The more news comes out, the more it looks like Federal officials really did hold a gun to Ken Lewis’ head and tell him not to back out of buying Merrill. We’ve been sharply critical of Lewis, calling for his firing, and the board for keeping him, but it’s hard not to have a lot more sympathy for him, as we read accounts of how the government handled the situation. WSJ reports, as Fortune did earlier, that the government really put its foot to his balls, in getting him not to back out of Merrill:
WSJ: Messrs. Paulson and Bernanke forcefully urged Mr. Lewis not to walk away, praising the bank’s earlier cooperation — but warning that abandoning the deal would be a death sentence for Merrill. They said the move also could undercut confidence in Bank of America, both in the markets and among government officials. Despite the blunt talk, Bank of America executives interpreted the comments as a signal that the government was willing to work out a compromise.
Two days later, in a follow-up conference call, federal officials struck a harder tone. Mr. Bernanke said Bank of America had no justification for ditching Merrill, according to people who heard the remarks. A Federal Reserve official warned that if Mr. Lewis did so and needed more government money down the road, Bank of America could expect regulators to think hard about their confidence in management. Mr. Lewis was told that the government would consider ousting executives and directors, people close to the bank say.
Whether this absolves Lewis is still an open question. We still have lots of problems with his tenure, though at a minimum we don’t begrudge him for taking that second TARP infusion and the loss backstop, given this kind of treatment.