[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

                            FEDERAL BAILOUT?


                             JOINT HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                                and the


                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                             JUNE 11, 2009


                           Serial No. 111-38


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                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              TODD RUSSELL PLATTS, Pennsylvania
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee                LYNN A. WESTMORELAND, Georgia
GERALD E. CONNOLLY, Virginia         PATRICK T. McHENRY, North Carolina
MIKE QUIGLEY, Illinois               BRIAN P. BILBRAY, California
MARCY KAPTUR, Ohio                   JIM JORDAN, Ohio
    Columbia                         JEFF FORTENBERRY, Nebraska
DANNY K. DAVIS, Illinois             AARON SCHOCK, Illinois
PAUL W. HODES, New Hampshire
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland         JIM JORDAN, Ohio
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
DIANE E. WATSON, California          DAN BURTON, Indiana
JIM COOPER, Tennessee                MICHAEL R. TURNER, Ohio
PETER WELCH, Vermont                 AARON SCHOCK, Illinois
                    Jaron R. Bourke, Staff Director

                            C O N T E N T S

Hearing held on June 11, 2009....................................     1
Statement of:
    Lewis, Kenneth D., chief executive officer, Bank of America..    17
Letters, statements, etc., submitted for the record by:
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............   104
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California:
        Documents referred to in the minority background memo....    35
        Prepared statement of....................................     9
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Information concerning week to week losses...............    27
        Prepared statement of....................................    13
        Various e-mails..........................................    88
    Lewis, Kenneth D., chief executive officer, Bank of America, 
      prepared statement of......................................    19
    Towns, Chairman Edolphus, a Representative in Congress from 
      the State of New York, prepared statements of............. 4, 100
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................   101

                            FEDERAL BAILOUT?


