Emails Show Fed Pressure on BofA in Merrill Deal: GOP

Emails from Federal Reserve Chairman Ben Bernanke and others indicate pressure on Bank of America to withhold information from the public about the bank's worries about Merrill Lynch's financial condition, according to a document written by U.S. House Republicans.

The documents, which were subpoenaed by the U.S. House Oversight and Government Reform Committee, were cited in a staff memo for Republicans ahead of a hearing Thursday where Bank of America chief executive Ken Lewis will testify.

Oliver Quillia for cnbc.com Bank of America branch, New York City.

One email shows pressure from the Fed on Lewis to stay the course on the deal, or have management removed.

In an email from Jeffrey Lacker, the president of the Richmond Federal Reserve, speaking about Lewis' intent to exercise a "material adverse change" (MAC) clause to get out of the Merrill deal, Lacker said: "Just had a long talk with Ben ... Says they think the MAC threat is irrelevant because it's not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone."

Bank of America declined to comment on the e-mails when contacted by CNBC.

BofA CEO Ken Lewis will tell a House panel Thursday that the bank was asked by US regulators to delay declaring a 'material adverse change' related to its Merrill Lynch deal.

He will say during testimony that BofA knew in mid-December 2008 of significant accelerating losses at Merrill, and told regulators as much.

The bank told the Department of the Treasury and the Federal Reserve of those losses, but regulators asked the bank to delay declaring a material adverse charge.

Lewis, in testimony prepared for the hearing, said he became aware of "significant, accelerating losses" at Merrill in mid-December after the shareholder vote. Lewis has consistently maintained in statements that he did not realize the severity of Merrill's problems until after that vote.

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The CEO, who has since been ousted as chairman, also said he told Treasury and Fed officials he was considering declaring a "material adverse change" which would have allowed it to walk away from the acquisition.

"Treasury and Federal Reserve representatives asked us to delay any such action, and expressed significant concerns about the systemic consequences," Lewis said in the testimony.

Fed chairman Ben Bernanke has denied previous assertions by Lewis about pressure. A spokeswoman for former Treasury Secretary Henry Paulson has said Paulson told Lewis there was no need to terminate the deal.

House Oversight Committee Chairman Edolphus Towns was joined by the ranking Republican Darrell Issa in serving the subpoena on the Federal Reserve. The lawmakers had previously asked Fed chairman Ben Bernanke to turn over dozens of documents related to the merger.

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