Those poor AIG executives–they must be pissed about getting all the heat from walking away with a paltry $165 million in bonuses while the folks at Merrill Lynch managed to cart away twenty times that amount just as the government was crafting its takeover by Bank of America.

   Remember, Merrill had just posted a tidy $27.5 billion LOSS in 2008. Isn’t merit pay a wonderful thing? You tank a company and, no worries, you get rewarded. Where can I sign up for that job? But I digress…yes, unlike AIG, Merrill did not get taxpayer money–but Bank of America did put its hand out, asking for $20 billion to cushion the blow of absorbing Merrill’s losses.

   Well, Dennis Kucinich thinks this is a scandal–and has written to Federal Reserve Chairman Ben Bernanke and Bank of America’s Ken Lewis asking for an explanation. Here’s the text of the letter to Bernanke:

Dear Mr. Bernanke:

As you know, Merrill Lynch & Co. ("Merrill") paid out several billion dollars of bonuses in December 2008, before their merger with Bank of America Corporation (BOA) was consummated but after Treasury allocated $10 billion in Troubled Assets Relief Program (TARP) funds to Merrill and after Treasury’s initial injection of $15 billion in BOA. In contrast to the bonuses awarded by AIG, the Merrill bonuses constituted a significant proportion of allocated TARP funds, were not locked into place by preexisting contract, and were performance, not retention, in nature. They also raise significant questions about what you and other Federal Reserve officials involved in the merger of BOA and Merrill knew about the Merrill bonuses.

The Merrill bonuses were 22 times larger than those paid by AIG ($3,620 million versus $165 million). They were also very large relative to the TARP monies allocated to Merrill. The Merrill bonuses were the equivalent of 36.2% of TARP monies Treasury allocated to Merrill and awarded to BOA after their merger. The bonuses, awarded mostly as cash, were made only to top management at Merrill. To be eligible for the bonuses, Merrill employees had to have a salary of at least $300,000 and attained the title of Vice President or higher.

The Merrill bonuses were determined by Merrill’s Compensation Committee at its meeting of December 8, 2008, shortly after BOA shareholders approved the merger but before financial results for the Fourth Quarter had been determined. This appears to be a departure from normal company practice, since the type of bonus Merrill awarded was a performance bonus that, according to company policy, was supposed to reflect all four quarters of performance and was paid in January or later. In this case, however, the bonuses were awarded in December before Fourth Quarter performance had been determined.

Shortly after the award of the Merrill bonuses, Merrill/BOA determined that the losses for Fourth Quarter performance at Merrill were enormous. By January, BOA would announce Fourth Quarter losses at Merrill in excess of $15 billion.

BOA had knowledge of and influence over Merrill’s intent to pay out bonuses even before BOA took control of Merrill. According to the merger agreement of September 15, 2008, Merrill’s bonus awards were to be made “in consultation with [Bank of America].” In an undisclosed attachment to the merger agreement, made public only recently by the Attorney General of New York State, Bank of America permitted Merrill the right to award up to $5.8 billion for calendar year 2008 performance (See Merger Agreement Attachment, attached hereto).

While prior to the merger BOA knew of Merrill’s intent to award billions of dollars in performance bonuses before the Fourth Quarter earnings were calculated, BOA did not disclose the details it possessed about the Merrill bonuses and the unusualness of the timing of those bonuses to its shareholders prior to their vote on the merger.

This raises important questions about what you knew about the Merrill bonuses, and what you did with your knowledge. If ordinary BOA shareholders were ignorant of the details of the Merrill bonus arrangement, was the U.S. government as well? At the time, the U.S. held 800,000 shares in preferred stock and warrants in BOA. Unlike ordinary shareholders, you and then-Secretary Henry Paulson met on at least several occasions with Ken Lewis of BOA in late 2008. For instance, on December 17, 2008 and again on December 19, 2008, BOA CEO Ken Lewis met with you to explore withdrawing from the deal to acquire Merrill. However, you and Mr. Paulson reportedly impressed upon Mr. Lewis the importance of upholding his commitment to the deal. Additionally, Treasury released in the following month another $20 billion in TARP funds to BOA and guaranteed $118 billion in troubled assets against loss.

In order to assist the Subcommittee with its investigation into what you knew about the Merrill bonuses, when you knew it, and what you did with your knowledge, I hereby request the following documents:

1) All documents and communications between employees of Bank of America and the Federal Reserve, and Merrill Lynch and the Federal Reserve, related in any way to Merrill’s compensation packages, bonuses, and/or Bank of America’s receipt of TARP monies, for the period from August 1, 2008 through January 19, 2009.

The answers the Subcommittee seeks will be of interest to the American public, who are rightly concerned about how recipient firms have used TARP monies, and how well the Federal Government has monitored the use of those funds and safeguarded them from waste and abuse. The Oversight and Government Reform Committee is the principal oversight committee in the House of Representatives and has broad oversight jurisdiction as set forth in House Rule X. An attachment to this letter provides information on how to respond to the Subcommittee’s request.

Sincerely,

Dennis J. Kucinich

Chairman

Domestic Policy Subcommittee