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Saturday, October 17, 2009

Bank of America Tells Congress Merrill Disclosures Were Proper

Bank of America Corp. told a congressional committee studying its purchase of Merrill Lynch & Co. that securities laws didn’t require the company to disclose rising losses at the brokerage or discussions about canceling the transaction before a shareholder vote.

“A voluntary announcement that the bank was considering renegotiating or walking away form the deal could have led to the collapse of Merrill Lynch and made the ongoing financial crisis much, much worse -- for the country and for Bank of America’s and Merrill Lynch’s shareholders,” according to an Oct. 16 letter to the House Oversight Committee.

The letter was signed by Reginald Brown, a lawyer with Wilmer Cutler Pickering Hale & Dorr LLP representing the Charlotte, North Carolina-based bank.

Bank of America provided more than 1,000 pages of documents to the committee yesterday after agreeing earlier this week to forego its right to keep discussions with its lawyers confidential. While the bank didn’t make the documents available to the public, committee staff members are going through them this weekend, said Kurt Bardella, a spokesman for Representative Darrell Issa, the committee’s ranking minority member.

The committee plans an Oct. 22 hearing scheduled to include the chairmen of Federal Deposit Insurance Corp. and the Securities and Exchange Commission, two Bank of America directors and former General Counsel Timothy Mayopoulos. The SEC and New York Attorney General Andrew Cuomo are also probing the timing of disclosures about bonuses and Merrill’s $15.8 billion loss in the fourth quarter.

Delayed Until January

Bank of America delayed the announcement until Jan. 16, about six weeks after shareholders approved the acquisition.

The bank never acted “in a manner inconsistent with the advice of counsel,” according to the cover letter, which was provided by the bank to Bloomberg News. The bank’s law firm, Wachtell, Lipton, Rosen & Katz, and Merrill’s adviser, Shearman & Sterling LLP, are “two of the most highly regarded law firms in the country and leaders in the field of mergers and acquisitions,” the letter said.

Merrill’s forecast of a fourth-quarter loss before the Dec. 5 shareholder vote was consistent with “recent historical norms,” including $38 billion in losses in the previous five quarters, the letter said. “Merrill Lynch’s forecasted losses accelerated after Dec. 5 to an extent no one had predicted,” prompting the bank to consider canceling or repricing the transaction, the letter said.

Lewis Retires

After consulting with regulators, the bank moved ahead with the transaction and Merrill has become a “key contributor” of revenue this year, according to the letter.

Chief Executive Officer Kenneth D. Lewis has been under fire for not disclosing losses at Merrill Lynch and plans to pay $3.6 billion in bonuses at the firm before shareholders voted to approve the takeover. Investors stripped Lewis of his chairman’s title in April, and he has agreed to retire as CEO on Dec. 31. Bank of America reported a $1 billion loss yesterday as higher revenue from bond and stock trading failed to offset increasing losses from its credit-card, small-business and home- lending units. The bank’s shares declined 4.6 percent to $17.26 in New York Stock Exchange Composite trading.

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