ElNono
08-06-2009, 01:11 PM
Bank of America Settles S.E.C. Suit Over Merrill Deal
By ZACHERY KOUWE
Published: August 3, 2009
It was a watershed moment of the financial crisis — a you-must-be-kidding payday that prompted a state investigation and an outcry in Congress. And, for Kenneth D. Lewis, it has become a nagging, multibillion-dollar headache.
On Monday the Securities and Exchange Commission accused Bank of America, the bank Mr. Lewis runs, of misleading its shareholders about $5 billion in bonuses paid by Merrill Lynch, the ailing brokerage giant that Bank of America bought last year.
The developments once again focus an uncomfortable spotlight on Mr. Lewis, who is struggling to win back investors and persuade them that his daring bet on Merrill will pay off.
The $50 billion merger, completed at the behest of federal officials, has been the subject of heated hearings in Congress, as has the question of who knew what and when about the Merrill bonuses. The payments were made despite mounting losses that soon forced Bank of America to seek a second lifeline from Washington.
Bank of America will pay $33 million to settle the S.E.C.’s claims, without admitting or denying the accusations, but the agreement is unlikely to put to rest questions swirling around Bank of America and its leadership.
Indeed, news of the settlement came on the same day that Bank of America announced a significant management shake-up, one that Mr. Lewis suggested put in place several possible successors. Among the additions is Sallie L. Krawcheck, the former Citigroup executive, who will join Bank of America as head of global wealth and investment management .
The pressure on Mr. Lewis has been unrelenting. No sooner was the settlement announced Monday than the CtW Investment Group, which has been highly critical of Mr. Lewis, again called for him to step down.
“He bears ultimate responsibility for the disclosure failure,” CtW said.
The group, which represents several union pension funds, urged the bank to install a new chief executive who could restore investor confidence and claw back bonuses paid “surreptitiously” to Merrill Lynch executives.
The S.E.C.’s lawsuit centers on statements Bank of America made in its proxy statement about the Merrill deal, which was announced last Sept. 15. The bank, one of the nation’s largest, told its investors in the proxy on Nov. 3 that Merrill had agreed not to pay year-end performance bonuses or other incentive pay before closing the deal without Bank of America’s consent.
But, unknown to investors, Bank of America had already agreed that Merrill could pay up to $5.8 billion in year-end compensation to employees, the S.E.C. said in its complaint, which was filed in federal court in New York. That agreement was memorialized in a separate bonus schedule that was omitted from the proxy statement, the S.E.C. said.
“Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement,” said Robert Khuzami, director of the S.E.C.’s division of enforcement, in a statement.
The Bank of America-Merrill deal, as well as the government’s role in it, drew sharp scrutiny on Wall Street and in Washington. Lawmakers armed with e-mail messages and internal documents have claimed at various hearings that Federal Reserve and Treasury officials had threatened to oust the bank’s top management if it pulled out of the deal, a claim various officials, including Ben S. Bernanke, the chairman of the Fed, have denied.
Dennis J. Kucinich, Democrat of Ohio, said the matter was unlikely to end here. “This may not be the last fine that Bank of America pays for how it handled its merger of Merrill Lynch,” he said. Andrew M. Cuomo, the New York attorney general, who referred his investigation into the bonuses to the S.E.C. in April, said that his inquiry was continuing.
The S.E.C.’s complaint shows that Bank of America signed off on a $5.8 billion bonus pool for Merrill employees before the merger was announced last September. The boards of both companies also signed off on the year-end bonus pool. On Nov. 12, Merrill apprised the bank that it was accelerating the schedule of year-end bonuses and Bank of America gave its approval, according to the complaint.
John A. Thain, who was ousted as chief of Merrill after the bonuses were disclosed, has accused Mr. Lewis of lying about Bank of America’s involvement in the bonus payments.
In addition to Ms. Krawcheck, Bank of America also hired Brian Moynihan, currently the head of its global corporate and investment banking and global wealth management arms, to become the bank’s head of consumer banking, a division that will include Bank of America’s deposit, small-business and credit card businesses.
Tom Montag, who has been the bank’s head of global markets, will take on the additional role of running the bank’s global corporate and investment banking business.
Liam McGee, who currently runs the consumer and small-business banking unit, will be leaving the company after nearly 20 years. Mr. McGee said in Monday’s news release that he planned to “pursue my goal of running a company.”
