Friday, April 24, 2009

Absolute Madness: Federal Government Forced Bank of America to Buy Merrill Lynch

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.


AMIT said...

Yes as it is a big company it is getting forced to buy.


Anonymous said...

Dear Mr. Hutchinson: I hope you'll believe me when I tell you Geo. W.'s domestic policies made me uneasy at best and nauseated most of the rest of the time. I also think you are off the beam in your opposition to torture. Surely getting the truth out of such thimbleriggers as Paulson & Bernanke is going to require a liberal use of the thumbscrew, the rack, castor oil, and the rubber hose...Alas, Bernanke is still Chair, and Paulson's replacement is a charlatan with a sense of entitlement, great self confidence, and the IQ of a soccer game score. The One has decided that the cure for the fraud of Geo. W. is even more fraud, pumped down our throats and five hundred pounds pressure per square inch. Neil Barofsky, the Inspector General for TARP, has written a report that will horrify you here I am baffled that The One, with an ego bump sizable even for a politician, continues to snore away even while such looting continues on his watch. Blaming Geo. W. will have diminishing returns.

Sincerely yours,
Gregory Koster

Roy Lofquist said...


When the coach turns into a pumpkin I'd call that an "adverse material event".


Darren Lenard Hutchinson said...

Roy, that's pretty funny!

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