Bank of America agrees to give U.S. more details on Merrill

October 13, 2009

People walk past a Bank of America branch in New York August 13, 2009. (File Photo) REUTERS/Lucas Jackson (UNITED STATES BUSINESS)

Elinor Comlay and Rachelle Younglai
NEW YORK/WASHINGTON, Oct 13 (Reuters) – Bank of America Corp’s decision to hand over protected information on what it knew about Merrill Lynch before it merged paves the way for the bank to settle a number of federal investigations and start anew after Chief Executive Kenneth Lewis departs.

The largest U.S. bank agreed to waive its attorney-client privilege that protects the names of those who made decisions on the acquisition. That includes withholding information from shareholders on Merrill’s $15.8 billion fourth-quarter losses and about bonuses paid to the investment bank’s employees.

The decision is a breakthrough for federal regulators, lawmakers and New York Attorney General Andrew Cuomo, who are all separately investigating why Bank of America did not disclose details about Merrill’s performance before it purchased the investment bank.

While the bank is looking primarily to put a stop to the regulators’ investigations, its decision to waive the attorney-client privilege two weeks after Lewis said he will retire at year-end means Lewis likely will bear the brunt of any additional disclosures and resulting lawsuits, investors said.

“Right or wrong, it becomes associated with him,” said Mal Polley, chief investment officer at Stewart Capital Advisors.

Gary Townsend, chief executive of investment firm Hill-Townsend Capital, said Lewis “is being thrown under the bus.”

“Had he (Lewis) stayed on, I doubt that the company would be going in the direction of waiving its attorney-client privileges,” said Townsend.

Bank of America’s board voted on Friday to give lawmakers, regulators and Cuomo access to the protected information, according to sources familiar with the matter.

Cuomo has threatened to sue bank officers and is seeking more information on who knew what prior to the Dec. 5 shareholder vote to approve the merger.

The bank hopes to disclose information no later than Friday, according to the letter sent to Cuomo. That would be the same day it reports third-quarter results.

Bank of America said it had nothing to hide and that its decision to waive the attorney-client privilege was due to pressure in several inquiries for further insight.

“We… believe our actions throughout the Merrill Lynch acquisition were appropriate and in the best interest of our shareholders,” said spokesman Larry Di Rita.

Last month, a federal judge rejected Bank of America’s $33 million settlement with the Securities and Exchange Commission, which alleged it misled investors about $3.6 billion of bonuses paid to Merrill employees. U.S. District Court Judge Jed Rakoff faulted the SEC for accepting the bank’s effort to invoke attorney-client privilege.

Bank of America said it would give authorities access to the bank’s communications with the Federal Reserve and the Treasury Department, which helped broker the deal and buttress the bank with taxpayer funds.

The documents would probably include communications from Lewis, who was at the center of negotiations with federal regulators.

Lewis’ reputation has been badly bruised by government investigations into the Merrill acquisition, as well as massive credit losses that led the bank to take two rounds of U.S. bank bailout funds.

Bank of America is searching for a successor with a view to appointing a replacement before 62-year-old Lewis retires. Possible candidates include Brian Moynihan, head of consumer banking, and Joe Price, the bank’s chief financial officer.

The bank’s shares were down 1.1 percent at $17.82 in late-morning trading on the New York Stock Exchange.
(Reporting by Rachelle Younglai in Washington and Elinor Comlay, Dan Wilchins and Joe Giannone in New York, editing by Dave Zimmerman and Lisa Von Ahn) ((Reuters Messaging:; +1 646 223 6320))

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