The former top attorney of Bank of America Corp. will testify to Congress Tuesday that he wasn't involved in crafting the bank's agreement to let Merrill Lynch pay billions of dollars in bonuses to its employees, before being abruptly fired last December on the CEO's orders.
Timothy Mayopoulos, who was general counsel at the second-largest U.S. bank until December 2008, also says he played no role in deciding whether to disclose the bonuses to Bank of America shareholders. Mayopoulos is scheduled to testify before Congress for the first time on Tuesday as a House oversight panel examines the $45 billion federal bailout of Charlotte, N.C.-based Bank of America and its shotgun acquisition of Merrill last year at the height of the financial crisis.
"To my recollection, I had no role in this issue," Mayopoulos says of the bonuses in written testimony prepared for the hearing. "That was done by others."
The House Oversight and Government Reform Committee has been investigating the government's role in pushing the hastily arranged takeover of Merrill, the tumultuous events surrounding the deal and the payment of the bonuses to Merrill employees.
Mayopoulos provides new details of his firing on Dec. 10, 2008, saying he was told by a colleague that CEO Ken Lewis had made the decision "quickly and recently." The colleague, who was the bank's chief risk officer, told him "that I was to leave the premises immediately," Mayopoulos recalls in his testimony. A human resources rep gave him his severance papers and took his corporate ID, company credit card, BlackBerry and office keys, he says.
"I got in my car and drove home. I was stunned," Mayopoulos says. "I had never been fired from any job, and I had never heard of the general counsel of a major company being summarily dismissed for no apparent reason and with no explanation."
The Merrill deal, forged the same September weekend that Lehman Brothers collapsed, was first questioned after Bank of America disclosed that the investment bank would post 2008 losses of $27.6 billion _ far more than expected. Bank of America, which had already received $25 billion in U.S. bailout aid, then asked for and received an additional $20 billion from the government to help offset those losses.
Mayopoulos says in his testimony he advised Bank of America executives that the bank couldn't make a case that Merrill's huge losses provided legal grounds for it to back out of the merger deal.
"I concluded that there was no basis to conclude that a material adverse change had occurred with regard to Merrill Lynch" that would justify calling off the merger, he says.
But Lewis came under even fiercer attack after Merrill, with the knowledge of BofA executives, gave $3.6 billion in bonuses to its employees even as the government was doling out more rescue money. The bonuses, which would normally have been paid in January, were paid out instead in December ahead of the deal's Jan. 1 completion. The bonus flap ultimately cost former Merrill Lynch CEO John Thain his job at Bank of America, and the continuing fallout led Lewis to decide to step down at the end of this year.
One of the key issues is what legal advice Bank of America received regarding disclosing the amount of the bonuses _ which could have totaled up to $5.8 billion _ to shareholders before their vote on the companies' merger. The Securities and Exchange Commission sued Bank of America in August, alleging that it failed to tell shareholders that it had authorized Merrill to pay that amount in 2008 even though the investment bank had suffered the stunning loss.
The terms of the bank's takeover of Merrill, including the bonus payments, were laid out in documents prepared by outside attorneys for the two companies. Bank of America was represented in the negotiations by the law firm Wachtell, Lipton, Rosen & Katz. Merrill's counsel was Shearman & Sterling. The attorneys were mainly responsible for drafting Bank of America's disclosure filings to the SEC.
Also scheduled to testify at Tuesday's hearing is Brian Moynihan, who took over as Bank of America general counsel after Mayopoulos' departure and is president of consumer and small-business banking, and board members Charles "Chad" Gifford and Thomas May.
Moynihan is considered by analysts to be a leading candidate to replace Lewis.
"... Throughout the deliberations around our acquisition of Merrill Lynch, Bank of America acted in good faith and consulted with one of the premier law firms in the United States to work through a very difficult issue," Moynihan says in his prepared testimony.
He also maintains that despite the merger having been affected by the distress of the financial crisis, it turned out to be a success that has benefited Bank of America customers and U.S. taxpayers.
The House panel's scrutiny follows months of legal wrangling over the deal. In September, New York Attorney General Andrew Cuomo subpoenaed five members of Bank of America's board as part of an investigation into the Merrill takeover. Seven directors have resigned from the board since shareholders replaced Lewis as chairman in April.
Bank of America had settled the SEC's separate case over disclosures of the Merrill bonuses in September, but a federal judge said the $33 million settlement accord was unfair and needlessly penalized the bank's shareholders. The judge has ordered the case to go to trial on Feb. 1.