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U.S. pushed Bank of America to complete Merrill buy: report

NEW YORK (Reuters) - Federal officials pushed Bank of America Corp hard to complete its acquisition of Merrill Lynch even as credit losses mounted at the troubled investment bank, the Wall Street Journal reported on Wednesday, without citing any named sources.

A building is reflected in the window of a Bank Of America branch in New York, October 6, 2008. REUTERS/Lucas Jackson

Bank of America arguably saved Merrill from collapse in September when it quickly struck a merger agreement the same weekend Lehman Brothers went bankrupt.

By December, as Merrill’s losses were soaring, BofA Chief Executive Ken Lewis told U.S. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke he was having second thoughts, the paper said, according to people close to Lewis.

But Paulson and Bernanke on December 17 “forcefully urged Mr. Lewis not to walk away,” the paper reported. They warned Lewis that if the deal collapsed, Merrill could be doomed and that their confidence in Bank of America would be “undercut.”

Days later, Bernanke told Lewis Bank of America had no grounds to walk away, the Journal reported, citing people who heard the remarks. Another Federal Reserve official warned that if Lewis did walk away and later needed more government money, regulators might consider ousting executives and directors, people close to the bank say.

During the four weeks that followed, federal officials and Bank of America worked out a deal to preserve the Merrill deal. The government agreed to provide $20 billion in additional capital for the bank and to insure against losses on $118 billion in troubled assets.

Officials from the bank and from the government could not be reached immediately for comment on events described by the Journal report.

Bank of America previously received $25 billion as one of nine U.S. banks that kicked off the Troubled Asset Relief Program, or TARP, last fall.

Bank of America’s Lewis has come under fire in recent weeks after his bank announced much larger than expected losses from Merrill and revealed it was receiving a second capital injection.

The bank’s stock price has been hammered as shareholders, who were asked to approve the merger in December, complain they should have been warned about Merrill’s woes earlier.

Reporting by Joseph A. Giannone; Editing by Anshuman Daga

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