More Gossip from the Bank of America-Merrill Lynch Merger

More

In Hank Paulson's new book On the Brink, the former Treasury secretary reveals more information about the bizarre union of Bank of America and Merrill Lynch. I knew Bank of America CEO Ken Lewis was nervous about the deal and tried to back out of it in December. Here's what I didn't know.


From a first read by WSJ editor David Wessel:

In October 2008, after the government had pumped money into BofA, Merrill and other big banks, Lewis confided to Paulson that he was worried Merrill CEO John Thain would try to wiggle out of the deal; he wanted Paulson to insist that Thain go through with it. Paulson says he never mentioned the call to Thain. Less than three months later, of course, Lewis would talk about backing out of the deal, completing the purchase under pressure from Paulson and Bernanke.

John Thain was about to back out of the merger in October? I've covered this topic for a few months now and I spoke with a source close to Thain at the time of the deal, but I've never heard that story. There are at least two reasons to question either Lewis' statement or Paulson's recounting. First, Merrill was days away from bankruptcy when Bank of America agreed to buy the company for a rather generous $50 billion, 86 percent of BofA's stock price. Merrill's precariousness was no secret, especially to Thain who had been brought in to save the company from its increasingly likely demise.

More importantly, two months after this conversation, Lewis went to DC precisely to "wiggle out of the deal." To be sure, by December Merrill's fourth quarter writedowns had quadrupled, from $3 billion to $12 billion (and they would finish the quarter at negative-$15 billion). But Thain knew the losses would be excruciating, my Merrill source told me. That's why he had no recourse but to merge with a commercial bank and why lawyers wrote an airtight MAC (material adverse change) clause to keep Bank of America from using deteriorating losses as an excuse to back out of the deal. It's puzzling to imagine Thain would be looking for the escape hatch in October, as well.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

Is Technology Shifting Our Moral Compass?

"The experience of taking another human life becomes much more trivial."


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Juice Cleanses: The Worst Diet

A doctor tries the ever-popular Master Cleanse. Sort of.

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Video

What If Emoji Lived Among Us?

A whimsical ad imagines what life would be like if emoji were real.

Video

Living Alone on a Sailboat

"If you think I'm a dirtbag, then you don't understand the lifestyle."

Feature

The Future of Iced Coffee

Are artisan businesses like Blue Bottle doomed to fail when they go mainstream?

Writers

Up
Down

More in Business

Just In