                        THURSDAY, JUNE 11, 2009

        House of Representatives, Committee on Oversight 
            and Government Reform, joint with the Domestic 
            Policy Subcommittee,
                                                    Washington, DC.
    The committee and subcommittee met, pursuant to notice, at 
10 a.m., in room 2154, Rayburn House Office Building, Hon. 
Edolphus Towns (chairman of the Committee on Oversight and 
Government Reform) presiding.
    Present: Representatives Towns, Kucinich, Issa, Jordan, 
Kanjorski, Cummings, Clay, Watson, Lynch, Connolly, Quigley, 
Kaptur, Van Hollen, Welch, Foster, Speier, McHenry, Bilbray, 
Flake, Chaffetz, and Schock.
    Staff present: John Arlington, chief counsel--
investigations; Beverly Britton Fraser, counsel; Kwane Drabo 
and Katherine Graham, investigators; Brian Eiler, investigative 
counsel; Aaron Ellias, staff assistant; Linda Good, deputy 
chief clerk; Jean Gosa, clerk; Adam Hodge, deputy press 
secretary; Carla Hultberg, chief clerk; Marc Johnson, assistant 
clerk; Mike McCarthy, deputy staff director; Jesse McCollum, 
senior advisor; Amy Miller, special assistant; Leah Perry, 
senior counsel; Jenny Rosenberg, director of communications; 
Joanne Royce and Christopher Staszak, senior investigative 
counsels; Leneal Scott, information specialist; Ron Stroman, 
staff director; Jaron Bourke, staff director--Domestic Policy 
Subcommittee; Charisma Williams, staff assistant--Domestic 
Policy Subcommittee; Cate Veith, legislative assistant, Office 
of Congressman Dennis J. Kucinich; Lawrence Brady, minority 
staff director; John Cuaderes, minority deputy staff director; 
Jennifer Safavian, minority chief counsel for oversight and 
investigations; Frederick Hill, minority director of 
communications; Dan Blankenburg, minority director of outreach 
and senior advisor; Adam Fromm, minority chief clerk and Member 
liaison; Kurt Bardella, minority press secretary; Benjamin 
Cole, minority deputy press secretary; Christopher Hixon, 
minority senior counsel; and Brien Beattie and Molly Boyl, 
minority professional staff members.
    Chairman Towns. Good morning. Thank you all for being here 
    On September 15, 2008, when the financial crisis was at its 
height, Bank of America announced that it was purchasing 
Merrill Lynch, creating one of the Nation's largest financial 
institutions. At the time, Bank of America's CEO, Mr. Lewis, 
called the merger a great opportunity for Bank of America 
    When it was announced on September 15th, this merger was a 
marriage negotiated between two willing parties. It was 
designed for the exclusive benefit of private shareholders, and 
it was to be paid for exclusively with private money.
    Four months later, on January 16, 2009, after the merger 
was consummated and the quarterly earnings were announced, the 
world woke up to a different kind of marriage.
    The American people discovered that Merrill Lynch had 
experienced a $15 billion fourth quarter loss. Most 
importantly, we found out that the merger had taken place only 
after the Federal Government had committed to give Bank of 
America billions in taxpayer money.
    What happened in the interim?
    When Bank of America urged its shareholders to approve the 
acquisition of Merrill Lynch on December 5, 2008, there was no 
public disclosure of any problems with the transaction.
    However, in a deposition taken by New York Attorney General 
Cuomo, Mr. Lewis testified that just 9 days after the 
shareholder vote he discovered a $12 billion loss at Merrill 
Lynch. Mr. Lewis said he told then-Treasury Secretary Hank 
Paulson that he was strongly considering backing out of the 
deal. According to Mr. Lewis, Paulson ultimately told him that 
if he didn't go through with the acquisition, he and the Board 
would be fired.
    However, internal emails we have obtained from the Federal 
Government indicate officials there were very skeptical about 
Mr. Lewis's motives in threatening to back out of the Merrill 
deal. Fed Chairman Ben Bernanke thought Lewis was using the 
Merrill losses as a bargaining chip to obtain Federal funds.
    Other emails reveal that Federal analysts found it suspect 
that Mr. Lewis claimed to be surprised by the rapid growth of 
Merrill losses given the clear signs in the data. They noted 
that at a minimum it calls into question the due diligence 
process Bank of America has been doing in preparation for the 
    In short, the Treasury Department had provided $20 billion 
for a shotgun wedding. But the question may be, who was holding 
the shotgun?
    At today's hearing we hope to better understand what 
happened in the 4-months between September 15, 2008, when the 
merger was announced, and January 16, 2009, when the public 
learned that Bank of America had received $20 billion in 
taxpayer money.
    We will be looking for answers to some puzzling questions: 
Why did a private business deal, announced in September, and 
approved by shareholders in December, with no mention of 
government assistance, end up costing taxpayers $20 billion in 
    Did Paulson and Bernanke abuse their authority by ordering 
Mr. Lewis to go through with the Merrill acquisition, or did 
Mr. Lewis threaten to back out in order to squeeze more money 
out of the Federal Government?
    Did the Federal Government tell Mr. Lewis to keep quiet 
about the escalating Merrill Lynch losses and the Government's 
commitment to provide billions in Federal funding?
    I am sure there will be other questions, as well.
    To get to the bottom of these issues, we also intend to 
invite Mr. Paulson and invite Mr. Bernanke to testify at a 
future date. The committee's willingness to issue subpoenas 
should clarify our expectation of full cooperation by 
prospective witnesses.
    I want to thank Mr. Lewis for being here and I look forward 
to his testimony.
    [The prepared statement of Chairman Edolphus Towns 



