Bank of America Pressured to Buy Merrill Lynch (Update1)

By Karen Freifeld and David Mildenberg

April 23 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth D. Lewis was pressured to complete the purchase of Merrill Lynch & Co. after he sought to cancel the deal because of “staggering” deterioration at the brokerage, according to New York State Attorney General Andrew Cuomo.

Henry Paulson, who was Treasury Secretary last December, may have threatened to remove management and directors of the Charlotte, North Carolina-based bank if they didn’t comply, and Lewis was told not to disclose his opposition or the regulator’s action, Cuomo wrote in a letter to Congress released today.

Lewis and the board are under fire for not telling shareholders that New York-based Merrill’s fourth-quarter loss was spiraling toward $15.8 billion before they voted to approve the deal. Shareholders cast ballots next week on whether to re- elect directors including Lewis and splitting the chairman and CEO jobs. Some investors are calling for Lewis to resign.

Cuomo’s letter was based on recollections by Lewis of a Dec. 21 conversation. The letter, addressed to lawmakers including Senate Banking Committee Chairman Christopher Dodd, said Paulson “largely corroborated Lewis’s account.”

Lewis said he was instructed by federal officials not to disclose Merrill’s losses, his desire to back out of the merger or about the intervention of regulators, Cuomo’s letter said. Regulators were concerned about “systemic risk” that might lead to the collapse of financial markets, the letter said.

Fed’s Advice

Federal Reserve Chairman Ben S. Bernanke didn’t advise the bank or Lewis on disclosure issues or request that the bank not reveal information, a government official said today on condition of anonymity. On occasions when the issue of disclosure arose, the Fed chief said the bank’s management needed to make its own decision with its own counsel on Bank of America’s obligations, the person said.

“We believe we acted legally and appropriately with regard to the Merrill Lynch transaction,” Scott Silvestri, a spokesman for Bank of America, said in a telephone interview.

“The Treasury didn’t make them decide to buy Merrill Lynch and Treasury didn’t tell them how much to pay,” Jonathan Finger, whose family owns 1.5 million Bank of America shares, said in an interview today. “They are the only financial institution that painted themselves into a corner where it had to sacrifice shareholders for the good of the country.”

Finger and his father, Jerry, are leading a campaign opposing Lewis’s re-election to the bank’s board of directors.

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net. Karen Freifeld in New York at kfreifeld@bloomberg.net

Last Updated: April 23, 2009 12:02 EDT