Bank of America’s chief executive Thursday for the first time said publicly that officials in the Bush administration and the Federal Reserve threatened to remove top executives of the bank unless the financial giant merged with the troubled Merrill Lynch for the good of the foundering economy.
Bank of America’s Kenneth Lewis told the House Oversight and Government Reform Committee that the threat was not the deciding factor in the bank’s acquisition of the nation’s largest investment banking firm. But he added: “What gave me concern was that they would make that threat to a bank in good standing.”
The testimony came as the No. 2 Republican in the House said President Obama’s handling of the auto company bailouts was comparable to the strong-arm tactics of Russian Prime Minister Vladimir Putin.
Until the Bank of America revelations, Republicans had been battering Mr. Obama and Democrats in Congress for using heavy-handed government intervention to deal with private-sector woes. Now lawmakers from both parties are accusing each other of pushing too hard from Washington.
At the committee hearing Thursday, Republicans and Democrats pressed the banker over his denial that the government’s threat forced him to proceed with the acquisition, and accused the Fed of orchestrating a “shotgun wedding” to force the deal.
The panel is investigating claims that top government officials, including then-Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke, pressured Mr. Lewis, whose bank had received $25 billion in federal bailout funds, and urged him to keep quiet about Merrill Lynch’s financial problems. Mr. Lewis denied any wrongdoing.
“A number of pieces of evidence have arisen that make us believe that government officials felt necessary to use the power, influence and in fact potentially threats in order to consummate this deal,” said the committee’s top Republican, Rep. Darrell Issa of California.
“Nowhere in the [bank bailout] legislation did it suggest that Hank Paulson, Ben Bernanke or anyone else operating on behalf of the United States government was given the power to force shotgun weddings.”
Fed spokeswoman Susan Stawick said the agency would have no comment regarding the accusations.
Mr. Paulson has said in interviews since leaving office that he used strong pressure to clinch mergers among several large banks to prevent the chaotic failure of a major institution during last fall’s financial crisis. He said he learned from the market catastrophe that occurred after Lehman Brothers’ mostly uncontrolled fall into bankruptcy in September that regulators must act to prevent a worsening of the financial collapse.
The former Treasury chief has conceded that he may not have had explicit legal authority to do everything he did, but he felt compelled to act because of the emergency.
Mr. Bernanke also has said he acted out of necessity in arranging mergers last fall, and has denied any wrongdoing. The Fed, as Bank of America’s principal regulator, has considerable power over such banks under the law — to the point of being able to order them to close or merge if they are on the verge of failure.
While Bank of America’s acquisition of Merrill Lunch occurred during the Bush administration’s watch, Republicans have accused the Obama administration for taking a heavy-handed approach in trying to fix the economy.
The administration actively pushed for troubled Detroit automakers General Motors Corp. and Chrysler LLC to declare bankruptcy in exchange for federal aid.
House Republican Whip Eric Cantor, Virginia Republican, blasted the White House’s handling of the troubled domestic auto industry, accusing the administration of undemocratically taking credit holders’ rights and shifting them to Democratic allies.
“They said, ‘Set aside the rule of law, let’s strip secured creditors, bondholders, of their rights. Take them away outside of the bankruptcy process and give them to the political cronies and the auto workers’ unions.’ ” Mr. Cantor said in an interview with the Associated Press. “It’s almost like looking at Putin’s Russia.”
The Obama administration this week set bonus limits on companies that have received billions of dollars in federal bailout money and appointed a “special master” with power to reject pay plans he deems excessive.
Republicans also have criticized the White House’s push for legislation that would give shareholders of private companies more authority to rein in excessive pay and compensation packages of corporate executives, which it says led to some risky behavior that contributed to the world’s financial crisis.
“We reject the creation of a new systemic risk regulator, which would only entrench us in a political economy where the government picks winners and losers,” said Rep. Tom Price, Georgia Republican.
But Democrats said the comparison to Russia’s Mr. Putin was a sign of a struggling party.
“When Republicans have no ideas and no leadership, they resort to personal attacks and bank on failure,” said Rep. Chris Van Hollen, Maryland Democrat and chairman of the Democratic Congressional Campaign Committee. “Republicans should stop the name-calling, roll up their sleeves, and start working with the president and congressional Democrats to turn the economy around.”
Bank of America has received $45 billion from the government’s $700 billion Troubled Asset Relief Program (TARP), including $20 billion in January after Mr. Lewis requested it to help offset mounting losses at Merrill Lynch.
Although the bank had reached an agreement in September to buy Merrill Lynch, Mr. Lewis said in December he had considered invoking a clause that would have canceled the deal due to concerns regarding Merrill Lynch’s increasing financial losses.
Mr. Lewis said that when he approached federal regulators about his concerns, they advised him to stick with the deal because scraping it would further hurt the wounded U.S. economy.
Mr. Lewis said the Fed had a “strong influence on my decision, but it wasn’t the only decision” to proceed with the Merrill Lynch deal.
Asked specifically if he was “pressured,” Mr. Lewis said that it was “hard to find the exact right word to describe what I just described. So I’ve found as I’ve tried to have different words that it’s best just to describe it and let people come to a conclusion.”
Mr. Lewis added that the state of the U.S. and global economy was so fragile in late 2008 that both Bank of America and the federal government realized that a collapse of Merrill Lynch could hasten the crisis.
But committee members of both parties, after reviewing subpoenaed Fed e-mails and documents regarding the deal, said they were concerned that regulators overstepped their authority and privately strong-armed Bank of America into buying Merrill Lynch.
• Patrice Hill contributed to this report.