How Bank of America Execs Hid Their Losses—In Their Own Words

A new lawsuit filed against Bank of America reveals internal emails proving that execs were knowingly feeding shareholders bad information.

Former Bank of America CEO Ken Lewis, pictured in 2009. Bryan Smith/Zuma

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

This story first appeared on the ProPublica website.

When Bank of America announced it was buying Merrill Lynch in September 2008, bank execs told their shareholders that the merger might hurt earnings a touch. It didn’t turn out that way. Losses at Merrill piled up over the next two months, before the deal even closed. Yet the execs kept painting a prettier picture to shareholders 2014 even though it turns out they knew better.

As the New York Times detailed this morning, a brief in a new lawsuit filed in federal court in Manhattan recounts sworn testimony and internal emails in which execs admitted to giving bad information to shareholders and that they had worried about the legal ramifications of doing so.

According to the filing, Bank of America’s then-CEO Kenneth Lewis admitted in a deposition that what he told shareholders about the financials of the merger was “no longer accurate” on the day they approved it.

We’ve pulled out the most revealing parts of the suit, which tell the story of how the deal went down.

On Sept. 15, 2008, Bank of America announced its agreement to buy Merrill Lynch. In the press release announcing the deal and other presentations, Bank of America said it would cause a 3 percent decrease in earnings in 2009, and that by 2010 the deal would break even or do better.

In October, concerns started to emerge about Merrill’s financials. As it became clear the company was going to lose $7.5 billion that month, one exec emailed another the numbers with the message “read and weep.”

Merrill kept losing money in November. Late that month, Bank of America ordered Merrill to sell off assets to try to stabilize its finances:

 

After current Bank of America CEO Brian Moynihan admitted in a deposition that this sale meant the deal was less valuable to shareholders:

 

On Dec. 1, Bank of America issued a $9 billion debt offering. Publicly, they said this was “for general corporate purposes.” But private communications showed that they were trying to raise money to cover Merrill’s losses:

 

Bank of America’s then-treasurer, Jeffrey Brown, wrote in emails just before the shareholder meeting that they needed to disclose that the Merrill losses were behind the debt offering. He also testified that he told other execs they could be committing a criminal offense by not disclosing the losses:

 

 

On Dec. 5, Bank of America shareholders met to decide whether to approve the merger. They questioned Lewis about the financial impact of the deal, and he reassured them:

 

That day, shareholders voted to approve the merger.

In his deposition for the lawsuit, Lewis said that what he told them was not accurate. Bank of America had already revised their numbers to reflect Merrill’s losses:

 

Just days after the deal was approved, on Dec. 12, a law firm for Bank of America prepared documents making the case that they could back out of the merger, based on Merrill’s new financial woes:

 

On the 17th, Lewis took that argument to then Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, who, according to the lawsuit, were stunned by Merrill’s losses:

 

According to the suit, Lewis raised the possibility of a bailout then:

 

But it wasn’t until January that shareholders 2014 and the public 2014 learned how bad things were. Bank of America stock dropped precipitously, and taxpayers ultimately padded the bank’s bailout funds with an extra $20 billion to cover the losses. The SEC has actually already settled its own charges against Bank of America over misleading shareholders on the deal. The bank paid $150 million 2014 and didn’t admit any wrongdoing.

Bank of America didn’t comment to the Times on the new lawsuit, and didn’t immediately respond to a request for comment from us.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate