* Fed's Lacker: "management is gone"
* Email excerpts in Republican briefing ahead of hearing
* Fed's Bernanke would not condone backing out of deal
(Recasts with further details from memos; adds byline)
By Kim Dixon
WASHINGTON, June 10 Emails from Federal Reserve
officials appear to back assertions by Bank of America (BAC.N)
Chief Executive Kenneth Lewis that he was under pressure, to
the point of losing his job, to complete the purchase of
Merrill Lynch, despite worries about its financial condition.
Republican lawmakers on Wednesday released excerpts of
documents, including an email from Richmond Fed President
Jeffrey Lacker that cites Fed Chairman Ben Bernanke on Lewis'
intent to exercise a "material adverse change" (MAC) clause to
exit the Merrill deal.
"Just had a long talk with Ben ... Says they think the MAC
threat is irrelevant because it's not credible. Also intends to
make it even more clear that if they play that card and they
need assistance, management is gone."
A congressional hearing on Thursday will examine Lewis'
assertion that he was pressured by then U.S. Treasury Secretary
Henry Paulson and the Fed to complete the deal and keep quiet
about Merrill's condition.
Bernanke has said he "absolutely did not" ask Lewis to
obscure any information that should have been reported.
A spokeswoman for Paulson has said Paulson told Lewis that
both the Treasury and the Fed believed there was no legal basis
for Bank of America to terminate the deal.
The U.S. House Oversight and Government Reform Committee
hearing will feature Lewis as the sole witness and examine when
Bank of America knew Merrill was on its way to a $15.84 billion
The panel will also examine the government's role in the
Jan. 1 purchase, and the $20 billion in additional taxpayer
bailout money given to Bank of America that month.
The committee subpoenaed internal Fed documents after the
Fed would not make copies of them for lawmakers.
Shareholders of Bank of America and Merrill voted in favor
of the companies' merger last Dec. 5. Lewis has said it was
only later that month that he learned how fast Merrill was
deteriorating, and then threatened to pull out of the merger.
A briefing paper by the committee's Republican staff cites
an analysis commissioned for the Fed by investment management
firm PIMCO that found "substantial deficiencies in the due
diligence" carried out by Bank of America before the merger.
Democrats want to focus on the role of Lewis and whether he
notified investors in a timely manner, while Republicans are
more focused on whether regulators exceeded their authority,
according to lawmakers' aides.
Republicans want Fed and Treasury officials to come before
"Unfortunately this hearing is an imperfect forum...
because not all the key players have been invited," the
Republican briefing paper said. It accused Paulson and Bernanke
of "putting a gun to the head" of Bank of America's CEO and its
Republicans cited another email they attributed to Bernanke
as showing the Fed chairman saw Lewis' threat to escape the
Merrill deal as "bargaining chip" and that Bernanke intended to
tell Lewis that "the regulators will not condone it."
(Additional reporting by Alister Bull; Editing by Carol
Bishopric and Tim Dobbyn)