Jamesb101.com

commentary on Politics and a little bit of everything else

Merrill Lynch, Bank of America and Ken Lewis, Bernanke and Paulson…….and Cuomo….

I’ve been following an inside story that occurred during the height on the financial crisis last fall……..During the time after the bottom fell out, after Lehman went belly up, a whooper deal went through……Bank of America brought Merrill Lynch…….A story of this appeared recently in the Atlantic Magazine.( generated by Cuomo’s digging)…………And the story basically went like this……..

The CEO of B of A (BOA)……started talking about buying Merrill Lynch (ML)….the CEO of ML was very agreeable to the deal because the company was undercapitalizedbig time……Lewis had his people check out BOA, and at first they reported back everything was Okay……..but, as the deal date got closer it became known to Lewis that he was going to be buying an empty shell of the company, he thought he was getting……..Merrill was in the hole, big time……

So according to the story, Lewis started to get cold feet, and started talking about backing out of the deal, invoking a MAC (which is called a MAC….short for Material Adverse Clause, which means the material…i.e. equity…. ain’t there)……..now here’s where things get sideways……yesterday, a judge would not approve a $33 million settlement between BOA and the SEC on the no-board notification, which would have laid the thing to rest……then there’s this…….

Once Lewis knew ML was not what he thought it was ……he should have notified his board  (which he did not) which in the end, approved the deal…….failure to do so could be a legal no-no (hence they wanted the SEC deal)……..Lewis has reported that he didn’t do so because Treasury Secretary Paulson, and Fed Chairman Bernake both threatened him with his job, and the boards tenure if he didn’t go thru with the deal…which they called ‘essential to the national interest’…….

Lewis has not endeared himself to anyone because he fired the head of Merrill (John Thain) right after the deal,  then paid  out  $3.6  billion in bonuses to staff for the past year, and went on to boast that he did a ‘great deal’……and Andrew Cuomo the AG of New York has sent supeona\’s to the Bank of America board members…..

The thing that bothers me is ……..if Lewis is telling the truth, and the Feds threaten him (he related this to congress), where does this investigation by Cuomo go?…..Is Lewis the bad guy here?…Is Cuomo gonna go after anyone, or is he just bearing the facts of the deal?….what about Paulson and Bernanake?…..if saving Merrill helped save the  US and, in turn, world’s economy, and hurt BOA stock holders, what is the solution?…….Is Cuomo doing the right thing, or is he going to run into a brick wall from the White House?………that’s lot of questions, and this could end up anyplace………

Note:…..I thought about this morning…….they have to be on Lewis’ case……and the bonus money……no doubt……

Update: The House Committee on Oversight and Government Reform has told Bank of America that it cannot use attorney-client privilege in dealing with congress……Its Chair,  Rep Edolphus Towns (D-NY) has given B of A till noon today to divulge when the board of B of A found out about Merrill Lunch’s true financial short falls prior to the deal between the two companies……B of A is stuck…because answering the questions could expose the bank to liabilities with the SEC, and NY State Atty. Gen. probes……..The reason for the House probe?……The money given to the firm from the  TARP fund ( $20 Billion ) right after the merger….And the bonuses which came before that………..

September 16, 2009 - Posted by | Law, Politics, The Economy | , , , , , , , , , , ,

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