    Chairman Towns. At this time, I yield to the ranking member 
of the committee, Mr. Darrell Issa of California.
    Mr. Issa. Thank you, Mr. Chairman, and thank you for 
holding this important bipartisan hearing today.
    It is important that those who see this hearing today 
recognize that we are not here to evaluate the value of Bank of 
America or Merrill Lynch or their transaction, whether it was a 
good deal then or a good deal today for either of the parties. 
We are here because there has been a serious allegation and a 
number of pieces of evidence have arisen that make us believe 
that Government officials felt necessary to use the power, 
influence and, in fact, potentially threats in order to 
consummate this deal.
    When Congress envisioned the TARP and other powers in order 
to help in the post-September meltdown of the economic market, 
we did so in a way that was intended to make dollars available 
to help lessen the impact as we unwound credit markets around 
the world. Nowhere in the legislation did it suggest that Hank 
Paulson, Ben Bernanke, or anyone else operating on behalf of 
the U.S. Government was given the power to force shotgun 
    Today we will hear from Ken Lewis, CEO of Bank of America, 
a man who has spent decades understanding the value of 
financial institutions. We undoubtedly will hear that, in fact, 
at the beginning of this transaction, the ratios determined for 
a stock trade type merger were in fact considered to be 
    As the chairman has said, rightfully so, the Federal 
Government played a clear part in this. But the American people 
should understand their dollars were not given to any party in 
this transaction, but in fact loaned at an amount substantially 
greater than the interest rate paid by the Federal Reserve. As 
such, Ken Lewis and all the parties involved had an obligation 
to recognize they were going to have to pay this money back and 
that they had to receive value in this transaction.
    Allegations have been made throughout the press, and will 
undoubtedly be reiterated here today, that the value that was 
being questioned by Bank of America had something to do with 
getting more money from the Federal Government. That may be 
true. Having done acquisitions myself, more often it is in fact 
the ratio being paid between the buying company and the selling 
company that is more at stake.
    Had Bank of America had to pay a greater amount in the 
stock trade than it did, the value of Bank of America to the 
existing stockholders would have been reduced. Had, on the 
other hand, instead of a roughly 8 to 10 ratio, had it been a 5 
to 10 ratio, the stockholders of Merrill Lynch would have had a 
significantly lower value to their stock.
    We are not here, though, today to deal with any of that. We 
are clearly here today, as the Government Reform and Oversight 
Committee, to deal with the question of whether or not 
allegations made and evidence that has arisen lead us to 
believe that those operating under the color of our 
Government's seal used any unreasonable influence or threats in 
order to consummate this or any other deal.
    Mr. Chairman, I thank you for holding this hearing. I 
appreciate the fact that this is clearly the first of two 
hearings that will be necessary. Today we have part of the 
story. When we have Mr. Bernanke and Mr. Paulson, then we will 
have the other half of it. I look forward to this first hearing 
and yield back.
    [The prepared statement of Hon. Darrell E. Issa follows:]
    [GRAPHIC] [TIFF OMITTED] 54877.004
    [GRAPHIC] [TIFF OMITTED] 54877.005
    Chairman Towns. Thank you very much.
    I now yield 5 minutes to Mr. Kucinich, who is the chair of 
the subcommittee.
    Mr. Kucinich. Thank you very much, Mr. Chairman, members of 
the committee.
    Bank of America became the largest commercial bank in the 
Nation, the 11th largest corporation in the United States, and 
the 23rd largest company in the world through the aggressive 
acquisition of other financial institutions, including the 
purchase of Merrill Lynch last year. But something went 
terribly wrong with the Merrill Lynch acquisition, nearly 
enough to bring Bank of America down.
    Taxpayers now own $45 billion in preferred shares and 
warrants in Bank of America. That money was committed by the 
Treasury Department and the Federal Reserve, and Mr. Lewis is 
here today, as the CEO of Bank of America, thanks to the 
commitment of those funds through a series of events that 
unfolded through the end of December 2008 and into early 
January 2009.
    Due to the secretive and unaccountable conduct of the Fed 
throughout its interventions addressing the current financial 
crisis, many questions about the Bank of America-Merrill Lynch 
deal and bailout have, until today, remained unanswered. Some 
of the key questions have been:
    Were the Merrill Lynch losses that precipitated Bank of 
America's distress call to the Treasury on December 17th the 
first such accelerating losses Bank of America observed at 
Merrill Lynch since agreeing to purchase the company? Did the 
Government believe that Bank of America had a credible case for 
abandoning the deal? Did the Federal Reserve compel Bank of 
America to complete the deal against its will?
    Or, Did Bank of America's mistakes and miscalculations, 
more than any other single factor, cause the experienced 
corporate dealmaker to be exposed to Merrill Lynch's 
predictably large losses? Did the Government believe that Bank 
of America knew or should have known about those losses before 
its shareholders ratified the merger? Did the Government have 
an opinion about whether Bank of America could be liable for 
securities fraud for withholding from its investors material 
information it possessed about a significant deterioration in 
Merrill Lynch's balance sheet? Did Bank of America in effect 
negotiate an extraordinary deal for billions of additional 
dollars from taxpayers to continue its growth as the Nation's 
largest commercial bank?
    The hearing today will help to answer those questions. This 
committee's ongoing investigation and subsequent hearings will 
answer the following questions, among others: Did the Federal 
Reserve, in attempting to protect the system, apply well-
established remedies when it engineered billions of dollars in 
subsidies to Bank of America to complete its deal with Merrill 
    Or, Did the Federal Reserve pursue an untested experiment 
in banking regulation at variance with traditional remedies in 
committing billions of dollars in taxpayer funds to a corporate 
management that the Federal Reserve believed had failed in 
major ways?
    Mr. Chairman, members of the committee, this committee has 
sifted through tens of thousands of pages of documents produced 
by Bank of America, the Department of Treasury, and the Federal 
Reserve. Our investigation will help set the record straight 
about Bank of America and Merrill Lynch. Furthermore, the story 
of Bank of America's merger with Merrill Lynch and its huge 
taxpayer-provided subsidy helps to answer broader questions 
about how the corporate management of very large financial 
institutions operate with virtual impunity for their mistakes. 
The documents we will reveal today provide the public a rare 
look into the disconnection between the Fed's ability to 
analyze financial problems, and its ability to remedy them, 
when they involve very large financial institutions.
    Finally, Mr. Chairman, before Congress rushes to revise the 
banking regulatory framework, we would do well to incorporate 
the lessons of the Bank of America-Merrill Lynch episode that 
this committee's hearings over the coming weeks will draw.
    I yield back. Thank you.
    [The prepared statement of Hon. Dennis J. Kucinich 


