Bernanke: I Didn't Bully Bank Of America

Fed Chief Tells Congress He Didn’t Pressure Bank To Acquire Merrill Lynch

(AP)  Last updated 10:59 a.m. EDT

Federal Reserve Chairman Ben Bernanke told Congress Thursday he didn't pressure Bank of America into acquiring Merrill Lynch in a deal that ultimately cost taxpayers $20 billion.

Bernanke told a House committee investigating the matter that he did not threaten action against Bank of America's CEO Kenneth Lewis or the bank's board members if they decided to abandon the takeover.

"I did not tell Bank of America's management that the Federal Reserve would take action against the board or management" if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances."

Earlier this month, Lewis testified that his job was threatened after he expressed second thoughts about the deal. Lewis said then-Treasury Secretary Henry Paulson and federal regulators made clear that if Charlotte-N.C.-based Bank of America Corp. reneged on its promise, that he and the bank's board members would be ousted.

Bernanke said no member of the Fed ever urged Bank of America to keep quiet about Merrill Lynch's financial problems. Not divulging that information would have violated Lewis' fiduciary duty to the bank's shareholders.

"Neither I nor any member of the Federal Reserve ever directed, instructed or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses or any other related matter," the Fed chief said.

It marked Bernanke's first public comments since the House committee launched an investigation earlier this year into whether he or other government officials bullied Bank of America to stick with its plan to combine the two financial powers after Lewis found out about Merrill's financial woes.

The committee's ranking member Darrell Issa, R-Calif., accused the Fed of having "deliberately kept other regulators in the dark regarding the negotiations with Bank of America. The Federal Reserve's cover-up of important information and willingness to exclude key regulatory partners" such as the Securities and Exchange Commission and the Office of the Comptroller of the Currency "raises troubling questions," he said.

In turning aggressive toward Bernanke, Republicans are adopting the role of outsider and trying to link the Fed chairman to the Obama administration as advocates of government meddling in private industry. Many Republicans are suspicious of the administration's plan to expand the Fed's regulatory powers.

It's an odd shift, because Bernanke is a Republican appointee.

Rep. Dennis Kucinich, D-Ohio, said he thought Lewis was the one pressuring the government. He said that the investigation revealed that Fed officials thought Bank of America failed to do proper due diligence when it came to Merrill Lynch.

When asked about Bank of America's management, Bernanke said: "I did have concerns, yes."

Bank of America received $45 billion from the government's financial bailout program, $20 billion of which was linked to its acquisition of New York-based Merrill Lynch.

"Much of what the Fed, the Treasury and other agencies did in these transactions remains shrouded in secrecy," complained the committee's chairman Rep. Edolphus Towns, D-N.Y. "It's time to yank the shroud off the Fed and shine some light on these events."

Bernanke defended the deal and government bailout, saying the action was needed to avoid another blow to the financial system, which at the time was in distress.

If Bank of America had decided to abandon the deal, it "might have triggered a broader systemic crisis that could well have destabilized Bank of America as well as Merrill Lynch," Bernanke said.

Invoking the clause to rescind the deal also would have "cast doubt in the minds of financial market participants - including the investors, creditors and customers of Bank of America - about the due diligence and analysis done by the company" and the judgment of its management, Bernanke added.

Bernanke also said the Fed's lawyers believed it was "highly unlikely" that Bank of America would be successful in terminating the deal through the special clause.

The "best option," therefore, for the companies and the broader financial system was to work with the Fed and the Treasury Department to develop a contingency plan to ensure that Bank of America would remain stable should the completion of the acquisition and the announcement of losses lead to financial stress, he said.

The government helped orchestrate the deal at a time when the country's economic and financial landscape was especially fragile. Lending, the lifeblood of the economy, had come to a near halt and the financial system was on the brink of a meltdown.

The transaction was hammered out over the same weekend in September that another investment bank, Lehman Brothers, went under, leading to the biggest corporate bankruptcy in U.S. history and plunging financial markets worldwide into crisis. Bank of America completed its purchase of Merrill Lynch on Jan. 1.

In January, Bank of America reported a $2.39 billion fourth-quarter loss, and Merrill Lynch disclosed a loss of more than $15 billion.

[stinger1z]

Bush, Bernanke, and Paulson all pressured Congress to fork over our money and then ran, unfortunately leaving old Ben here to cover it up. Notice they haven't shown their faces since?

