AFTER months of resistance, the Bank of America is to turn over documents showing legal advice it received on its purchase of Merrill Lynch to the office of the New York attorney general, it was reported today.
According to a person familiar with the matter, BofA’s board decided on Friday that it would waive its lawyer-client privilege and hand over the papers.
New York attorney general Andrew Cuomo’s office is investigating whether BofA misled shareholders about 3.6 billion dollars (£2.3bn) in bonuses paid to Merrill employees and the investment bank’s mortgage lending losses, as well as whether BofA failed to tell shareholders that it considered backing out of the deal before it closed on January 1.
The attorney general’s office and a US district judge who is overseeing a separate Securities and Exchange Commission case have questioned whether the bank knowingly hid details about the acquisition from shareholders ahead of a vote to approve the deal.
Up to now the bank had refused to provide details on legal advice it received on its disclosures to shareholders.
But in a letter to Mr Cuomo obtained by The Associated Press, Bank of America said that following a "very constructive" meeting on October 6 between the bank and the attorney general’s office, it "reconsidered its position" with regard to waiving privilege "in the hope of furthering a resolution".
A spokesman for Charlotte, North Carolina-based BofA could not immediately be reached for comment.
Bank of America agreed to acquire Merrill Lynch in a hastily-arranged deal in September 2008, at the height of the financial crisis, just as Lehman Brothers was preparing to file for bankruptcy.
When it asked shareholders to approve the takeover, Bank of America said Merrill would not pay year-end bonuses without its consent. But in August, the SEC said in court papers that BofA had already authorised Merrill to pay up to 5.8 billion dollars (£3.7bn) in bonuses and did not share that information with shareholders.
Merrill paid employees 3.6 billion dollars in bonuses for 2008, a year in which it lost 27.6 billion (£17.5bn), a record for the firm. Those losses hurt Bank of America, one of the largest recipients of US government bail-out funds.
The bank received 45 billion dollars (£28.5bn) in government aid, including 20 billion (£12.7bn) to help offset Merrill’s losses.
US District Judge Jed Rakoff last month rejected a 33 million-dollar (£21m) settlement between the SEC and Bank of America, saying the SEC’s accusations of inadequate disclosure by the bank over the bonuses must go to trial.
The SEC has said it was impossible to establish whether Bank of America executives knowingly broke securities laws because the terms of the bank’s takeover of Merrill - including the bonus payments - were laid out in documents prepared by outside lawyers for the two companies.
The lawyers were mainly responsible for drafting the Bank of America disclosure filings. Bank of America has maintained that its disclosures to shareholders complied with securities laws.
Company executives involved in the legal correspondence include Bank of America’s general counsel Timothy Mayopoulos, who left BofA in December 2008, shortly before the Merrill deal closed. Brian Moynihan, the bank’s former president of global corporate and investment banking, took over the role. He is also head of the company’s largest division, consumer and small business banking.
In its letter to the attorney general’s office, Bank of America said it would waive privilege with respect to communications about what bonus-related disclosures would be made in, or omitted from, the joint proxy statement issued by BofA and Merrill Lynch on November 3, 2008, in connection with their merger.
It will also waive privilege regarding BofA’s consideration about whether to back out of the deal under a material adverse change clause, and the disclosure or non-disclosure of Merrill’s 2008 fourth-quarter financial performance and potential goodwill impairment charges before the acquisition’s January 1 closing.
BofA said in the letter that it would also waive privilege over its communications with the Federal Reserve Board, the Treasury Department and other government officials regarding federal aid in connection with the Merrill Lynch takeover.