A House committee on oversight and government reform is investigating whether or not undue pressure was put on Lewis in order to complete the deal to purchase Merrill Lynch. Reportedly, the Federal Reserve would not comply with the committee's request for documentation and e-mails regarding the accusations, but the committee issued a subpoena to the central bank on Tuesday. Lewis is set to testify about the matter today at a congressional hearing.
The e-mails sent by Fed chairman Ben Bernanke that were released Wednesday show how the Fed pressured BofA into the deal. Supposedly, Lewis dropped the threat only after former U.S. Treasury Secretary Hank Paulson told him that regulators (including Bernanke) would remove both Lewis and his board if they tried to invoke the MAC clause.
The Financial Times report notes that Bernanke called Lewis's MAC-clause threat a "bargaining chip" and a "foolish move," before he stated that "the regulators will not condone it." An e-mail from top executives at BofA said they "want the transaction to go through but have to protect their shareholders."
The deal closed in January, but BofA has revealed that the deal only went through after Paulson promised $20 billion in taxpayer support. Plenty of suits have stemmed from this decision, including an investigation by the Securities and Exchange Commission and New York state's attorney general Andrew Cuomo.
Was Lewis right to try and invoke the MAC clause? If he was indeed working in the interest of his shareholders, yes. Of course, if he was angling to get more money for his office renovation, then he was very much in the wrong. That said, I have a bit of outrage saved up for Bernanke and Paulson too -- it sure sounds like they were throwing around their substantial political weight in order to get this deal to go through.
If this is the case, it sure seems that the government wanted to get the job done, no matter the consequences for taxpayers. I'm not a big fan of this, and I am sure that others aren't as well.