Why would Bank of America deceive its stockholders concerning future losses on the purchase of Merrill Lynch? Think about it: banks are in business to make money for both its executives (mainly) and stockholders. Unless the government was pressuring (or coercing or bribing) Kenneth Lewis to complete this merger, I can see no other reason for this merger to have occurred. One thing is certain, Bank of America treats it stockholders in the same manner as its customers.
Days before Bank of America shareholders approved the bank’s $50 billion purchase of Merrill Lynch in December 2008, top bank executives were advised that losses at the investment firm would most likely hammer the combined companies’ earnings in the years to come. But shareholders were not told about the looming losses, which would prompt a second taxpayer bailout of $20 billion, leaving them instead to rely on rosier projections from the bank that the deal would make money relatively soon after it was completed.
What Bank of America’s top executives, including its chief executive then, Kenneth D. Lewis, knew about Merrill’s vast mortgage losses and when they knew it emerged in court documents filed Sunday evening in a shareholder lawsuit being heard in Federal District Court in Manhattan.
The disclosure, coming to light in private litigation, is likely to reignite concerns that federal regulators and prosecutors have not worked hard enough to hold key executives accountable for their actions during the financial crisis.
The filing in the shareholder suit included sworn testimony from Mr. Lewis in which he concedes that before Bank of America stockholders voted to approve the deal he had received loss estimates relating to the Merrill deal that were far greater than reflected in the figures that had appeared in the proxy documents filed with regulators. Shareholders rely on statements made in proxy filings to decide whether to approve transactions their companies have proposed, and companies must disclose all facts that could be meaningful for shareholders trying to decide how to vote on a deal.
The bank’s purchase of Merrill, struck during the depths of the financial crisis, was the culmination of an acquisition binge by Mr. Lewis that transformed Bank of America from its base in North Carolina into a financial behemoth that could compete head-to-head with the biggest institutions on Wall Street.
But the transaction, which was ultimately encouraged by government officials who were concerned about the impact on the financial system of a foundering Merrill Lynch, also saddled the bank with billions in losses and required an additional $20 billion from taxpayers on top of an earlier bailout it received in 2008.
Bank of America officials declined to comment. Andrew J. Ceresney, a lawyer for Mr. Lewis, also declined to comment on the filing, but he referred to a motion filed on behalf of Mr. Lewis on Sunday contending that the former chief executive did not disclose the losses because he had been advised by the bank’s law firm, Wachtell, Lipton, Rosen & Katz, and by other bank executives that it was not necessary.