An outspoken group of Bank of America (NYSE: BAC) shareholders has been calling for CEO Kenneth Lewis's head lately, with investors none too pleased by the bank's near-disastrous acquisition of Merrill Lynch. However, testimony is hitting Wall Street today that indicates Lewis was simply following government orders by keeping hefty losses at Merrill under wraps.
Lewis testified under oath before New York Attorney General Andrew Cuomo in February, asserting "it wasn't up to me" to disclose Merrill's fourth-quarter losses toward the end of 2008.
According to Lewis, Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson pressured him to stay mum about Merrill Lynch's troublesome balance sheet. The regulators reportedly urged Lewis to proceed with the merger, warning that the deal's failure would "impose a big risk" to the nation's financial system.
In response to these inflammatory reports, a source close to Bernanke told The Wall Street Journal that the Fed chairman did not offer Lewis any advice on the disclosure. Meanwhile, a spokeswoman for Paulson told the Journal that the former Treasury Secretary simply told Lewis that "the U.S. government was committed to ensuring that no systematically important institution would fail."
So, was Lewis truly intimidated by the government, or is the embattled CEO just trying to shift blame for the mishandled merger? Either way, the chief executive's still in the hot seat. Yale Law School Deputy Dean Jonathan Macey told the Journal's Dennis K. Berman, " . . . whatever he was told by these regulators should not or does not in any shape or form get him off the hook."
That's bad news for Lewis. At Bank of America's annual meeting on April 29, shareholders will vote on whether the CEO should be ousted from his role as chairman -- not just because of the botched Merrill buy, but also because of the bank's abysmal share price. BAC has shed 77.6% during the past 52 weeks.