Newly Surfaced Emails Reveal One of the Most Controversial Moments of the BofA-Merrill Deal

Fed Chair Ben Bernanke and other fed officials sharply criticized Bank of America (BAC) and CEO Ken Lewis in emails after the bank tried to pull out of its deal to buy Merrill, the Wall Street Journal is reporting, citing documents unearthed by Congressional investigators.

During the December standoff between the big bank and top government officials, Federal Reserve Chairman Ben Bernanke dismissed the pullout threat as a “bargaining chip.” Fed attorneys called the bank’s arguments “not credible.” And a top examiner said Chief Executive Kenneth Lewi’s own position “seems somewhat suspect.”
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The emails and other documents, subpoenaed from the Fed as part of a Congressional investigation…provide a rare insight into the thinking of top Fed officials….[i]n particular, they show how Mr. Bernanke himself played a central role in the Bank of America saga.

A transcript of the documents, assembled by Congressional investigators and reviewed by Dow Jones Newswires, confirms Mr. Bernanke was willing to threaten Mr. Lewis’ removal.

A Dec. 21 email from Federal Reserve Bank of Richmond President Jeffrey Lacker to Fed employees said that Mr. Bernanke “intends to make it even more clear” that if Bank of America kills the Merrill deal, and later needs government assistance, “management is gone.”

Mr. Lacker added that he had had a “long talk with Ben” about the matter. [The WSJ]

Newly revealed documents seem to support assertions made by Mr. Lewis in late April, that he agreed to complete the acquisition of Merrill Lynch only after federal regulators threatened to oust him and his board if BofA walked away from the Merrill deal.

Mr. Lewis’s claims have sparked a Congressional investigation that will reach a climax Thursday, when the BofA chief will testify in front of the House Committee on Oversight and Government Reform.