[Razzl]

So the obvious implication, if we can get beyond all the packaged speeches that shouldn't have been made once Bernanke made his testimony, is that Paulson at Treasury was the one who went out of bounds by making threats to Lewis and should be considered responsible for any damage done. Since Paulson's term is done, and since no criminal acts are involved, all that's left to do is chalk up one more to the Bush era and move on with the needs of the present...

[despido]

I'm retired and support myself through my investments. I recall vividly how this went down. Ken Lewis of BoA went to bed one night thinking he had just pulled opff the greatest acquisition of all time by buying Merrill. He awoke to find he had actually bought some $15 Billion of worthless paper. The subsequent meetings with Lewis, Bernanke and Paulsen were closed door, but it was widely reported by DJ, Bloomberg, CNBC and others that if Lewis backed out it would be catastrophic for America. Lewis knew this going into that meeting, unless he lives in a vacuum. I have no doubt that Bernanke & Paulsen also conveyed this to Lewis. Was it a warning or did Lewis take it as a threat - that's up to Lewis.

But this much is true - Bernanke is tarnished, Obama will replace him in February. His replacement will be Sommers - That will put control of the Fed directly under Obama (Sommers presently works for Obama) and the Fed just acquired virtual control of the Banking, Investment, Mortgage, Manufacturing and Securities Industries. A [VERY] Bad Omen.

[josephp5]

I think it is obvious that Bernanke put pressure on BofA to buy Merrill Lynch and is now attempting to cover up that fact. Bernanke, Hank Paulson, Tim Geitner---they are all part of a Wall Street Mafia whose goal seems to be to use taxpayers to prop up the insanely reckless, almost criminal decisions of outfits like Goldman Sachs.

But it is disingenuous for Darrell Issa to be pushing this issue as a way to attack Obama in particular. I am not a fan of some of Obama's bailout policies, primarily because most of these policies are in fact continuations of ones put in place by Bush. And the BofA takeover of Merrill was finalized in December while Bush was still President.

Even if he is right on the merits, Issa is seems to be hypocritically using the issue only to score political points against Obama.

[koko98-2009]

The only Republicans scoring these days are Ensign and Sanford.

[whitemale08]

When asked today by a congresswoman: "...are we not all the same government?"

Bernanke replied: "Well we all have our spheres of responsibility", implying that the Federal Reserve System is part of the government.

YOU BETTER CALL CONGRESS AND DEMAND THE SHUT DOWN OF THE FEDERAL RESERVE!

[whitemale08]

I meant to say 'not' art of the government.

[koko98-2009]

Republicans turning on each other, beautiful. Of course the Treasury and the FED "leaned" on BofA, TARP was no different from the war, no planning, no foresight, just another panicked response from the Bush Administration.

[despido]

Prediction: Okay - so its obvious... I'm gonna post it anyway...

Obama will replace Bernanke in February with Larry Sommers. Sommers now works for Obama. This will give Obama a huge influence over the Fed, which, until then was/is considered an independent government entity. Okay, that's debatable too, but.... This further centralization of power will give Obama an even greater influence over an organization that has recently been granted imperial control over significant, if not complete, segments of the Banking, Mortgage, Finance, Investment and Manufacturing economies. THIS is a truly ominous development.

[jisler1]

I CANNOT BELIEVE THAT THE HOUSE COMMITTEE COULD POSSIBLY EXPECT CHAIRMAN BERNANKE TO SAY ANY THING BUT SAY HE DID NOT INFLUENCE BANK OF AMERICA IN THEIR DECISION. WHAT KIND OF FOOL DO THE THINK HE IS.

[despido]

Tell me who is dumber: Wall Street runs their firms in the ground, rapes the American people and pockets hundreds of billions of dollars - personal profit. They then tell Bernanke and Paulson that if the government doesn't give them hundreds of billions more... the world will explode. Bernanke, Paulson, Reid, Pelosi, Geithner, Bush and Obama fall all over themselves to write the check. In return America gets options on the grifters stock. The same grifters then pocket billions more in bonuses, salaries and retainers while negotiating the re-purchase of their options at 25 cents on the dollar. The government agrees - it will accept $68 billion as full repayment for $250+ billion. Today, these same suits granted their cronies a 50% salary increase, returned to business as usual and threatened to sink Bernanke. Who looks stupid now?

If only these guys were on our side - Then Ahmadinejad, Kim of North Korea, The Terrorists, whomever.... wouldn't stand a chance. BUT, we've got Obama, Giethner and Bernanke. We're doomed.

[truthseeker60]

Well if one listens to BOA they didnt want the deal. Who pushed it on them? Once again lying is the norm. God Speed USA