Updated from Monday, Sept. 21
NEW YORK (
Bank of America
did not provide the information sought by a congressional probe into its
deal by a deadline on Monday, but will meet with a committee chairman on Tuesday to address the issue.
"We are working with the committee on a plan to provide them with the information they need," BofA spokesman Scott Silvestri said in an email message. "Anne Finucane, a member of our executive management team, will meet with Congressman Towns tomorrow to discuss how we can meet their needs without violating attorney-client privilege."
The House Committee on Oversight and Government Reform had given BofA until noon on Monday to disclose all relevant information about its discovery of Merrill's mounting losses, its receipt of government funds to plug those balance-sheet holes and the reasons why BofA did not inform shareholders of such developments immediately. A representative for Chairman Rep. Edolphus Towns (D., N.Y.) said Towns awaits the meeting to hear BofA's side of the story. Any further action in the probe will likely take place after that.
It's unclear what representatives may say to appease officials' annoyance at its unwillingness to budge on the issue of attorney-client privilege - a topic that often erupts in regulatory scuffles with banks. BofA appears to be running out of options as it fends off the government's relentless effort to identify the midwife of the Merrill deal.
The company says it has done nothing wrong and should not have to disclose confidential advice given by its lawyers. It has provided plenty of information about the transaction, including reams of documents that Rep. Towns has reportedly called "clearly irrelevant." Several investigatory arms of government have now launched inquiries, including the
Securities and Exchange Commission
, New York Attorney General Andrew Cuomo, the Justice Department, the Federal Bureau of Investigation and Congress, via the House Committee on Oversight and Government reform.
The SEC has accused BofA of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses to its employees in 2008 even though the investment bank incurred heavy losses that year. BofA had agreed to pay $33 million to settle the charges without admitting or denying wrongdoing, but a judge threw out the settlement.
The SEC on Monday said it will "vigorously pursue" its case against BofA, adding that it could seek to bring additional charges if supported by the record of evidence that develops in the trial -- meaning it could charge individual executives, the
Rep. Towns reportedly sent the bank a frustrated letter on Sept. 18, about information he has received so far, little of which he feels was related to any of the questions he had asked. Federal Judge
Jed Rakoff, tasked with deciding whether BofA's settlement over bonuses paid to Merrill employees following the deal with the SEC was fair, has expressed similar sentiment.
Shares of BofA closed down 2.2% at $17.25. Trading among the other big banks remained mixed.
stock finished up 4% at $4.43; but
JPMorgan Chase & Co.
fell slightly less than 1% to $44.55; and
Wells Fargo & Co.
was off 0.7% to $28.29.
BofA, based in Charlotte, N.C., has avoided identifying the individuals responsible for certain decisions that have angered the public by saying executives relied on lawyers' advice that is protected under attorney-client privilege. Some shareholders have filed suit, claiming the bank should have invoked a material adverse clause to walk away from the Merrill deal, due to the unexpected losses. Others were incensed by the $5.8 billion worth of bonuses that were paid to Merrill employees just before the deal closed.
BofA knew about the losses and bonuses, but did not tell shareholders about them ahead of a vote to approve the deal.
If the response from financial services lawyers is any indication, Bank of America appears to have a lot of ground to cover. Several prominent legal firms contacted by
related to this case declined to comment on the record, citing conflicts of interest since Bank of America, Merrill Lynch or both, are clients.
Unfortunately, the government isn't willing to accept legal counsel for an answer.
Cuomo, federal Judge
Jed Rakoff, Rep. Towns, and several other lawmakers have demanded that BofA provide answers.
Cuomo is reportedly preparing a case to charge individuals with wrongdoing and reportedly subpoenaed five BofA directors last week. Judge Rakoff has been a prickly arbiter of common sense, refusing to accept an SEC settlement that would force shareholders to pay $33 million for the missteps. Towns and company can't give up on the case without an answer, because that would put their political capital at risk.
Judge Rakoff asks why Bank of America executives and their lawyers are not being held responsible for failing to disclose information... That's exactly the right question," Towns said in a statement earlier this month.
It's unclear what may come of the case -- prosecutors usually can't
cut through the defense of legal privilege in cases of homicide, much less a bank merger. And identifying a culprit or admitting any kind of wrongdoing will provide more litigious fuel for shareholders and others who have sued or would like to sue the bank over the Merrill deal.
Though Bank of America can keep stonewalling, it's an unusual position. The pressures are mounting from a government that holds a $45 billion stake in the firm. It will need its own political capital in the pursuit of repaying bailout funds and settling unused government guarantees that made debt issuance cheaper, but which it had never signed legal documents to accept.
The House committee is seeking testimony from former SEC Chairman Christopher Cox, current SEC Chairwoman Mary Schapiro and Federal Deposit Insurance Corp. Chairwoman Sheila Bair. Perhaps in a show of just how closely the two issues are linked, the three regulatory heads are scheduled to appear before the committee on Sept. 30, in conjunction with testimony of TARP Inspector General Neil Barofsky concerning an audit about the use of TARP funds.
In another ironic twist, among the investigatory revelations so far is that two other regulatory heads had pressured BofA into the deal to begin with. When CEO Ken Lewis considered invoking the MAC clause, then-Treasury Secretary Henry Paulson and
Chairman Ben Bernanke strongly advised him not to. (One aide in an email message had threatened to seek a "pound of flesh" from Lewis.)
it was Lewis' choice to move forward, although if legal counsel is disclosed it may provide some color into his decision. After all, the government that is now aggressively questioning the deal is the same one that once aggressively pushed it forward.
-- Written by Lauren Tara LaCapra in New York