Regulation: Paulson admits to threatening banks
In what should have been a surprise, Henry "Hank" Paulson has impressed few with his admissions that he threatened Bank of America that regulators would become interested in the company if it did not take over Merrill Lynch.
It's not Paulson's first such admission. He has previously said that he told the USA's nine biggest banks that the bailout package was there to be used: and if any bank decided it did not need it, he would ensure that regulators made it their policy to make them do so.
Ken Lewis has said that his bank's profits and future were jeopardised by the take-over, and that there was a point where BofA wanted to walk away from the deal. But Paulson strongarmed him into continuing against his better judgement.
Lewis's comments were made after the full scale of Merrill's financial position was made public - and it was obvious that BofA was struggling to contain the mess.
Paulson told Lewis that regulators had the power to remove officers from banks in a threat that was so thinly veiled that it would not pass muster in a place where thin veils are worn.
Paulson says he did not tell BofA to withhold information from shareholders about a potential deal to buy Merrill without state funds - but the original deal went ahead with USD20,000 million in state aid and an agreement to limit the potential losses on bad debt.
The allegations are that various state organs pressured BofA into completing a deal that it wanted to back away from when the full scale of the problems were identified during due diligence. Paulson has said that he believed his actions were what the Fed wanted but had not formally expressed to him.
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