    Chairman Towns. I thank the gentleman from Ohio.
    Now I will yield to the ranking member, Jim Jordan, also 
from Ohio.
    Mr. Jordan. Thank you, Mr. Chairman, for holding today's 
hearing. I want to thank you and Ranking Member Issa, and also 
the chairman of the subcommittee for his tireless efforts to 
get to the truth about this issue. I believe today's hearing is 
an important first step in learning about the full extent of 
the Government's manipulation of the banking industry.
    This committee's investigation of the Bank of America-
Merrill Lynch transaction has raised troubling questions about 
potential abuses of Government power. As both the Chair and the 
ranking member have indicated, we have learned that, at a 
minimum, then-Secretary Hank Paulson threatened to remove Mr. 
Lewis and Bank of America's board of directors if Mr. Lewis 
exercised his legal option to attempt to back out of the deal 
to acquire Merrill Lynch. In addition, we have learned that the 
Department of Treasury and the Federal Reserve were involved in 
discussions about when and how the financial condition of 
Merrill Lynch was to be disclosed to the two companies' 
respective shareholders.
    We have also learned that this transaction took place in a 
climate of fear and intimidation by Government officials. For 
example, we now know that, in October 2008, Mr. Paulson brought 
the CEOs of the largest private banks in America to the 
Treasury Department and demanded that they accept the partial 
nationalization of their banks in exchange for an amount of 
money of the Government's choosing.
    Mr. Chairman, I understand the significant challenges that 
our economic system faced last fall, and I understand Mr. 
Paulson's and Mr. Bernanke's intention to do what they thought 
was in the best interest of the economic system as a whole. But 
in our constitutional system of government, the rule of law 
restricts the Government's ability to do whatever it wants. We 
must understand the full story of what happened in the process 
of the Government taking over much of the banking industry so 
that, when the next crisis occurs, we can understand the proper 
limits of Government action in a free and civil society.
    I am grateful for Mr. Lewis's willingness to appear before 
the committee today. In addition to important questions 
regarding Bank of America's transaction with Merrill Lynch, I 
also hope Mr. Lewis can shed light on his personal interaction 
with Government officials, and I intend to ask him about his 
participation in the initial capital injections and to what 
extent they were forced upon Bank of America. And as someone 
who comes from auto-making country, I also would like to know 
the extent to which the Government is currently involved in 
day-to-day operations of the company.
    A full and complete investigation underscores the facts 
surrounding the Bank of America-Merrill Lynch transaction 
requires the Government's decisionmakers, in this case Mr. 
Paulson and Mr. Bernanke, to appear before this committee to 
answer the tough questions that the American people demand to 
be answered, and I know that the chairman and the ranking 
member talked about that. We look forward to that happening in 
a bipartisan fashion in the near future.
    Again, thank you, Mr. Chairman, for this opportunity to 
make an opening statement. With that, I would yield my time, if 
I could, to Mr. McHenry to introduce our witness.
    Chairman Towns. Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman.
    Today, I have the privilege of introducing our witness, 
whose company is headquartered in Charlotte, NC, which my 
district is just to the west of; and, as the only member of the 
committee from the Carolinas, I think it is my duty and 
privilege to introduce our witness.
    Kenneth D. Lewis is currently the chief executive officer 
of Bank of America. He is responsible for more than 55 million 
consumer and small business relationships and $1.7 trillion in 
total client assets. With various business and institutional 
clients in more than 150 countries and business relationships 
with 98 percent of U.S. Fortune 500 companies, Mr. Lewis 
oversees one of the largest financial services corporations in 
the world and is one of the largest institutions headquartered 
in North Carolina; in fact, is the largest institution 
headquartered in North Carolina.
    Born in 1947 in Meridian, MS, Mr. Lewis earned a Bachelor's 
Degree in finance from Georgia State University and a graduate 
of the executive program at Stanford University. Arriving at 
NC&B in 1969, which was Bank of America's predecessor, he 
served more than 30 years within the bank, and, in 2001, 
attained his current position as CEO of Bank of America. 
Throughout his career with Bank of America, he has secured 
millions of new customers and paved the way for future 
    He was named, in 2007, as 1 of the 100 most influential 
people in the world by Time Magazine, has been twice named 
Banker of the Year by the American Bankers Association. He has 
been the former chairman of the National Urban League and has 
been involved in every possible community cause in Charlotte, 
large and small, and for that we do thank you for your 
leadership for our community.
    Bank of America's presence is certainly felt in western 
North Carolina, in my district, and across North Carolina 
generally. The 10th District has become particularly hard hit 
in this economic recession, and Bank of America employs about 
17,000 North Carolinians, many of whom are my constituents and 
are proud to work for a strong institution; and we look forward 
to stronger days ahead.
    Thank you for your testimony here today and thank you for 
your presence.
    Chairman Towns. Thank you very much, Mr. McHenry.
    It is a longstanding tradition that we swear all of our 
witnesses in, so, Mr. Lewis, would you please stand and raise 
your right hand?
    [Witness sworn.]
    Chairman Towns. Let the record reflect that the witness 
answered in the affirmative.
    Let me explain the light situation here. First of all, you 
have 5 minutes to summarize your statement, and then the yellow 
light will come on. That means you have 1 minute. Then, after 
the yellow light comes on, then there is a red light; and, of 
course, that means stop. After that, we will allow the Members 
an opportunity to raise questions with you. So you may begin.
    Turn your light on. Push that button.


