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After holding four hearings and sifting through thousands of documents, Democrats and Republicans in Congress still can't agree on whether Bank of America was perpetrator or victim in the saga behind its troubled Merrill Lynch deal.
But one key Democrat on Tuesday suggested a House committee's probe is winding down, saying the panel needed to focus its attention on helping Americans deal with the economic consequences of the financial crisis.
"It's not clear there's been any criminal conduct," said Rep. Dennis Kucinich, D-Ohio. "But it is clear there has been a lack of fidelity to shareholders and to taxpayers."
But the committee's ranking member, Rep. Darrell Issa, R-Calif., urged the panel's Democrats to summon more government officials to testify, including current Treasury Secretary Tim Geithner.
In his questioning of Bank of America director Chad Gifford, Issa pressed the board member about a private e-mail Gifford sent to his children in January in which he said the government pressured the bank to stick with a "bad deal."
"I think it is fair to say as I reflect, that the government pushed us hard to do this deal," Gifford responded, although he repeatedly said the deal has been positive for the bank. "If that is interpreted as pressure sir, then I would interpret that as pressure."
Several legal experts said Tuesday that while the House's investigation of Bank of America seems to be nearing an end, it's likely that disputes with New York Attorney General Andrew Cuomo, the Securities and Exchange Commission, and angry shareholders are about to heat up.
"That's where the real action is," said Anthony Sabino, a partner at Sabino & Sabino in New York.
Tuesday's hearing was relatively short and calm compared to the previous three.
"That may indicate that nothing more is going to come up," said Tom Hazen, who teaches securities law at UNC Chapel Hill. "Or it may indicate that the Bank of America and Merrill people are a lot more silent in light of the upcoming SEC trial."
The hearings, along with documents produced by the bank and regulators, have provided a rare window into the usually secretive world of mergers, boardrooms and government regulation.
Tuesday's session featured testimony from Gifford, fellow director Tom May and Bank of America consumer banking head Brian Moynihan, who was general counsel for parts of December and January. They were joined by former Bank of America general counsel Tim Mayopoulos, who was fired and replaced by Moynihan on Dec. 10.
"Bank of America representatives provided concise description of what we've said all along: We were dealing with unprecedented times, and we made tough decisions with the best available advice," Bank of America spokesman Larry Di Rita said after the hearing.
An escape clause?
Continuing to skirmish on the same fronts, Democrats on Tuesday suggested the bank threatened to escape the Merrill deal last December in a bid to win more government aid. Republicans contended government officials forced the bank to proceed with the purchase, part of the public sector's dramatic intervention in the banking industry.
"This whole escapade highlights why we should never have traveled down this road," said Rep. Jim Jordan, R-Ohio.
Bank of America agreed to buy Merrill last September at the peak of the financial crisis for $50 billion. But when Merrill's losses ballooned in December, the bank attempted to back out. At a meeting in Washington on Dec. 17, then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told the bank it didn't have the basis for a Material Adverse Change escape clause, or MAC. Abandoning the acquisition would be damaging to the financial system, they warned.
The bank began talking to government officials about a rescue package and closed the deal on Jan. 1. On Jan. 16, it disclosed $20 billion in new government loans, giving it a total of $45 billion in bailout funds.
The government money provided capital to stabilize the deal but has invited intense scrutiny of the bank's operations and pay. Under fire for the purchase, Bank of America chief executive Ken Lewis announced Sept. 30 that he's retiring at year's end.
On Tuesday, lawmakers explored whether Bank of America officials believed they had grounds to exercise the escape clause when they first told government officials they wanted out. Democrats on the panel also quizzed bank officials on why Mayopoulos was fired.
Committee Chairman Edolphus Towns, D-N.Y., pointed to Mayopoulos' testimony that he told bank executives on Dec. 1 that the bank did not have a MAC. The committee also obtained a Dec. 15 document in which the bank's outside lawyers questioned whether the bank met the conditions to trigger the MAC, a move that would surely touch off a legal battle with Merrill.
"It is not enough to show a short-term earnings decline, no matter how severe. Must show decline in value over period of years, not months," the lawyers wrote in an analysis of the issue two days before Bank of America CEO Lewis contacted Paulson.
To Towns, that showed the bank didn't believe it had a basis for a MAC. Instead, it was shaking down the government for more aid.
"Based on the facts we have before us, it sure looks like it was Bank of America that was holding the shotgun at this wedding," Towns said in his prepared remarks.
Ranking member Issa, however, argued the government forced the bank to close the deal, offering aid in return. His marital metaphor: "There's no shotgun wedding where the groom holds the shotgun to himself."
In his concluding remarks, Issa said the hearing showed that Merrill wasn't worth what the bank paid for it.
"Had you been able to negotiate in December instead of September you would have been able to negotiate a lower price," he said.
According to documents provided to the committee, the bank considered approaching Merrill about lowering the price ahead of the Dec. 17 meeting with Paulson and Bernanke. But the bank instead began talking to government officials about a rescue package.
On Dec. 31, the day before the deal closed, an e-mail exchange among Fed officials indicated Lewis was still weighing how to tell Merrill CEO John Thain about the government negotiations. Thain told the PBS program "Frontline" that he didn't find out about the bank's talks until Jan. 5.
Di Rita, the bank spokesman, declined to comment on why the bank didn't try to renegotiate the price with Merrill.
In his prepared remarks, Moynihan, the Bank of America consumer banking head, defended the acquisition, saying it helped prevent further damage to the financial system.
"The deal has turned out to be a good deal for our shareholders, our customers, and the taxpayers who provided the assistance to help close the deal," Moynihan said. "We acted in good faith, and with the best interests of our shareholders and the country in mind."
Hiring and firing
In his testimony, Mayopoulos said he did not know why he was fired. He sat next to Moynihan, the executive who replaced him.
Moynihan said he wasn't involved in the ouster of Mayopoulos, whom he called a "good general counsel." Moynihan suggested Mayopoulos was caught up in Merrill-related layoffs that began that month and included the termination of 10 percent of the company's senior executives.
"It's clear that's what drove the decision," Moynihan said.
Rep. Elijah Cummings, D-Md., called this explanation "unbelievable." But Moynihan and the two directors testified that Moynihan himself almost lost his job.
CEO Lewis had asked Moynihan, who was losing his position as head of the investment bank, to take over the Delaware-based credit card unit, which required relocating. Moynihan said he couldn't do it and told Lewis, knowing it would cost his job. Lewis' response: "I understand."
Lewis told directors on Dec. 9 that Moynihan was leaving and a number of board members expressed their regret, Gifford said. Later, Gifford said he and other directors received an e-mail from Lewis saying Moynihan was staying on - as general counsel.
The next day, Mayopoulos testified, he was fired and escorted from the building.
Though the congressional hearings are meant to get to the root of a problem, Ron Geffner, a former SEC enforcement attorney and a partner with Sadis & Goldberg in New York, said most of the hearings don't produce new information, and most lawmakers form their opinions beforehand.
