Elinor Comlay and Rachelle Younglai
NEW YORK/WASHINGTON (Reuters) - Bank of America Corp may be ready to settle with U.S. regulators after fighting with them over how much it disclosed to investors as it was buying Merrill Lynch & Co Inc.
The largest U.S. bank agreed to waive its attorney-client privilege protecting the names of those who made decisions on the acquisition, including to withhold information from shareholders on Merrill’s $15.8 billion fourth-quarter loss and bonuses paid to employees.
The agreement is a breakthrough for federal regulators, lawmakers and New York Attorney General Andrew Cuomo, who are all separately investigating why Bank of America did not disclose details about losses at the investment bank and brokerage before the January 1 acquisition.
“They’re trying to cooperate and move beyond the issues around the Merrill deal,” said Walter Todd, portfolio manager at Greenwood Capital Associates, which owns Bank of America shares. “It’s a good thing for them to do.”
While Bank of America is looking primarily to put a stop to regulators’ investigations, its decision to waive the attorney-client privilege two weeks after Chief Executive Kenneth Lewis said he would retire at year-end means he probably will bear the brunt of any additional disclosures and resulting lawsuits, investors said.
“Right or wrong, it becomes associated with him,” said Mal Polley, chief investment officer at Stewart Capital Advisors.
Gary Townsend, chief executive of investment firm Hill-Townsend Capital, said Lewis “is being thrown under the bus.
“Had (Lewis) stayed on, I doubt that the company would be going in the direction of waiving its attorney-client privileges,” Townsend said.
Bank of America spokesman Larry Di Rita said the bank had nothing to hide. Its decision to waive the attorney-client privilege was due to pressure in several inquiries for further insight, he added.
Sources familiar with the matter said the company’s board had voted on Friday to give access to the protected information to lawmakers, regulators and Cuomo — who has threatened to sue bank officers.
Bank of America hopes to disclose information no later than Friday, according to the letter sent to Cuomo. That would be the same day it reports third-quarter results, which analysts expect to benefit from an uptick in revenues at the investment bank, including the Merrill Lynch unit.
Last month, a federal judge rejected Bank of America’s $33 million settlement with the Securities and Exchange Commission, which alleged it misled investors about $3.6 billion of bonuses paid to Merrill employees and faulted the agency for accepting the company’s effort to invoke attorney-client privilege.
Charlotte, North Carolina-based Bank of America said it would give authorities access to its communications with the Federal Reserve and the Treasury Department, which helped broker the deal and buttress the company with taxpayer funds.
The documents would probably include communications from Lewis and other key Bank of America staff, including possible candidates to replace the 62-year-old CEO.
Lewis, who was at the center of negotiations with federal regulators, has said he tried to invoke a contractual provision to scuttle the acquisition, but Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson pressured him to complete the deal as they were concerned about the effect Merrill’s failure might have on the wider financial system.
The departing CEO’s reputation has been badly bruised by the government investigations and the bank’s massive credit losses that led it to take two rounds of U.S. bank bailout funds.
Possible candidates to replace Lewis include Brian Moynihan, head of consumer banking, and Joe Price, chief financial officer. Both were at the bank before the acquisition.
Bank of America’s shares were down 1.6 percent at $17.74 in afternoon New York Stock Exchange trading.
Reporting by Rachelle Younglai in Washington and Elinor Comlay, Dan Wilchins and Joe Giannone in New York, editing by Dave Zimmerman and Lisa Von Ahn