Bank Of America's Retort To Andrew Cuomo

Tyler Durden's picture

After reading the letter below, one would think that Mr. Lewis Liman, Eqs. of Cleary Gottlieb is either i) pathologically dead set on making the NY AG's "list" at all costs or ii) truly and utterly convinced in the innocence of his client.

While the whole thing needs to be read to be appreciated, the following are the highlights that Liman believes are "spurious and false allegations" in Cuomo's letter which Zero Hedge posted previously.

The letter devotes an entire page to the timing of Merrill Lynch's bonus payments and questions involving the role of counsel with respect to those payments without quoting a single question your Office asked of any witness regarding communications with counsel or the role of counsel or any information it sought to elicit on those subjects. Apparently, your Office's interest in this subject arose only after, and as a result of, the proceedings before Judge Rakoff. As the SEC stated in open court, however, it "cannot infer any misconduct" from the timing of the bonus payments. Bank of America's position with respect to the Proxy Statement has been and continues to be that it did not contain any false or misleading statements.

Uh, Lewis, if your clients are innocent of any wrongdoing, feel free to litigate the SEC. Although, why do that, when you can settle, and pay a fee (which, while not reeally having any impact on BAC shareholders, amount to about 10 cents out of your own pocket... and every other American's).

The letter refers to a goodwill charge of $2 billion taken by Merrill Lynch at the end of the fourth quarter of 2008. However, it neglects to mention that the $2 billion charge is an accounting charge that would be (and was) reconciled through the application of purchase accounting upon completion of the merger - and thus had no effect on the books and records of Bank of America after the merger. That testimony has been provided to your Office. We can only interpret your Office's allegations as reflecting a frustration that the truth does not fit its preconceived notions.

So, the $2 billion goodwill impairment (which was not disclosed - we presume you do not dispute that), effectively transferred losses from Merrill's balance sheet over to that of BofA, and dare we ask where the corresponding debit came from - could it be, dare we say it, TARP? Ah, the beauty of purchase accounting. And in the process, not only did BAC write down the assets to 0, but at day one it immediately accounted for them where- 90 cents on the dollar? 95? One recalls statements by Mr. Lewis in March how BAC had record profits. Would this purchase accounting gimmick have anything to do with it?

Regarding the issue of Merrill Lynch's forecasted losses after the meeting where shareholders were asked to vote on the merger and the determination that Bank of America believed it had a good-faith basis to consider whether there had been a material adverse effect, no law required the Bank to report publicly the contents of its private conversations with its regulators or its contemplation of the termination of the merger. Nor did any law require Bank of America to report the intra-quarter results of Merrill Lynch. Bank of America
and Merrill Lynch properly reported Merrill Lynch's results when they were required to do so - after the close of the quarter. We have responded previously to the erroneous suggestion that Bank of America decided against invoking the material adverse effect clause " when the jobs of its officers and directors were threatened by senior federal regulators." Bank of America decided not to invoke the material adverse effect clause because that determination was in the best interests of Bank of America's shareholders.

Ooohhh, where to start with this one. How about here.

Lewis first tried to call Paulson at Treasury, and was given his
cell-phone number. He eventually reached the Treasury secretary at a
ski cabin in Colorado. Paulson—known as “The Hammer” since his days on
the offensive line at Dartmouth—did not mince words with Lewis. “I’m
going to be very blunt,” he said, according to Lewis’s deposition.
We’re very supportive of Bank of America and we want to be of help,
but the government does not feel it’s in your best interest for you to
call a MAC.” According
to Lewis, Paulson told him the government felt “so strongly” about this
that he said, “We would remove the board and management” if Lewis tried
to invoke it. At that, a shaken Lewis stood down again.
He later said
he knew that Paulson wasn’t joking around, and “that he wouldn’t say
something that strong if he didn’t feel like it was a systemic risk as
well.”

Little did Bank of America's shareholders know that preserving Ken Lewis' job was in their best interests. Your letter will help clarifying that.

Continuing with Cleary's letter:

Finally, with respect to the issue of disclosure of Merrill Lynch's forecasted losses in the fourth quarter of 2008, Bank of America's position has been that the forecasts - which reflected Merrill Lynch's estimates regarding the losses it might suffer at a point in time well before the close of the quarter, and were dependent on Merrill Lynch's assessments of the condition of global securities and credit markets during an extraordinary period of well-reported and acknowledged market volatility - were not appropriate for disclosure, especially in light of, among other things, the extensive risk disclosures Bank of America and Merrill Lynch had already issued. The letter refers to testimony that Bank of America's then-general counsel gave advice at the beginning of December about whether or not he thought there was a material adverse effect (without disclosing that advice), but the testimony is uncontroverted that Bank of America did not consider invoking the material adverse effect clause until the middle of December, after the shareholders voted to approve the merger and after Bank of America had received updated forecasts including the actual results for November 2008.

Lot of verbiage for basically what was non-disclosure of a material fact securities violation. However as the Regulator was already engaged on settlement track for other related issues, it apparently was not in the SEC's utmost interest to pursue every aspect of BofA's presumed wrongdoings.

The full letter for our readers' hearty enjoyment: