Federal Reserve Chairman Ben Bernanke told a congressional panel Thursday that the Fed had asked Bank of America Corp. to "look at top management and make changes to its board" after it needed more government assistance in January.
Under questioning from members of the House Oversight and Government Reform Committee, Bernanke also acknowledged that he had "concerns and questions" about Bank of America's management after it tried to back out of acquiring Merrill Lynch & Co. in December. The bank wanted to abandon the deal because of rising Merrill losses, but later proceeded when Fed and Treasury officials objected.
Bank of America spokesman Scott Silvestri declined to comment.
Federal Reserve officials initially suggested in December that Bank of America's management should be subject to a "supervisory action" after the bank, based in Charlotte, N.C., made its bid to exit the Merrill deal, according to new documents the committee released Thursday.
Premium content for only $0.99
For the most comprehensive local coverage, subscribe today.
In one e-mail, Federal Reserve Bank of Richmond official Mac Alfriend suggested an arrangement similar to restrictions imposed on Charlotte-based Wachovia Corp. Such an agreement with Wachovia, which was sold to Wells Fargo & Co. on Dec. 31, hadn't been disclosed previously.
In the e-mail exchange Dec. 20, Fed official Deborah Bailey said of Bank of America: "Personally, I think management should be downgraded, no more acquisitions, raise some 'real capital,' frequent meetings with the board, etc."
She added: "I always had my doubts about the quality of the due diligence they did on the (Merrill Lynch) deal."
Amid the global financial meltdown, Bank of America agreed to buy Merrill in mid-September after a mere 48 hours of negotiations. On Dec. 17, however, Bank of America Chief Executive Officer Kenneth Lewis told the Fed and the Treasury Department that he wanted to trigger an escape clause because of bigger-than-expected fourth-quarter losses at Merrill.
That eleventh-hour move spurred some government officials to question management's handling of the merger, according to e-mails released earlier this month.
In his e-mail, Alfriend suggested an arrangement similar to one in which Wachovia was required to "retain an independent consultant acceptable to the Reserve Bank to conduct a review of the effectiveness of Wachovia's corporate governance and risk management . . . and to prepare a written report of findings and recommendations."
The e-mail doesn't say when Wachovia was required to conduct this review, but in May 2008 the bank said its board planned to retain an independent consultant to review its internal controls and risk management practices. That decision followed a spate of embarrassing miscues at the bank, including a larger-than-expected quarterly loss and a settlement with federal regulators over ties to telemarketers.
A little more than two weeks later, the Wachovia board ousted CEO Ken Thompson, and by October the bank had agreed to the takeover by San Francisco-based Wells Fargo as Wachovia verged on collapse.
(Rothacker reports for The Charlotte Observer.)
MORE FROM MCCLATCHY
Follow the latest politics news at McClatchy's Planet Washington