LINK (http://www.nytimes.com/2009/08/04/business/04bofa.html)
By ZACHERY KOUWE
Published: August 3, 2009
It was a watershed moment of the financial crisis — a you-must-be-kidding payday that prompted a state investigation and an outcry in Congress. And, for Kenneth D. Lewis, it has become a nagging, multibillion-dollar headache.
On Monday the Securities and Exchange Commission accused Bank of America, the bank Mr. Lewis runs, of misleading its shareholders about $5 billion in bonuses paid by Merrill Lynch, the ailing brokerage giant that Bank of America bought last year.
The developments once again focus an uncomfortable spotlight on Mr. Lewis, who is struggling to win back investors and persuade them that his daring bet on Merrill will pay off.
The $50 billion merger, completed at the behest of federal officials, has been the subject of heated hearings in Congress, as has the question of who knew what and when about the Merrill bonuses. The payments were made despite mounting losses that soon forced Bank of America to seek a second lifeline from Washington.
Bank of America will pay $33 million to settle the S.E.C.’s claims, without admitting or denying the accusations, but the agreement is unlikely to put to rest questions swirling around Bank of America and its leadership.
Indeed, news of the settlement came on the same day that Bank of America announced a significant management shake-up, one that Mr. Lewis suggested put in place several possible successors. Among the additions is Sallie L. Krawcheck, the former Citigroup executive, who will join Bank of America as head of global wealth and investment management .
The pressure on Mr. Lewis has been unrelenting. No sooner was the settlement announced Monday than the CtW Investment Group, which has been highly critical of Mr. Lewis, again called for him to step down.
“He bears ultimate responsibility for the disclosure failure,” CtW said.
The group, which represents several union pension funds, urged the bank to install a new chief executive who could restore investor confidence and claw back bonuses paid “surreptitiously” to Merrill Lynch executives.
The S.E.C.’s lawsuit centers on statements Bank of America made in its proxy statement about the Merrill deal, which was announced last Sept. 15. The bank, one of the nation’s largest, told its investors in the proxy on Nov. 3 that Merrill had agreed not to pay year-end performance bonuses or other incentive pay before closing the deal without Bank of America’s consent.
But, unknown to investors, Bank of America had already agreed that Merrill could pay up to $5.8 billion in year-end compensation to employees, the S.E.C. said in its complaint, which was filed in federal court in New York. That agreement was memorialized in a separate bonus schedule that was omitted from the proxy statement, the S.E.C. said.
“Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement,” said Robert Khuzami, director of the S.E.C.’s division of enforcement, in a statement.
The Bank of America-Merrill deal, as well as the government’s role in it, drew sharp scrutiny on Wall Street and in Washington. Lawmakers armed with e-mail messages and internal documents have claimed at various hearings that Federal Reserve and Treasury officials had threatened to oust the bank’s top management if it pulled out of the deal, a claim various officials, including Ben S. Bernanke, the chairman of the Fed, have denied.
Dennis J. Kucinich, Democrat of Ohio, said the matter was unlikely to end here. “This may not be the last fine that Bank of America pays for how it handled its merger of Merrill Lynch,” he said. Andrew M. Cuomo, the New York attorney general, who referred his investigation into the bonuses to the S.E.C. in April, said that his inquiry was continuing.
The S.E.C.’s complaint shows that Bank of America signed off on a $5.8 billion bonus pool for Merrill employees before the merger was announced last September. The boards of both companies also signed off on the year-end bonus pool. On Nov. 12, Merrill apprised the bank that it was accelerating the schedule of year-end bonuses and Bank of America gave its approval, according to the complaint.
John A. Thain, who was ousted as chief of Merrill after the bonuses were disclosed, has accused Mr. Lewis of lying about Bank of America’s involvement in the bonus payments.
In addition to Ms. Krawcheck, Bank of America also hired Brian Moynihan, currently the head of its global corporate and investment banking and global wealth management arms, to become the bank’s head of consumer banking, a division that will include Bank of America’s deposit, small-business and credit card businesses.
Tom Montag, who has been the bank’s head of global markets, will take on the additional role of running the bank’s global corporate and investment banking business.
Liam McGee, who currently runs the consumer and small-business banking unit, will be leaving the company after nearly 20 years. Mr. McGee said in Monday’s news release that he planned to “pursue my goal of running a company.”
LINK (http://www.nytimes.com/2009/08/04/business/04bofa.html)