Coercion

by Larry Levin

Last week a big story hit the press: did Bernanke force BofA to buy Merrill Lynch? The facts are coming from Andrew Cuomo's investigation into the bonuses paid to Merrill Lynch employees; however, in addition to getting the details of the preposterous bonuses, Mr. Cuomo has stumbled on to a much larger swindle. Ben Bernanke may have said "buy MER or we will force you out."

If you remember, there were several companies that eagerly lined up to buy Merrill Lynch before Bank of America did. Each of these firms, however, said "NO THANKS" once they got a look at the MER balance sheet. At the time I was shocked that Bank of America would buy another firm with incredibly dodgy assets so soon after buying Countrywide and its questionable loan portfolio.

Why didn't the CEO of BofA, Ken Lewis, walk away like the others?

From Mr. Cuomo's investigation we learn that on December 14, 2008 Ken Lewis described new MER details as "staggering amount of deterioration" with regards to its assets, etc. Ken Lewis then conferred with the BofA attorneys to determine if Bank of America had grounds to walk away from merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred. On December 17, 2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter. Paulson was about to "reeducate" Mr. Lewis.

At a meeting that evening Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Ken Lewis, Bank of America's CFO, and other officials discussed the idea of BofA walking away from the deal just like the two or three prior suitors. Of course, the federal officials tried to sell BofA on the idea that night but apparently there were neither angry fireworks nor love in the air that night.

Bank of America's attempt to exit the merger came to a halt a few days later on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis' SWORN testimony, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced!

Moreover, in an interview with Mr. Cuomo's office, Secretary Paulson confirmed Lewis's account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management. This was coming from both Hank Paulson AND Ben Bernanke.

Secretary Paulson's threat worked. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, "that makes it simple. Let's deescalate." Lewis admits that Secretary Paulson's threat changed his mind about invoking that MAC clause and terminating the deal.

So we have the Treasury Secretary and the head of the Federal Reserve forcing one bank to buy the pig in the poke, as well as one spineless CEO that puts his job ahead of his fiduciary responsibility to his shareholders.

All three of these idiots should be indicted, like YESTERDAY! This boondoggle cost shareholders of BofA billions upon billions of unnecessary losses in individual accounts, 401k's, mutual funds, and pensions.

If you own this stock, I might suggest you file lawsuits against all three of these clowns and vote against Lewis keeping his post as CEO.



Previous Day's Trading Room Results:

Trade Date: 4/26/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:40am at 855.75 = -.50 (1 lot)

2) 80% buy @ 9:00am at 855.75 = -1.50 (1 lot)

3) OTF buy @ 10:30am at 862.00 = +1.50 (1 lot)

4) OTF buy @ 11:20am at 862.00 = b/e (1 lot)

5) VA sell @ 1:30pm at 855.75 = +1.00 (1 lot)

6) Algorithm positions (2)...combined Secret's and Algo total...-0.75


Electronic (YM) Mini-Dow:

1) None today



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