Bank of America's CEO Withheld the Facts

Back in September 2008, when Bank of America acquired Merrill Lynch, shareholders with Bank of America had to vote to approve the bank's purchase of Merrill Lynch, which would cost approximately $50 billion.

The purchase of Merrill Lynch by Bank of America struck during one of the lowest points of the financial crisis, and was part of a point in time in which CEO, Ken Lewis, was transforming Bank of America from its base in Charlotte into a monstrous financial corporation that would compete with the biggest institutions on Wall Street.

Days before voting, apparently Bank of America's top executives and Ken Lewis, knew that Merrill Lynch's extreme mortgage losses would actually cause another taxpayer bailout of $20 billion.

When it came time to vote, the shareholders didn't have an issue with this --- Why, you ask? -- Because they were not informed by any of the Bank of America's top executives or the CEO.  Had the shareholders known about the projected losses in advance, the vote would have most likely taken a different route.

Bank of America Corporate Center; Located in Uptown Charlotte, North Carolina

Bank of America's shareholders filed a lawsuit Sunday evening against Ken Lewis. The suit says that Lewis had received Merrill's loss estimates before the stockholders voted to approve the deal.

Shareholders rely on proxy documents to decide whether or not to approve transactions companies propose.  Because of this, it is necessary that companies disclose all the facts that might be meaningful to the vote of their shareholders.  Considering a lawsuit is now being filed, it looks as if Lewis's failure to mention the details of Merrill's massive losses may have been meaningful to the vote of Bank of America stockholders.


The proxy documents recommending the approval stated that Merrill's mortgage losses would reduce earnings by only 3% in 2009, but would then not hurt the bank's profits in 2010, and possibly even add to them.

A motion filed on behalf of Lewis filed on Sunday stated that Lewis did not tell shareholders the information about the losses because the bank's law firm and other bank executives had told him that it was not necessary.

The CEO also discussed the hectic period between September 2008 (when Bank of America acquired Merrill Lynch) and December 2008 (when the shareholder's voted on Merrill Lynch's acquisition by Bank of America).

 Lewis testified that after the shareholders voted, the numbers regarding the merger's effect on the bank had changed.  It had now been over 13% reduction in earnings in 2009, and about 3% reduction in 2010 -- a large difference from the previous "profit outlook" stated in the proxy documents.

Before the vote, Bank of America and Merrill Lynch had determined that the loss for that period would be approximately $14 billion before taxes.

There are emails back and forth from Bank of America's former treasurer, Jeffrey J. Brown, and Joe L. Price, the chief financial officer during that time, with Brown warning Price of the potential consequences of failing to notify stockholders of the merger's actual outlook.