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BofA's CEO subpoenaed over Merrill bonuses

Bank of America CEO Ken Lewis has received a subpoena from the New York state attorney general's office in connection with Merrill Lynch's bonuses before the companies combined.
/ Source: The Associated Press

Bank of America Corp. Chief Executive Ken Lewis has received a subpoena from the New York state attorney general’s office in connection with Merrill Lynch’s payment of employee bonuses before the companies combined on Jan. 1.

Former Merrill CEO John Thain, who was subpoenaed last month, also was questioned by investigators on Thursday about the bonuses that were paid in late December, just days before Bank of America completed its purchase of New York-based Merrill, according to a person familiar with the investigation. The person requested anonymity because of the ongoing nature of the matter.

Bank of America spokesman Robert Stickler on Friday declined to comment directly on the matter, adding: “we do not comment on questions about subpoenas.”

Shares of banks took another pounding amid fears U.S. banks may be nationalized. Shares of the two Wall Street giants, Bank of America and Citigroup Inc., have been under pressure all week as analysts speculated about a possible wave of government ownership in the financial sector.

Bank of America shares fell 14 cents, or 3.6 percent, to close at $3.79 Friday, after tumbling to a 26-year low of $2.53 earlier in the session. Citi shares lost 56 cents, or 22.3 percent, to $1.95, having traded as low as $1.61 earlier in the day.

On Friday, Lewis found himself defending his bank’s stock price — again, posting a memo entitled, “Rough week for stock, good week for business,” on the company’s internal Web site.

“Bank of America does not need any further assistance today, and I am confident we will not need any further assistance in the future,” Lewis said in the memo. “I believe our company has more than enough capital, liquidity and earnings power to make it through this downturn on our own from here on out.”

The memo did not mention the subpoena.

New York Attorney General Andrew Cuomo has been investigating $3.6 billion in bonuses Merrill Lynch & Co. executives received, and whether investors were properly informed about Merrill’s finances. Last week, Cuomo said in a letter sent to U.S. House Financial Services Chairman Barney Frank that the bonuses were irresponsible.

“It was inevitable that Mr. Lewis would be subpoenaed in light of the multiple investigations,” said securities attorney Tom Dewey of the law firm Dewey Pegno & Kramarsky LLP in New York. “It appears that the attorney general is looking at a broad set of issues.”

The payments came as Merrill was on the brink of reporting a more than $15 billion fourth-quarter loss. The bank was among the hardest hit by the ongoing credit crisis.

Cuomo said in the letter to Frank that Charlotte, N.C.-based Bank of America was apparently complicit in the move to award bonuses before Merrill’s fourth-quarter loss was announced.

Last week, Bank of America spokesman Scott Silvestri said in a statement that Merrill Lynch was an independent company last year, and its board of directors had ultimate approval over how much to pay employees.

Cuomo has already subpoenaed Thain and Bank of America’s chief administrative officer, J. Steele Alphin, as he investigates the timing of the bonuses. Cuomo is likely to seek testimony from other executives at the banks, according to the letter.

North Carolina’s Attorney General Roy Cooper also has made a request for documents from Bank of America about the bonuses. The state’s Department of Justice earlier this month issued an “investigative demand” seeking records, including a list of Merrill employees who received bonuses. Bank of America is required to respond by March 4, according to the 11-page demand.

Last month, when news of the bonuses broke, Thain resigned from his new post as head of the wealth management division of the combined bank.

The initial reports of the bonuses came just days after Bank of America received an additional $20 billion from the government that it said it needed to help offset the losses it was absorbing from the Merrill acquisition. The government also promised to cover losses on more than $100 billion in risky assets. The additional support was provided to Bank of America as Lewis showed trepidation about completing the deal to acquire Merrill.

The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off the most intense period of the financial crisis.