Another point about yesterday´s revelation from New York Attorney General Andrew Cuomo about the pressure on Ken Lewis to go through with the Bank of America/Merrill Lynch merger: Why did Lewis, known as the "red-blooded" southern, tough-guy banker, not call former Treasury Secretary Henry Paulson out on his bluff? Paulson didn´t technically have the authority to fire anyone.
Here´s an excerpt from Lewis´ deposition, courtesy of the Cuomo letter. It´s Lewis talking about Paulson:
"He said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' as I recall him saying `the government...does not feel it's in your best interest for you to call a MAC [material adverse clause], and that we feel so strongly,´ I can't recall if he said `we would remove the board and management if you called it´ or if he said `we would do it if you intended to´...I said, `Hank, let's deescalate this for a while. Let me talk to our board.´ "
There´s one problem. Could Paulson really execute his threat?
"I would ask myself what authority does Mr. Paulson have to fire Ken Lewis?" said Oliver Ireland, a partner at Morrison & Foerster LLP. "As secretary of the Treasury, I don´t think he´s got it."
Ireland explained: "The Office of the Comptroller of the Currency has the power to remove officers and directors of national banks for specified causes. And the Federal Reserve has the power to remove officers and directors of bank holding companies for specified causes. That´s the law, and until they change that law, those powers don´t go to the Treasury. The OCC is an arm of the Treasury, but I don´t believe they´re required to follow directives of the sec of the treasury on bank supervisory issues. And certainly the Fed isn´t."
Sure, Treasury enjoyed expanded influence as soon as it injected billions of dollars into the country´s largest banks, but the stricter controls on executives at banks receiving money from the Troubled Asset Relief Program hadn´t been put in place yet when the Lewis/Paulson showdown took place.
As American Banker
"If Lewis had said `no, I´m not going to do it,´ " in response to Paulson´s insistence on the Merrill deal, Paulson "would have backed off," said L. William Seidman, a former Federal Deposit Insurance Corp. chairman. "I think Paulson was-what shall I say-he felt he was in charge and he had to get done what he felt was right to save the banks. The fact of the matter was that his only real power with the banks is the money that he had to give away."
