Fed Emails Bash BofA Chief


“… Ken Lewis’ claim that they were surprised by the rapid growth of the losses seems somewhat suspect. At a minimum, it calls into question the adequacy of the due diligence process BAC has been doing in preparation for the takeover.”

–Dec. 19 email from Timothy Clark, senior advisor in the Fed’s division of banking supervision and regulation, to Warsh, Kohn and others.

* * *

“… the recent decline in BAC’s projected year end 2008 stand alone number appears to be driving as much of the decline in the combined pro forma ratios as the losses at ML, even as they are portraying the losses ML as being the key issue here.”

–Dec. 19 email from Timothy Clark.

* * *

“… BAC management told us they could not provide electronic versions of ML files, and one wonders how that is possible since they have been doing the due diligence for months and having e-files would have made that much simpler and more effective for them. May have helped limit their current surprise.”

–Dec. 19 email from Timothy Clark

* * *

“Merrill is really scary and ugly.”

–Dec. 21 email from Malcolm Alfriend, senior vice president of Fed Bank of Richmond, to various federal officials.

* * *

“I think the threat to use the MAC is a bargaining chip, and we do not see it as a very likely scenario at all. Nevertheless, we need some analyses of that scenario so that we can explain to BAC with some confidence why we think it would be a foolish move and why regulators would not condone it.”

–Dec. 21 email from Chairman Bernanke to some Fed officials

* * *

“Just had a long talk with Ben. Says they think the MAC threat is not credible. Also intends to make it even more clear that if they play that card and then need assistance, management is gone.”

–Dec. 21 email from Federal Reserve Bank of Richmond President Jeffery Lacker to other Fed employees regarding a conversation he had with Bernanke.

* * *

“BA’s assertion that it would successfully exercise the material adverse effects clause is not credible, according to Fed and other key US Government (USG) attorneys.”

–Dec. 21 memo emailed by Warsh to Bernanke, Kohn and others.

* * *

“While the extent of the market disruptions that have occurred since mid-September were not necessarily predictable, BAC management’s contention that the severity of MER’s losses only came to light in recent days is problematic.”

–Dec. 21 summary prepared by Deborah Bailey, deputy director in the Fed’s division of banking supervision and regulation.

* * *

“He said he now fears lawsuits from shareholders for NOT invoking the MAC, given the deterioration at ML. I don’t think that’s very likely and said so.”

–Dec. 22 email from Bernanke to Alvarez, Warsh and others, relating a conversation with Lewis.

* * *

“We didn’t take the decision out of his hands or threaten punitive supervisory action if he didn’t proceed.”

–Dec. 23 email from Fed General Counsel Scott Alvarez to Bernanke

* * *

“… some of our analysis suggests that Lewis should have been aware of the problems at ML earlier (perhaps as early as mid-November) and not caught by surprise. That could cause other problems for him around the disclosures BA made for the shareholder vote.”

–Dec. 23 email from Alvarez to Bernanke.

* * *

“Knowing the market’s willingness to fund BofA following January 20th big bang announcement remains tough question that we are unlikely to get a firmer grip on until end of next week.”

–Dec. 30 email from Warsh to Bernanke, Kohn and others.

* * *

“Magnitude of losses [at Merrill Lynch] is breath-taking.”

–Treasury Secretary Henry Paulson at January 9 meeting, according to handwritten notes of Alvarez.

Fed Emails Bash BofA Chief in Tussle Over Merrill Deal
WSJ, June 10, 2009, 4:28 P.M. ET

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