Paulson Discusses BofA/Merrill Acquisition

John M. Pachkowski, J.D., Editor, CCH Federal Banking Law Reporter and Bank Digest; Author, Anti-Money Laundering and Bank Secrecy: Compliance and the USA PATRIOT Act; Co-Author CCH Financial Privacy Law Guide.

The House Oversight and Government Reform Committee and Subcommittee on Domestic Policy continued its joint investigation of the Bank of America – Merrill Lynch merger with a hearing titled: “Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout? Part III.” This was the third in a series of hearings examining the events surrounding Bank of America’s (BofA) acquisition of Merrill Lynch and its receipt of Federal financial assistance. The sole witness for the hearing was the former Treasury Secretary Henry Paulson.

In his opening statement, Committee Chairman Edolphus Towns, D-N.Y., noted that “When we held our first hearing on this merger, I called it a shotgun wedding. Now, it looks like a marriage of convenience.”

Towns then posed a series of questions suggesting that the merger was a “just an old fashioned shakedown” and that there was more Congress should have done.

Paulson’s testimony sought to clarify three issues that arose in light of the BofA acquisition.

First, it was the opinion of some that government officials involved in examining the Bank of America Merrill Lynch merger—myself included—allowed concerns about systemic risk to our nation’s financial system to outweigh concerns about potential harm to Bank of America and its shareholders. Paulson noted “That simply did not happen.”

Paulson also addressed the appropriateness of a conservation he had with BofA CEO Ken Lewis regarding the removing the bank’s management if BofA sought to invoke a “material adverse change”—or MAC—clause as grounds to terminate the Merrill Lynch acquisition.

Finally, Paulson discussed the suggestion that the suggestion that he Ken Lewis from making required disclosures to the public markets about losses at Merrill Lynch. To this Paulson stated “That simply did not happen—and Mr. Lewis has accordingly denied it unequivocally in testimony before this Committee.”