    Mr. Lewis. Chairman Towns, Ranking Member Issa, 
Subcommittee Chairman Kucinich, and Ranking Member Jordan, as 
has been said, my name is Ken Lewis, and I am chief executive 
officer of Bank of America.
    This committee is reviewing important issues, and I hope my 
remarks will be helpful to you.
    Let me tell you a little bit about Bank of America. Our 
business lines include deposits, wealth and investment 
management, corporate investment banking, credit cards, and 
mortgages. We have a deep commitment to serving all the 
communities in which we operate. We have committed to land and 
invest $1.5 trillion in low and moderate income communities 
over the next 10 years.
    As everyone here is aware, the financial services industry 
underwent considerable turmoil in 2008. Bank of America was 
affected by that turmoil but, nonetheless, earned a profit of 
$4.2 billion for the year. We also made two significant 
acquisitions, Countrywide and Merrill Lynch.
    There does not appear to be any debate that these 
acquisitions were in the best interest of the financial system, 
the economy, and the country. The failure of Countrywide would 
have caused a massive loss to the deposit insurance fund and 
could have destabilized an already crippled mortgage market. 
The failure of Merrill Lynch, particularly on the heels of 
Lehman's failure, could have caused systemic havoc or 
necessitated an AIG-style Government bailout.
    These acquisitions, though, were also in the best interest 
of Bank of America and its shareholders. Certainly, the Merrill 
Lynch acquisition, in particular, came with risk, some of which 
materialized in the fourth quarter of 2008, when Merrill Lynch 
recognized significant losses. The Merrill Lynch acquisition, 
however, also came with the promise of significant long-term 
rewards, rewards Bank of America and its shareholders are 
already beginning to reap.
    Through the acquisition of Merrill Lynch, we have put 
together what looks to be the preeminent investment bank and 
brokerage firm in the world, an organization that is already 
producing substantial profits, not losses, for our company. 
Understanding that fact is absolutely critical to understanding 
why we acquired Merrill Lynch.
    When we bought Merrill Lynch, we really bought two 
businesses. The first is the world's most productive brokerage 
force, currently 14,000 Merrill Lynch financial advisors. 
Merrill Lynch has more financial advisors listed in Barron's 
Top 100, Top 1,000, and Top 100 Women financial advisors than 
any other firm.
    The second major business of Merrill Lynch was investment 
banking and serving institutional investors.
    The results here are nothing short of remarkable. As of the 
first quarter of 2009, Bank of America Merrill Lynch was first 
in U.S. equity-related underwriting, first in underwriting 
high-yield debt, second in underwriting investment-grade 
corporate debt, third in global equity and equity-related 
underwriting, and fifth in global M&A and U.S. M&A.
    In the first quarter of 2009, Bank of America earned $4.2 
billion. Merrill Lynch contributed $3.7 billion, or 75 percent 
of that first quarter profit.
    We continue to go about the business of lending. In the 
first quarter of 2009, Bank of America issued $85 billion in 
first mortgages, extended $3.9 billion in new credit to small 
businesses, and provided $31 million in community development 
loans, bolstering the country's most underserved people and 
businesses. I also want to stress that we have paid $1.1 
billion in dividends to the Treasury on the TARP preferred.
    While Bank of America earned $4.2 billion in 2008, that 
performance did not meet our expectations. As a result, neither 
I nor my senior team received any bonus. For the next level 
down, the bonus pool was cut by 80 percent from the previous 
year, and the level below that by 70 to 75 percent.
