Hank Paulson admitted to Andrew Cuomo that he threatened to oust Ken Lewis and the Bank of America board if Bank of America invoked a Material Adverse Change (MAC) clause to block the deal, Cuomo says. Paulson also added, however, that he made this threat at the request of Ben Bernanke.
This contradicts Bernanke, who earlier denied (through a Fed spokesman) that he did not threaten Ken Lewis.
Here’s an excerpt of Andrew Cuomo’s letter to Congress:
In an interview with this Office, Secretary Paulson largely corroborated Lewis’s account.
On the issue of terminating management and the Board, Secretary Paulson indicated that he told
Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either
could or would remove the Board and management. Secretary Paulson told Lewis a series of
concerns, including that Bank of America’s invocation of the MAC would create systemic risk
and that Bank of America did not have a legal basis to invoke the MAC (though Secretary
Paulson’s basis for the opinion was e,ntirely based on what he was told by Federal Reserve
Secretary Paulson’s threat swayed Lewis. According to Secretary Paulson, after he stated
that the management and the Board could be removed, Lewis replied, “that makes it simple.
Let’s deescalate.” Lewis admits that Secretary Paulson’s threat changed his mind about invoking
that MAC clause and terminating the deal.
Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke. After the threat, the conversation between Secretary Paulson and Lewis turned to
receiving additional government assistance in light of the staggering Merrill Lynch losses.
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