Thursday, August 20, 2009

Danger, Uncle Sam at Work

"Bank of America Corp. [BofA] agreed to pay $33 million to settle a civil lawsuit alleging that it misled shareholders about billions of dollars in bonuses promised to Merrill Lynch & Co. employees when it bought the troubled firm at the height of the financial crisis last year. ... [BofA], the largest US bank in assets, neither admitted nor denied wrongdoing in settling the lawsuit, describing the agreement with the [SEC] as a 'constructive conclusion' to the matter. The case reflects the SEC's heightened effort to speed up cases, as new SEC Chairman Mary Schapiro and new enforcement director Robert Khuzami take a harder line with companies and individuals under investigation. ... The SEC said the documents show Merrill wouldn't pay year-end bonuses before the deal closed without [BofA's] consent. The bank's view is that the proxy didn't state Merrill bonuses would go unpaid and that it was well known that Merrill had been holding money for year-end awards, according to people familair with the bank's thinking on the matter. ... The US ultimately provided an additional $20 billion to push the deal forward, making [BofA] the second lagest recipient of bank bailout funds after Citigroup", my emphasis, Dan Fitzpatrick and Kara Scannell at the WSJ, 4 August 2009, link: http://online.wsj.com/article/SB124931920883302049.html.

I'm with the BofA on this. This is another empty SEC settlement. Uncle Sam gives the BofA $20 billion and the SEC gets $33 million, .165% back. Big deal. That Merrill held the bonus money was public knowledge. I see this settlement as Uncle Sam's continuing intimidation effort at BofA.

1 comment:

Anonymous said...


"After swooping in last September to save Merrill from potential collapse
as Lehman Brothers tumbled into bankruptcy, Mr. Lewis has been haunted by the deal almost ever since. In April, he lost his duties as chairman as investors blamed him for the decision to buy Merrill despite its deepening problems."

So the WSJ says Lewis "swooped in" to buy Merrill... sure it wasn't a shotgun marriage pushed by the Treasury Secretary for his former colleague Thain?

Isn't Lewis trying to invoke the material adverse clause here the bigger issue? And being told by the Secretary Paulson that he would be fired if he did?

Secretary Paulson insisted that "systemic stability" was the most important issue. So it still doesn't jive what he did to Lehman Brothers.

It would be interesting to see a side by side comparision of counterparty exposure for Lehman and Bank of America... to actually see the "systemic differences".

This story is going to get a lot bigger soon with Judge Rakoff and Congress sniffing around. Will Lewis squeal?