Thursday, April 23, 2009

BofA bombshell

The other shoe has dropped on BofA’s value-destroying strategy to buy Merrill Lynch after learning the extent of its toxic assets.

The lead story in today’s WSJ reports on sworn testimony by NationsBank Bank of America CEO Ken Lewis was pressured by then-Treasury Secretary Hank Paulson and Fed chairman Ben Bernanke.

Excerpts from the interview conducted by the NY attorney general:

Q: Were you instructed not to tell your shareholders what the transaction was going to be?
Lewis: I was instructed that “We do not want a public disclosure.”

Q: Who said that to you?
A: Paulson…

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.
The article also said
  • Paulson told NY investigators that Lewis “misinterpreted” what Treasury wanted kept secret.
  • Paulson threatened to remove BofA’s CEO and board if it cancelled the merger.
Being threatened with losing your job shouldn’t be enough to convince a CEO to do something that will destroy more than $150 billion in shareholder wealth. But it does illustrate the pressure that government officials were applying, and demonstrate why we don’t want central governments to have such power over free markets.

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