WASHINGTON — Bank of America Corp. officials discussed their potential benefit from a government rescue the day before telling U.S. officials the bank was considering walking away from buying Merrill Lynch & Co., according to new documents.
Handwritten notes and emails subpoenaed by a congressional committee would appear to undermine the bank's repeated contention it was convinced it had a reasonable basis to walk away from the Merrill deal, according to people familiar with the investigation.
The documents also appear to lend credence to investigators' theory that the threat to abandon Merrill was used to get more government aid, the same people said.
"What ask govt for?," "ringfence assets — what Citi just did," and "go to Fed?" are among handwritten notes from a meeting between Bank of America and its outside counsel Dec. 16. That's the day before CEO Kenneth Lewis called then-U.S. Treasury Secretary Henry Paulson, to say the bank might invoke a "material adverse change" clause to walk away from the deal.
The documents, obtained by Dow Jones Newswires, also show Bank of America's outside lawyers weren't convinced the bank would succeed if it tried to walk away from the deal and had to go to court. Two days before Lewis' call to Paulson, lawyers at Wachtell, Lipton, Rosen & Katz said not enough data existed to make a determination whether the bank could invoke the MAC.
"So 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," an analysis performed by the firm said. "We would need more data to analyze this."
Later in the same memo, lawyers said results from one quarter weren't enough to prove a material change under Bank of America's merge agreement with Merrill.
Four days later, Wachtell lawyers continued voicing concerns in a series of talking points sent to the bank Dec. 19. Acknowledging that "it is not clear that we would be able to prove" Merrill's losses would persist for years, lawyers said the investment bank would have a strong case if the issue went to court.
"And MER will no doubt point out that, applying this standard, no Delaware court has ever found that a MAC occurred permitting an acquiror to terminate a merger agreement," the talking points said.
Bank of America spokesman Larry Di Rita said the documents only tell part of the story of the bank's deliberations during that period.
"There was alignment or consensus among outside counsel, internal counsel and the senior leaders of the company that there was a good-faith basis for a MAC," Di Rita said. "There was also an understanding that these were difficult cases."
He said there was an agreement that the bank was justified in considering a MAC given the rising fourth-quarter losses at Merrill, and that the thousands of documents provided by the bank to lawmakers back up the bank's argument.
"That's the breadth of the record, not selected documents that are leaked for whatever particular reason," he added.
The documents are among evidence members of the House Oversight and Government Reform Committee are expected to press current and former Bank of America officials on at a hearing Tuesday. Scheduled to testify are Bank of America board members Thomas May and Charles Gifford, former general counsel Timothy Mayopoulos, and Brian Moynihan, president of consumer and small business banking.
Rep. Edolphus Towns (D, N.Y.), the chairman of the Oversight panel who has led the investigation, has repeatedly raised concerns of a "shakedown" in the government's decision to provide an additional $20 billion of taxpayer dollars to Bank of America in January. The panel has already heard testimony this year from Paulson, Lewis, and Federal Reserve Chairman Ben Bernanke.