Cross-posted at Facing South -- please rec!
What did executives at Bank of America know about nearly $4 billion in bonuses hastily paid out at Merrill Lynch last December -- and what did they do to try and stop it?
These questions are at the heart of a growing investigation led by New York Attorney General Andrew Cuomo into bonuses given to CEO's at banks receiving huge federal bailouts. Bank of America, which merged with Merrill in January, has received $35 billion from the Treasury's Troubled Assets Relief Program and another $20 billion in taxpayer support.
Yesterday, Cuomo issued a letter to Rep. Barney Frank (D-MA) [pdf] -- chair of the House Financial Services Committee, which just concluded a grilling of bank CEO's receiving bailout money -- revealing that Merrill likely sped-up payout of bonuses before being taken over by Bank of America, even as Merrill was spiraling into bankruptcy.
As Cuomo notes in the letter:
Merrill Lynch had never before awarded bonuses at such an early date and this timetable allowed Merrill to dole out huge bonuses ahead of their awful fourth quarter earnings announcement and before the planned takeover of Merrill by Bank of America.
Merrill Lynch's decision to secretly and prematurely award approximately $3.6 billion in bonuses, and Bank of America's apparent complicity in it, raise serious and disturbing questions. By December 8, 2008, Merrill and presumably Bank of America must have been aware that the fourth quarter and yearly earnings results were disastrous. Indeed, on January 16,2009, the companies announced that in the fourth quarter alone Merrill Lynch has lost $15.31 billion, and more than $27 billion for the year.
Cuomo goes on to say that although some 39,000 Merrill employees received bonuses, most of the money went to those at the top -- including 700 who received $1 million or more. Four top Merrill executives took $121 million of the total bonuses.
At today's House hearing, Bank of America CEO Ken Lewis -- who stated he receives an annual salary of $1.5 million a year, the highest of all the bank leaders testifying -- said he was aware of Merrill's bonus plan, but that it was a "contractual obligation" between Merrill and its employees beyond his control.
Lewis told the committee that he knew about -- and opposed -- Merrill's bonus plan but had no authority to prevent them:
"My personal involvement was very limited. We urged Merrill Lynch execs involved in this
compensation issue to reduce the bonuses substantially particularly at the
top," Lewis, of Bank of America, said. "They were a public company until the
first of this year. We had no authority to tell them what to do."</span>
However, AG Cuomo told Rep. Frank he intends to further investigate Bank of America's "apparent complicity" in the hastily-disbursed bonuses. He announced his office had issued subpoenas to former Merrill Lynch CEO John Thain -- ousted in January after it was revealed he spent href=".2 million on office decorations as Merrill teetered towards failure -- as well as the testimony of Bank of America Chief Administrative Officer J. Steele Alphin.
A common theme in Cuomo's letter -- echoed in statements by House members at today's hearing -- is Bank of America's apparent unwillingness to disclose information related to how and when the decision to award the Merrill bonuses were made.
Despite repeated demands from House members for greater transparency about their use of taxpayer funds, Bank of America's Lewis dismissed suggestions that his bank was obligated to disclose more information.
When Rep. Leonard Lance (R-NJ) asked if information about the bonuses was "a matter of public record," Lewis simply replied, "I don't know."
UPDATE: With a few exceptions -- for example, Rep. Maxine Waters' (D-CA) -- the House members have been extremely cordial and accommodating to the bankers. Capital Eye points out this may be linked to the fact that members of the House Finance Committee collectively received $1.8 million in campaign contributions associated with these institutions during the 2008 election cycle.