A transcript of Ken Lewis’s testimony to Andrew Cuomo was leaked to the WSJ (presumably by Cuomo or Bank of America).
The testimony includes two startling nuggets that highlight the veil of secrecy that defined the Bush administration’s (and, to a lesser extent, the Obama administration’s) approach to this crisis:
Bernanke and Paulson implicitly ordered Ken Lewis to keep silent about the massive losses Merrill was sustaining in Q4. Put differently, Paulson and Bernanke ordered him to deceive his own shareholders about the condition of the company BAC was buying. Paulson and Bernanke did not explicitly say this, but that was impression Ken Lewis left with. Paulson has since implied that Ken Lewis misunderstood:
Q: Were you instructed not to tell your shareholders what the transaction was going to be?
A: I was instructed that ‘We do not want a public disclosure.’
Q: Who said that to you?
Q: Had it been up to you would you [have] made the disclosure?
A: It wasn’t up to me.
Q: Had it been up to you.
A: It wasn’t.
This is presumably why Ken Lewis said that, in going ahead with the Merrill deal, BAC took one for the country.
Paulson told Ken Lewis he would oust him and the BAC board if Ken Lewis stopped the Merrill deal. Ken Lewis then immediately backed down:
WSJ: During his testimony, Mr. Lewis described a conversation with Mr. Paulson in which the Treasury secretary made it clear that Mr. Lewis’s own job was at stake. Mr. Lewis still was considering invoking his legal right to terminate the Merrill deal. Mr. Paulson was out on a bike ride when Mr. Lewis phoned to discuss the matter, according to the transcript.
“I can’t recall if he said, ‘We would remove the board and management if you called it [off]’ or if he said ‘we would do it if you intended to.’ I don’t remember which one it was,” Mr. Lewis said. “I said, ‘Hank, let’s de-escalate this for a while. Let me talk to our board.’ “
Bank of America shareholders thus have two causes for grief: First, that the government ordered them to absorb Merrill losses when, by all rights, Merrill shareholders should have taken them. Second, that Ken Lewis may have let his desire to keep his job interfere influence his decision to go forward with the deal.
Either way, as Ken Lewis tells it, Bank of America’s shareholders got screwed. Lewis needs to accept some responsibility for that. But it sounds as though Paulson and Bernanke do, too.