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Federal Government Pressured Bank of America to Purchase Merrill Lynch

From the Investment Fraud Blawg

Earlier today, it was reported through several media outlets (i.e., Reuters,, that the federal government pressured Bank of America to acquire Merrill Lynch in late 2008.  

To make matters worse, it appears that the government’s threats may have occurred after Bank of America realized that Merrill Lynch was not a good acquisition.  Based upon the reports, Bank of America’s CEO Ken “Lewis testified in February that former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke threatened to oust Bank of America’s management if the bank tried to back out of buying Merrill Lynch.”  Lewis also testified that Paulson wanted to avoid calamity in the financial markets.  

This is a great example of company officers breaching their fiduciary duties to shareholders.  Despite the fact that it appears Bank of America recognized that Merrill Lynch’s losses were significantly greater than originally expected (and continuing to grow), the officers chose job security over shareholders’ interests.  

Bank of America announced its planned acquisition of Merrill Lynch on September 15, 2008.  That day, the price of Bank of America stock closed at $26.55 per share ($25.89 adjusted for subsequent dividend payments).  Today, Bank of America stock closed at $8.82 per share.  This represents a loss of $17.07 (after dividends), or approximately 66% following the announcement.  This equates to more than $100 billion in lost market value.  Unfortunately, Bank of America’s officers (and the federal government) chose to make Bank of America’s shareholders shoulder the responsibility for avoiding disaster in the financial markets.  Compounding matters, the government then forced taxpayers to shoulder the costs of TARP, including payments of at least $45 billion to Bank of America.

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