4/26/2009

More on government coercion to force banks into the financial troubles that some have been experiencing

All this is very disturbing. Barrons has this take on what happened:

According to Mr. Cuomo's dour narrative, the product of four hours of interrogation of Mr. Lewis, the merger with Merrill was proposed in September after two days of due diligence (sounds more like due negligence to us). It gained approval of shareholders of both companies on Dec. 5. Barely a week later comes the revelation: Merrill's losses were spiraling ever higher, causing an increasingly frantic Mr. Lewis to weigh calling the marriage off.

He reckoned he could legally do so thanks to MAC (material adverse event), recognizing that $7 billion more in losses than had been projected when the merger was agreed to was a very big MAC, indeed. He diffidently informed the powers-that-were of his plan to nix the nuptials and was summarily summoned to powwow with them in Washington that very evening. And it was there that Messrs. Bernanke and Paulson put the screws to him to not break the deal lest he trigger a systemic calamity.

On Dec. 21, Mr. Lewis, still of a mind to ditch the merger, communicated his determination to Mr. Paulson, who bluntly warned that he would give the boot to Mr. Lewis and his board unless the acquisition went through. To that bald threat, Mr. Lewis' retort was a resounding purr: "That makes it simple. Let's de-escalate." . . . .


The WSJ has a nice piece summarizing things here.


Martin Weiss has this note:

Last December, with its stock hovering around $15 per share, Bank of America CEO Ken Lewis made a startling discovery: Merrill Lynch — the giant his bank was in the process of acquiring — was in far worse shape than he had dreamed.

This week, thanks to documents released by New York Attorney General Andrew Cuomo, we discovered new details on what appears to be the real reasonLewis finalized the merger despite Merrill's obvious troubles.

According to Lewis, he had told former Treasury Secretary Paulson and Fed Chairman Bernanke that he wanted to back out of the merger with Merrill. Whether he had the legal ability to do so or not is a separate issue. What matters is that, according to Lewis, Paulson and Bernanke tacitly threatened to fire him and his entire board of directors if they backed out.

Now Lewis has testified that Paulson made it quite clear he was NOT to disclose to his shareholders how troubled Merrill was for fear that they would demand the merger be canceled.

Bottom line: When faced with the choice of saving his own job or saving his shareholders, Lewis decided to keep his mouth shut, go ahead with the merger and save his job.

He had a gun pointed to his head, the classic case of a shotgun merger; and the rest is history...

In January, Bank of America reported a $2.4 billion fourth-quarter loss and Merrill disclosed a $15 billion loss.

Also in January, Washington gave Bank of America $20 billion of your money to offset losses it suffered because of its shotgun marriage with Merrill.

And as of Friday's close, the decision made by Paulson, Bernanke and Lewis has cost shareholders as much as 43 percent of their money in just over four months, even AFTER a vigorous rally. . . .


Thanks to Jack Anderson for the Weiss link.



The Financial Times has this.

UPDATE: And the losses keep coming.

Bank of America Corp. (BAC) (BAC) and Citigroup Inc. (C) (C), which have each received $45 billion in government bailout funds, have been told by regulators that "stress test" results show they may need to raise additional capital, The Wall Street Journal said Tuesday.

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