Lewis is the agent for the people who own Bank of America. He agreed to buy Merrill Lynch in September. But by mid-December it was clear Merrill's losses from bad mortgages and other soured bets would be much, much larger than what he or anybody else at Bank of America's Charlotte, N.C., headquarters had imagined. "A staggering amount of deterioration," Lewis later called it.
He and the board believed the damage was bad enough to constitute a "materially adverse change" that would legally allow them to walk away from the deal.
But when he told Paulson, the Treasury secretary threatened to "remove the board and management" of Bank of America, or words to that effect, Lewis said in testimony given to New York Attorney General Andrew Cuomo.
(Cuomo is investigating the distribution of billions in bonuses to Merrill executives while taxpayers helped support the company.)
"Hank, let's de-escalate this for a while," Lewis replied, according to his deposition. "Let me talk to our board."
It's true that he had other constituencies to consider besides shareholders. Corporate law gives CEOs latitude to consider the interests of employees and the community as well. Paulson and Fed Chairman Ben Bernanke were arguing that a collapse of the Merrill buyout would plunge the financial system and the country back into chaos.
Lewis "became convinced that they were right," he testified, and he believed the Merrill acquisition would benefit shareholders over the long term. Those sentiments, however, were produced only after his job and its millions in pay and perks were threatened.
"But you could have said 'no' and resigned, correct?" one of the lawyers asked him.
Lewis: "I could have said 'no' and resigned."
"Did you ever consider that?"
"No, I didn't," Lewis replied. "I thought it was in the best interest to go forward as had been instructed."
It certainly was in his best interest. Shareholders who got stuck with billions in Merrill losses and are suing Bank of America seem to feel differently. They might have something to say about it at Wednesday's annual meeting in Charlotte.
"There are worse things," Bogle said of Lewis, "than putting your career at risk for doing what's right."
