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New details are starting to emerge about Bank of America's purchase of Merrill Lynch, as a key House panel sifts through documents provided under its ongoing investigation of the deal.
On the evening of Jan. 15, two of the bank's board members traded emails while listening to a board conference call that carried bad news for the bank.
Read the e-mails (.pdf, warning, graphic language.)
One board member, Chad Gifford, appears agitated by what he learned in the conference call. “Unfortunately it's screw the shareholders!!” he wrote to another director, Thomas May. It's likely he was referring to news that the bank would slash its once-lucrative shareholder dividend to a penny. (It had been 64 cents several months beforehand.)
“No trail,” May wrote back. They both wrote in short, clipped language, probably aware that their emails could be made public later.
“Only stated in the context of a horrible economy!!! Will (affect) everyone …” Gifford wrote back. Both he and May are bank shareholders.
It's unclear what else was discussed during the phone meeting. But it was convened about 12 hours before the bank announced its first quarterly loss in 17 years. It was about six hours before the government announced that Bank of America would accept a second, $20 billion round of government loans to help with the Merrill deal.
“interesting,” Gifford wrote to May.
“wow,” May wrote back.
That $20 billion deal with the government vaulted Bank of America into a disagreeable category – firms requiring “exceptional assistance.” It greatly tightened the government's grip on the bank, forcing it to cut the dividend to a penny and place stricter rules on executive bonuses. It was one of the Treasury's last major acts under Secretary Hank Paulson, whose term ended with the Bush Administration's on Jan. 20.
The email exchange appears to start with Al de Molina, who emailed Gifford with a message that apparently said only “Are you available.” in the subject line. De Molina, the bank's former chief financial officer, runs Detroit-based GMAC Financial Services and is thought to be in the running for the CEO job at Bank of America. Current CEO Ken Lewis announced two weeks ago that he would retire by the end of the year.
Gifford and May both joined the Bank of America board in 2004, after serving together as directors of FleetBoston, which was bought by Bank of America. Both are on the six-member Bank of America board committee that is leading the search for a new CEO. Gifford was the chief executive of FleetBoston; May is the CEO of an energy utility company in Boston.
Gifford and May did not return calls for comment. Through a spokeswoman, de Molina declined to comment.
The emails and other documents were provided to New York Attorney General Andrew Cuomo and to the House Oversight and Government Reform Committee. Both are investigating whether the bank properly disclosed information to its shareholders about aspects of the Merrill deal, including the company's mounting losses. They are also investigating whether the government inappropriately pressured Bank of America to complete the deal.
The House committee, which released the exchange between Gifford and May, plans to ask the Federal Deposit Insurance Corp. chairwoman Sheila Bair and former Securities and Exchange Commission head Christopher Cox to testify about the deal. That session could take place as early as next week; the committee is expected to release more documents when those officials testify.
The committee chairman, Rep. Edolphus Towns, said this week that he also plans to interview several of the bank's board members.
