What did executives at Bank of America know about nearly $4 billion in early bonuses paid out to Merrill Lynch last December -- and what did they do to try and stop them?These questions are at the heart of an ongoing investigation by New York Attorney General Andrew Cuomo into compensation for CEO's receiving billions in taxpayer bailout funds. Bank of America, which merged with Merrill in January, has received $35 billion from the Treasury's Troubled Assets Relief Program and another $20 billion in loans.
Yesterday, Cuomo issued a letter to Rep. Barney Frank (D-MA) [pdf] -- chair of the House Financial Services Committee, which just concluded a grilling of bank CEO's receiving bailout money -- revealing that Merrill likely sped-up payout of bonuses before being taken over by Bank of America.
As Cuomo notes in the letter:
Merrill Lynch had never before awarded bonuses at such an early date and this timetable allowed Merrill to dole out huge bonuses ahead of their awful fourth quarter earnings announcement and before the planned takeover of Merrill by Bank of America.Cuomo goes on to say that although some 39,000 Merrill employees received bonuses, most of the money went to those at the top -- including 700 who received $1 million or more. Four top Merrill executives took $121 million of the total bonuses.
Merrill Lynch's decision to secretly and prematurely award approximately $3.6 billion in bonuses, and Bank of America's apparent complicity in it, raise serious and disturbing questions. By December 8, 2008, Merrill and presumably Bank of America must have been aware that the fourth quarter and yearly earnings results were disastrous. Indeed, on January 16,2009, the companies announced that in the fourth quarter alone Merrill Lynch has lost $15.31 billion, and more than $27 billion for the year.
At today's House hearing, Bank of America CEO Ken Lewis -- who stated he receives an annual salary of $1.5 million a year, the highest of all the bank leaders testifying -- said he was aware of Merrill's bonus plan, but that it was a "contractual obligation" between Merrill and its employees beyond his control.
Lewis told the committee that he knew about -- and opposed -- Merrill's bonus plan but had no authority to prevent them:
"My personal involvement was very limited. We urged Merrill Lynch execs involved in this compensation issue to reduce the bonuses substantially particularly at the top," Lewis, of Bank of America, said. "They were a public company until the first of this year. We had no authority to tell them what to do."
However, AG Cuomo told Rep. Frank he intends to further investigate Bank of America's "apparent complicity" in the hastily-disbursed bonuses. He announced his office had issued subpoenas to former Merrill Lynch CEO John Thain -- ousted in January after it was revealed he spent $1.2 million on office decorations as Merrill teetered towards failure -- as well as the testimony of Bank of America Chief Administrative Officer J. Steele Alphin.
A common theme in Cuomo's letter -- echoed in statements by House members at today's hearing -- is Bank of America's apparent unwillingness to disclose information related to how and when the decision to award the Merrill bonuses were made.
Despite repeated demands from House members for greater transparency about their use of taxpayer funds, Bank of America's Lewis dismissed suggestions that his bank was obligated to disclose more information.
When Rep. Leonard Lance (R-NJ) asked if information about the bonuses was "a matter of public record," Lewis simply replied, "I don't know."
UPDATE: With a few exceptions -- for example, Rep. Maxine Waters' (D-CA) -- the House members have been extremely cordial and accommodating to the bankers. Capital Eye points out this may be linked to the fact that members of the House Finance Committee collectively received $1.8 million in campaign contributions associated with these institutions during the 2008 election cycle.
Obviously Ken Lewis had no control over 3.4B in bonus payouts. It wouldn't have happened if he did. Thain is the criminal here. The investment bankers live in a different world than all of us and they truly beleive they are entitled to live that way. Ethically or not, they don't care.
February 11, 2009 4:51 PM | Reply
Of course, Lewis had no authority at Merrill Lynch in December. He did want to back out of the merger more than likely because he'd caught wind of some bad news on Merrill Lynch. It is my understanding that Bernanke persuaded Lewis to continue the merger. Why don't we hear more about Bernanke's involvement? BOA would not have consummated the deal without Bernanke's promises of support. Lewis is the fall guy. He wanted to do right by BOA and instead did his 'patriotic duty' by preventing the collapse of Merrill Lynch. He should get credit for this sacrifice. Thain is the criminal. BTW I voted against the merger!
February 11, 2009 5:12 PM | Reply
Can you live with the conscience that innocent pensioners and shareholders are loosing millions while you take out millions of bonuses for yourselves? Retributions come in many forms! I hope you sleep well every night!
February 11, 2009 8:26 PM | Reply
It's about time for Ken Lewis to pay for his actions - by stepping down. Make your voices heard: http://www.pollograph.com/ask/1144/BankOfAmericaKen/
February 11, 2009 10:51 PM | Reply
It is like saying that he knew that a muder is going to happen but he let the murder to happen.I think this matter should be thoroughly investigated.
February 12, 2009 12:21 AM | Reply
Silly idle threats. Retribution is another word for revenge, so be careful where and whom you threaten...
February 12, 2009 12:24 AM | Reply
Anon #1 & #2 -- We would have a lot clearer picture of Lewis' role in Thain/Merrill's ill-gotten bonuses if he and BoA would be more forthcoming in producing information to Cuomo, Congress and the media.
Lewis has admitted he knew about the bonuses and "counseled" Merrill execs against doing them. (He also claims it was part of Merrill's contract so his hands were tied, which is a somewhat different -- and perhaps contradictory -- tack).
But if he was really concerned, why didn't he tell Congress? Regulators? Shareholders? Anyone?
I also suspect that, if he really felt he needed to stop the bonuses, he could have found a way. But we don't see any evidence that any attempts were made.
While a scandal in and of itself, I think the bigger issue is transparency and accountability for companies that depend on taxpayer money.
February 12, 2009 2:11 PM | Reply
It's time to turn on these big CEO's. Why are we depending on politicians and a slow moving government filled with obstructionists to make changes? If millions of ordinary citizens across this country in every major city simply banded together and shut down the country for two days, POLITICIANS would listen and enact the laws we want instead of listening mostly to lobbyists. Time for Protest Marches. Another strategy ALL of us can do is target one company and make them an example to the rest. It's time to boycott Bank of America until the the top HOGS return their bonuses and live on less like the rest of us. Giving anyone a bonus after our tax money was used to bail them out for poor decisions is outrageous.
Please forward to others fed up with politicians who distort facts for political gain, Lobbyists for big biz who buy politicians, big mouths in the media trying to scare viewers for top ratings and book deals, and last but not least, the filthy rich CEO'S who have capitalized on the suffering of millions. That's not what capitalism is supposed to be.
Start with a boycott. It's time to show that we've had enough from these miserable opportunists. How do they sleep at night when so many are suffering? dare2drmbig@aol.com
October 18, 2009 10:16 AM | Reply
How come these clowns are brought up on RICO charges? This constitutes an on going criminal conspiracy.
February 4, 2010 1:15 PM | Reply