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Bank of America CEO and Chairman Kenneth Lewis has been issued a subpoena by the New York State Attorney General’s Office, which is investigating whether the bank violated state law by withholding information from investors, a source familiar with the investigation told CNN.
Attorney General Andrew Cuomo has been highly critical of Wall Street firms in general and Merrill Lynch in particular for the way they have conducted themselves in the midst of a financial crisis. (SDP’s note: Temasek invested $5 billion in Merril Lynch because, said Temasek, the America investment bank had “great franchise, which has existed through many crises through a long period of time.”)
Last week, he accused Merrill Lynch, which was acquired by Bank of America late last year, of secretly doling out big bonuses before reporting a huge quarterly loss.
“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,” Cuomo wrote in a letter to Rep. Barney Frank, D-Massachusetts, chairman of the House Committee on Financial Services.
In his letter to Frank, Cuomo said Merrill gave bonuses of at least $1 million each to 696 employees, with a combined $121 million going to the top four recipients. The next four recipients were awarded a total of $62 million, and the next six received $66 million, he said. In all, the bonuses for 2008 totaled $3.6 billion.
“While more than 39,000 Merrill employees received bonuses from the pool, the vast majority of these funds were disproportionately distributed to a small number of individuals,” Cuomo wrote. “Indeed, Merrill chose to make millionaires out of a select group of 700 employees.”
The attorney general said Merrill “awarded an even smaller group of top executives what can only be described as gigantic bonuses.”
Cuomo also claimed Merrill handed out the bonuses ahead of its federally funded acquisition by Bank of America, which was announced in mid-September and closed by year’s end.
It “appears that, instead of disclosing their bonus plans in a transparent way as requested by my office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives,” Cuomo wrote.
Bank of America has received $45 billion in federal bailout money, including $20 billion to support its takeover of Merrill. Bank of America reported a net loss of $1.79 billion for the fourth quarter. Merrill reported a net loss of $15.31 billion for the fourth quarter.
Bank of America spokesman Scott Silvestri that Merrill was “an independent company” when the bonuses were awarded.
“Bank of America did urge the bonuses be reduced, including those at the high end,” Silvestri wrote. “Although we had a right of consultation, it was their ultimate decision to make.”
Silvestri said the top executives for Bank of America “took no incentive compensation for 2008,” with an 80 percent reduction for the “next level” of executives.
Top executives from Bank of America — as well as Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo — appeared before the Financial Services Committee last week to explain how they spent the $165 billion they received from the government’s Troubled Asset Relief Program, or TARP.
In the testimony, Lewis said he received no bonus for 2008 and was paid a salary of $1.5 million.
Bank of America’s stock, which traded higher than $40 a share in the past year, closed at a fresh 52-week low of $3.93 a share Thursday. It’s the largest bank in terms of assets in the United States and is headquartered in Charlotte, North Carolina.