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The New York attorney-general has laid bare the US Government’s desperate attempts to prop up the financial system late last year, which went as far as misleading stock markets about the financial health of one of Wall Street’s biggest banks. Andrew Cuomo published a letter to senior Congressmen and financial regulators in which he recounts negotiations by Hank Paulson, the former Treasury Secretary, with Kenneth Lewis, chairman and chief executive of Bank of America (BoA), over the bank’s acquisition of Merrill Lynch last year. The Securities and Exchange Commission, which protects shareholders’ interests, was excluded from talks about the troubled $50 billion (£34 billion) deal. Mr Cuomo said that his findings raised questions about the transparency of America’s $700 billion banks bailout, which is already under fire for failing to force banks to account for their use of taxpayers’ money. The attorney-general also published 44 pages of testimony in which Mr Lewis claimed that Mr Paulson and Ben Bernanke, the Chairman of the Federal Reserve, encouraged him to keep mounting losses in Merrill secret from shareholders. BoA launched its all-share offer for Merrill in September and the takeover was approved by shareholders on December 5. However, by December 14, losses at the Wall Street bank were rising rapidly and on December 17 Mr Lewis warned the Treasury and the Federal Reserve that he wanted to back out of the takeover by invoking a material adverse change (Mac) clause in the contract between the banks. Mr Lewis was encouraged by Mr Paulson and Mr Bernanke to go ahead with the deal because they feared that its failure would send already troubled financial markets into freefall. When Mr Lewis repeated on December 21 that BoA did not want to pursue the deal, he said that he was told by Mr Paulson to go through with the acquisition or risk losing his job, having the BoA board ousted and doing serious damage to the US financial system, Mr Lewis told Mr Cuomo’s investigators. “I recall him saying ‘The Government’ – but that may or not be the case – ‘does not feel it’s in your best interest for you to call a Mac and we feel so strongly’. I can’t recall if he said ‘We would remove the board and management if you called it’ or if he said ‘We would do if you intended to’,” Mr Lewis testified. The BoA chief executive went on to say that it was the danger to the financial system, and not this personal threat, that persuaded the bank’s board to go ahead with the takeover. Merrill shocked shareholders later in December when it revealed a surprisingly large $15.8 billion fourth-quarter loss. At the same time BoA was lent $20 billion by the Government to offset the red ink at Merrill. However, investors were furious that BoA had not warned them of Merrill’s precarious financial situation at a time when they could have voted down the takeover. Mr Cuomo subsequently launched an investigation into the bank’s disclosures to the stock market. Mr Lewis told investigators that he was encouraged by Mr Paulson and Mr Bernanke to keep shareholders in the dark about the state of Merrill’s finances and about the deal being in danger. “I was instructed that ‘We do not want a public disclosure’,” he said. Mr Paulson told the attorney-general that he had made the threats to Mr Lewis at the behest of the Fed’s Chairman. The former Treasury Secretary has also indicated that Mr Lewis may have misunderstood his comm