Former Treasury Secretary Henry Paulson says he did threaten to remove Bank of America's ( BAC) management if it walked away from the Merrill Lynch deal, but did not advise the CEO to hide any information from shareholders. In testimony prepared for a scheduled appearance before the House Committee on Oversight and Government Reform on Thursday, Paulson defended his actions, saying he believed that BofA dropping Merrill would have caused financial havoc for the firms involved and the broader system. "The interests of the nation and Bank of America were aligned," Paulson said. Paulson adds that, had BofA chosen the opposite course, "there was not sufficient TARP capacity to respond to the financial chaos that would have been triggered." Furthermore, he deemed his threat to replace BofA leaders as "appropriate" because their invocation of a Material Adverse Change clause would have shown "a colossal lack of judgment." He reiterated statements by Federal Reserve Chairman Ben Bernanke that government experts found it to not have been legally defensible either. Detractors have assailed Paulson as a bully who forced BofA into a bad deal, laden with toxic assets and additional bailout funds it would not have otherwise had to receive. Some shareholders and observers have been critical of BofA neither disclosing Merrill's escalating losses as soon as they became evident, nor the back-door discussions with regulators. Both Paulson and Bernanke assert that they never pressured BofA to keep mum about anything it was legally required to disclose. Paulson is the last of the trifecta of decision-makers to publicly disclose details about how the Merrill deal went down.
Lewis first disclosed the discussions in sealed testimony to New York Attorney General Andrew Cuomo, which were eventually made public. Bernanke testified last month.