I’m coining a new term tonight and it is FEDGATE.
After the Federal Reserve was subpoenaed to provide documents relating to the Bank of America and Merrill merger some dirty laundry is coming out.
In emails obtained by the House Oversight and Government Reform Committee it would appear that Fed Chairman Ben Bernanke did put pressure on Bank of America CEO Ken Lewis to ‘keep quiet’.
E-mail messages from the Federal Reserve chairman Ben S. Bernanke and others indicate that executives at Bank of America were pressured to keep quiet about concerns over Merrill’s financial condition, according to a document written by House Republicans.
The documents, which were subpoenaed by the House Oversight and Government Reform Committee, were cited in a staff memo for Republicans ahead of a hearing Thursday where the chief executive of Bank of America, Kenneth D. Lewis, will testify.
One e-mail message shows pressure from the Fed on Mr. Lewis to stay the course on the deal, or have management removed.
In an e-mail from Jeffrey M. Lacker, the president of the Richmond Federal Reserve, speaking about Mr. Lewis’s intention to exercise a “material adverse change†or MAC clause to get out of the Merrill deal, Mr. Lacker said:
â€Just had a long talk with Ben … Says they think the MAC threat is irrelevant because it’s not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone.â€
Mr. Lacker’s region includes Charlotte, N.C., where Bank of America is based.
Mr. Lewis has come under fire from investors wanting to know why the bank did not notify them of Merrill’s losses in December, when the bank told the government it would need additional support to ensure the merger would survive.
In January, Mr. Lewis told analysts that he was surprised to learn in December, three months after the bank snapped up Merrill Lynch, that the losses at the brokerage were far greater than expected. He said he had considered walking away at that point, but was persuaded not to, partly by regulators who feared that a failure to seal the deal could set off a new round of panic in the markets.
The decision to stick with Merrill despite its problems, he said, was patriotic. Source: NY Times
With Ken Lewis appearing before a hearing in Washington tomorrow it should make for a great ‘who said what and when’. And if Ben Bernanke did influence the witholding of material information then Ben will have some bigger problems than just the economy.
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{ 2 comments }
The idea of making the banks to fedgate is excellent. Take necessary steps to the make the business well.
Seems like the Fed did what it did for the common good of the financial markets without regard to shareholders. Thought the main focus of management was to do what is best for shareholders.