrill Lynch, threatening his job security. Lewis has testified that he had been advised by the officials, former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, not to disclose details of Merrill Lynch's difficult financial position, according to New York State Attorney General Andrew Cuomo.

The Fed and Paulson have denied pressuring Bank of America to buy Merrill Lynch.

"We expect to respond completely and fully as requested beginning today," a Federal Reserve spokesperson said.

The subpoena by the House Oversight and Government Reform Committee comes as Bank of America's Lewis planned to testify on Thursday before the panel.

In prepared remarks, Lewis said his company had considered stopping the deal at one point because of "significant, accelerating losses" at Merrill Lynch. The bank decided to move forward with the deal after the government offered to provide assistance, he said.

"This course made sense for Bank of America and for its shareholders, and made sense for the stability of markets," Lewis said in prepared testimony. "We viewed those two interests as consistent."

Just a few weeks after the deal was completed, Bank of America's fourth-quarter earnings report showed the hit its balance sheet took on the Merrill Lynch transaction, making Lewis the target of shareholder anger. In January, Bank of America reported a $2.39 billion fourth-quarter loss and Merrill disclosed a more than $15 billion loss. The bank received $20 billion from the federal government in January after Lewis requested it to help offset mounting losses at Merrill.

Lawmakers say they are unconvinced that the Fed didn't take an active role in pressuring Bank of America to follow through with the deal and keep quiet about its worsening terms.

The panel, led by Rep. Edolphus Towns, D-N.Y., has been investigating the matter, as well as the $20 billion in taxpayer money provided to complete the acquisition.

"The marriage between Bank of America and Merrill Lynch was a shotgun wedding pushed by the Federal Reserve," said Rep. Darrell Issa of California, the panel's top Republican.

In April, Attorney General Cuomo confirmed reports that Lewis had told him that Paulson and Bernanke had pressured him to go through with the deal.

The government helped orchestrate the acquisition of the investment bank during the same weekend in September that another investment bank, Lehman Brothers, went under, setting off one of the most intense periods of the financial crisis.

Bank of America completed its purchase of New York-based Merrill Lynch on Jan. 1.

Lawmakers had asked the Fed to release the some 6,000 documents involved in the case, but the Fed has expressed concern that information was confidential.