May 13 (Bloomberg) -- Former Treasury Secretary Henry Paulson said nine U.S. banks would have to accept $125 billion in government investments or be forced to by regulators, according to a memo prepared for a meeting with the lenders’ chief executive officers in October.

“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance,” the one-page list of talking points said. “We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.”

Paulson’s plan to invest directly in the banks was a shift for the Bush administration, which had proposed buying troubled assets with $700 billion Congress approved 10 days earlier. The memo was among Treasury Department documents providing details about the Oct. 13 meeting.

“Most Americans are going to be uncomfortable with the government forcing the banks into this arrangement,” said Tom Fitton, president of Judicial Watch, a nonprofit research group in Washington that obtained the documents under a Freedom of Information Act request. “This is, in many ways, thuggery.”

Andrew Williams, a spokesman for the Treasury, didn’t return calls seeking comment.

Banks worldwide have taken almost $1.5 trillion in writedowns and losses during the worst credit crisis since the Great Depression.

In his memo, Paulson said the government would buy preferred stock in the banks.

“Your nine firms represent a significant part of our financial system. Therefore, in our view, you must be central to any solution,” the memo said.

Half-Page Forms

Three and a half hours after the meeting was scheduled to begin, Paulson had obtained the bankers’ signatures on half-page forms along with the handwritten amount of the federal government’s investment, according to the documents. He announced the actions publicly the next day.

In releasing the documents, Judicial Watch said Treasury initially said it had no records about the meeting. It didn’t release a transcript of discussions between government officials and bankers.

The CEOs who attended included Kenneth Lewis of Bank of America Corp., Vikram Pandit of Citigroup Inc., Lloyd Blankfein of Goldman Sachs Group Inc., Jamie Dimon of JPMorgan Chase & Co., John Thain of Merrill Lynch & Co., now part of Bank of America;Robert Kelly of Bank of New York Mellon Corp., Ronald Logue of State Street Corp., John Mack of Morgan Stanley and Richard Kovacevich of Wells Fargo & Co.

Accompanying Paulson were Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and New York Federal Reserve Bank President Timothy Geithner, who succeeded Paulson as Treasury secretary.

Sunday Calls

The Monday meeting came after Paulson huddled with Geithner, Bair and Treasury aides Sunday afternoon and then placed calls that evening to each CEO except Blankfein, according to the secretary’s daily activity log.

The Treasury has invested $199.1 billion in the bank preferred share program, with $1.2 billion since returned by 12 institutions, according to government data.

Paulson succeeded at stabilizing the financial services industry at a moment in crisis, said J.P. O’Sullivan an SNL Financial bank analyst in Charlottesville, Virginia.

“It was a calming mechanism,” O’Sullivan said. “There was no other way to obtain capital and hasn’t been until recently. And at that time it was relatively cheap capital.”

To contact the reporter on this story: Elliot Blair Smith in Washington, D.C., at esmith29@bloomberg.net

Last Updated: May 13, 2009 17:51 EDT