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Documents: Fed sought to keep other regulators in dark on BofA

By Rick Rothacker

McClatchy-Tribune News Service

Published: June 24, 2009

CHARLOTTE - The Federal Reserve sought to keep other regulators in the dark about problems last year with Bank of America Corp.'s Merrill Lynch & Co. purchase, according to sources familiar with documents obtained by the House committee probing the deal.

Federal Reserve officials exchanged e-mails on Jan. 11 in which they said the Securities and Exchange Commission was just learning of the Fed and Treasury Department's efforts to pressure Bank of America to complete the deal, according to the sources. Bank of America chief executive Ken Lewis sought to exit the deal weeks earlier but proceeded after Fed and Treasury officials indicated they would remove management and offered additional assistance.

Fed employees also were reticent to share information about the negotiations with the Office of the Comptroller of the Currency, the Charlotte bank's primary regulator, thee sources said. In advance of a conference call with the regulator, a Fed official said they shouldn't talk about former Treasury Secretary Henry Paulson's discussions with Lewis.

"Given the presence of the OCC on the call, I think we should not discuss or reference the call with Ken Lewis and Paulson," the official wrote.

The Fed's role in the Merrill deal will be the subject of a House Oversight and Government Reform committee hearing on Thursday. The panel will question Fed Chairman Ben Bernanke, following up on its quizzing earlier this month of Lewis.

Democrats on the panel have focused on why the bank needed additional government assistance to close the deal, while Republicans have zeroed in on the governmental pressure the bank faced to close the merger. After agreeing to buy Merrill in September, Bank of America sought to back out in December because of rising losses at Merrill in the fourth quarter.

"The Committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the 'shotgun wedding' that was the Merrill Lynch acquisition," Darrell Issa, a Republican from California who is ranking member of the committee, said in a statement. "The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other Federal Regulatory agencies."