Ken Lewis in the Hot Seat

Ken Lewis spent three hours yesterday answering some pretty ugly questions posed by the House Committee on Oversight and Government Reform (Nice name. Why don't they just call it "Putting the rat in charge of the cheese?"). The questions centered on the Merrill Lynch deal, and the revelation that Lewis threatened to back out of the deal when he realized how screwed he got.

That there was pressure from Hank Paulson and Ben Bernanke for Lewis to go through with the deal really isn't a matter of debate. New York AG Andrew Cuomo judiciously leaked as much in December after having a chat with Paulson on the matter.

Well, now the emails have been released:

http://www.bizjournals.com/charlotte/stories/2009…

Aside from most of the guys on the government side of the fence being in agreement on the overall asshattery of Ken Lewis, there is a potentially criminal element to what some would call "undue pressure".

In a nutshell, Lewis threatened to call off the deal when he discovered just how fucked Merrill was and he realized how badly he'd overpaid. Paulson called him into a one on one meeting and threatened him that he and the entire Bank of America board would be fired if they scuttled the deal, or if any news of Merrill's piss poor condition became public.

Paulson doesn't dispute that the meeting took place, or that the threat he delivered was the crux of the meeting. Where stories vary is when Paulson states that he delivered the threat at Bernanke's insistence, and Bernanke maintains he didn't have anything to do with it.

Where the criminal element is being investigated is whether or not Lewis was forced to essentially "lie" to the investing public about the condition of Merrill (and, by extension, the future condition of BofA) by covering up what everyone on the inside knew to be true.

Judging by the emails, Lewis was more concerned with a shareholder revolt than criminal charges, and solicited permission to blame the government for forcing him into the deal in the event of any shareholder lawsuits. Not surprisingly, the government told him to get bent. (and then went on in internal emails to claim that shareholder suits are more of a nuisance than any real threat because the courts rarely side with shareholders)

I'll bet John Thain is still laughing his ass off.