The Washington Post reports that former Secretary of Treasury Henry Paulson and Federal Reserve Chair Ben Bernanke forced -- or pressured -- Bank of America to go through with a deal to purchase failing investment bank Merrill Lynch. Bank of America entered into an agreement to purchase Merrill in September 2008, and stockholders approved the transaction in December.
But Merrill's value depreciated significantly before the transaction was completed, and Bank of America CEO Kenneth Lewis said he wanted to pull out of the pending deal. Lewis cited a contractual provision that authorized withdrawal if a "material adverse event" occurred (I am not sure whether this includes depreciation in value).
Bernanke and Paulson, however, threatened to remove Bank of America's Board of Directors if it pulled out of the deal. Now, Lewis is in hot water with stockholders and regulators from the State of New York for allegedly failing to inform stockholders of Merrill's failing health and going through with the transaction.
The government pumped another $20 billion into Bank of America after it suffered losses due to Merrill's woes. According to the article, Paulson refused to provide Lewis with a letter pledging additional federal assistance if Bank of America stayed in the deal, because this would have required a public disclosure. Nevertheless, Bank of America received the additional cash infusion once it posted enormous losses following the Merrill transaction.
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