House targets Fed in Bank of America investigation

Associated Press Writer
June 19, 2009 - 1 hr 27 mins ago

WASHINGTON – A House panel has subpoenaed documents that lawmakers say could shed new light on Federal Reserve Chairman Ben Bernanke's role in Bank of America's acquisition of Merrill Lynch.

The subpoena comes ahead of a hearing next week in which Bernanke is scheduled to testify.

Lawmakers have accused Bernanke and President Bush's treasury secretary, Hank Paulson, of pressuring Bank of America Corp. Chief Executive Kenneth Lewis into the deal and urging him to keep quiet about Merrill's financial problems.

Not divulging that information would have violated Lewis' fiduciary duty to the bank's shareholders.

Lawmakers also have questioned whether Lewis threatened not to go through with the merger in order to squeeze money from the government.

Bank of America ultimately received $45 billion from the government's bank bailout program, $20 billion of which was tied to its acquisition of Merrill Lynch.

The subpoena is the second of its kind by the House Oversight and Government Reform Committee. Last week, chairman Rep. Ed Towns, D-N.Y., and ranking member Darrell Issa, R-Calif., said the panel had reviewed documents that proved the merger was a "shotgun wedding" that came at the expense of the taxpayer.

"The question may be ... who was holding the shotgun?" Towns asked at a June 11 hearing.

In one e-mail reviewed by committee staff, Bernanke said he thought Lewis' threat to pull out of the deal was a "bargaining chip" and "we do not see it as a very likely scenario at all."

In testimony before the committee, Lewis said publicly for the first time that his job was threatened after he expressed second thoughts about the merger. Lewis said then-Treasury Secretary Hank Paulson and federal regulators made clear that if the bank reneged on its promise they would force his ouster and that of board members at the bank.

"What gave me concern is that they gave that threat to a bank in good standing," Lewis told the House Oversight and Government Reform Committee. "So it showed the seriousness with which they thought that we should not" back out.

Paulson and Federal Reserve Chairman Ben Bernanke also pledged government aid to Bank of America to help absorb the losses, Lewis said.