Ex-BofA exec says no role in bonuses
The deposed top attorney of Bank of America Corp says he played no role in drafting the bank`s agreement to allow Merrill Lynch to pay billions of dollars in bonuses to its employees.
Washington: The deposed top attorney of Bank of America Corp. says he played no role in drafting the bank`s agreement to allow Merrill Lynch to pay billions of dollars in bonuses to its employees nor in decisions on whether to disclose the bonuses to shareholders.
Timothy Mayopoulos was fired as general counsel by Bank of America in December 2008. He is scheduled to testify before Congress for the first time on Tuesday as a House oversight panel examines the USD 45 billion federal bailout of the second-largest US bank and its shotgun acquisition of Merrill last year at the height of the financial crisis.
"To my recollection, I had no role in this issue," Mayopoulos says of the bonuses in his written testimony prepared for the hearing. "That was done by others."
The House Oversight and Government Reform Committee has been investigating the government`s role in pushing the hastily arranged takeover of Merrill, the tumultuous events surrounding the deal and the payment of the bonuses to Merrill employees.
The Merrill deal was first questioned after Charlotte, NC-based Bank of America disclosed that the investment bank`s losses, USD 27.6 billion for 2008, were far more than expected. Bank of America then asked for and received USD 20 billion from the government`s bailout fund in addition to its initial USD 25 billion injection, in part to offset those losses.
Bank of America CEO Ken Lewis came under even greater attack after Merrill, with the knowledge of BofA executives, gave billions in bonuses to its employees even as Bank of America was asking for more rescue money from the government. The merger deal was forged a year ago and completed on Jan. 1. The bonuses, which would normally have been paid in January, were paid out in December.
One of the key issues is the legal advice that Bank of America received regarding disclosure of the amount of the bonuses — up to USD 5.8 billion — to shareholders. The Securities and Exchange Commission sued Bank of America in August, alleging that it failed to tell shareholders that it had authorized Merrill to pay that amount in 2008 even though the investment bank had suffered the stunning loss.
Mayopoulos says in his testimony he advised Bank of America executives that the bank couldn`t make a case that Merrill`s huge losses provided legal grounds for it to back out of the merger deal.
"I concluded that there was no basis to conclude that a material adverse change had occurred with regard to Merrill Lynch" that would justify calling off the merger, he says.
The terms of the bank`s takeover of Merrill, including the bonus payments, were laid out in documents prepared by outside attorneys for the two companies. Bank of America was represented in the negotiations by the law firm Wachtell, Lipton, Rosen & Katz. Merrill`s counsel was Shearman & Sterling.
The attorneys were mainly responsible for drafting the Bank of America disclosure filings to the SEC. The House committee has previously asked Bank of America to hand over related documents.
Mayopoulos also provides new details of his firing last Dec 10, saying he was told by a colleague that Lewis had made the decision "quickly and recently." The colleague, who was the bank`s chief risk officer, told him "that I was to leave the premises immediately," Mayopoulos recalls in his testimony. A human resources rep gave him his severance papers and took his corporate ID, company credit card, BlackBerry and office keys, he says.
"I got in my car and drove home. I was stunned," Mayopoulos says. "I had never been fired from any job, and I had never heard of the general counsel of a major company being summarily dismissed for no apparent reason and with no explanation."
Also scheduled to testify at Tuesday`s hearing are Brian Moynihan, Bank of America`s president of consumer and small-business banking, and board members Charles "Chad" Gifford and Thomas May.
Moynihan is considered by analysts to be a leading candidate to replace Lewis, who is leaving the bank on Dec. 31. Lewis` decision announced in September capped a year when he faced shareholder fury and regulatory scrutiny, and was stripped of his chairman post.
"... Throughout the deliberations around our acquisition of Merrill Lynch, Bank of America acted in good faith and consulted with one of the premier law firms in the United States to work through a very difficult issue," Moynihan says in his prepared testimony. He also maintains that despite the merger having been affected by the distress of the financial crisis, it turned out to be a success that has benefited Bank of America customers and US taxpayers.
Committee Republicans said Monday they are angered that no government officials have been called to testify at the hearing. They are seeking the testimony of Treasury Secretary Timothy Geithner; Sheila Bair, chairman of the Federal Deposit Insurance Corp.; SEC Chairman Mary Schapiro; and former SEC chairman Christopher Cox.
"By failing to call government witnesses to this hearing, the committee is abdicating its responsibility to oversee the government policies and actions that shaped the Merrill Lynch acquisition," Rep. Darrell Issa of California, the panel`s senior Republican, said in a letter to Chairman Edolphus Towns, D-N.Y.
In September, New York Attorney General Andrew Cuomo subpoenaed five members of Bank of America`s board as part of an investigation into the Merrill deal. Seven directors have resigned from the board since shareholders replaced Lewis as chairman in April.
Bank of America had settled the SEC`s separate case over disclosures of the Merrill bonuses in September, but a federal judge said the USD 33 million settlement agreement was unfair and needlessly penalized the bank`s shareholders. The judge ordered the case to go to trial on Feb 1.