    Now let me briefly walk you through the decision to 
purchase Merrill Lynch. We made that decision in September 
2008. We did so because we saw the potential benefits I just 
described, and we did so without any promise or expectation of 
governmental support.
    In mid-December, I was advised that Merrill Lynch had 
significantly raised its forecast of its losses, and we 
contacted officials of the Treasury and Federal Reserve to 
inform them that we had concerns about closing the transaction. 
At that time, we were considering declaring a material adverse 
change, which, as a matter of contract law, can, if upheld, 
allow an acquirer to avoid to consummate a deal. Treasury and 
Federal Reserve representatives asked us to delay any such 
action and expressed significant concerns about both the 
systemic consequences and the risk to Bank of America in 
pursuing this course.
    We and the Government explored Government support as would 
limit the risk of proceeding with the transaction. We both were 
aware that the global financial system was in fragile condition 
and that a collapse of Merrill Lynch could hasten the crisis.
    For its part, Bank of America concluded that there was 
serious risk to declaring a material adverse change and that 
proceeding with the transaction with governmental support was 
the better course. This course made sense for Bank of America 
and its shareholders and it made sense for stability of the 
    I believe that committed people of good intentions in both 
the private sector and the Government worked desperately hard 
in late 2008 to prevent a collapse of the global financial 
system that would have resonated throughout the whole global 
economy. Even 6 months later it is easy to forget just how 
close to the brink our system came. I will never forget, and I 
believe those efforts will be well remembered long after any 
current controversy is forgotten.
    With that, sir, I will conclude my remarks.
    [The prepared statement of Mr. Lewis follows:]
    [GRAPHIC] [TIFF OMITTED] 54877.008
    [GRAPHIC] [TIFF OMITTED] 54877.009
    [GRAPHIC] [TIFF OMITTED] 54877.010
    [GRAPHIC] [TIFF OMITTED] 54877.011
    [GRAPHIC] [TIFF OMITTED] 54877.012
    Chairman Towns. Thank you very much for your statement.
    Let me begin the questions.
    I ask unanimous consent that we have 10 minutes on each 
side initially, and then after that 5 minutes for each Member. 
And, of course, if we need a second or third round, we will do 
that as well. Without objection, so moved.
    One of the key questions is when you discovered the massive 
losses at Merrill Lynch, Mr. Lewis, you have said that you 
learned of them late and they came as a big surprise. But the 
emails from the Fed tell a different story. Tim Clark from the 
Fed said that your claim to be surprised seemed somewhat 
suspect. The Federal Reserve Governor Kevin Warsh wrote that 
this claim is not credible, and there are more like this. It is 
clear that the Feds think you either knew or you should have 
known about these losses sooner.
    I have to say that with everything that was happening in 
the financial markets last fall, your claim that you had no 
idea about Merrill's losses until December is remarkable. The 
Fed seem to think that you are either not being forthcoming 
about that or you were completely clueless about the merger and 
the situation on Wall Street.
    My question is when exactly did you know about these losses 
and why didn't you know about them sooner?
    Mr. Lewis. Thank you for the question. The financial 
markets in the fourth quarter of 2008 suffered a massive credit 
meltdown, something that probably had not been seen during our 
lifetimes, and we saw that happening in September and in 
October, and we saw things that were evidenced in our own book 
that suggested that things were bad and getting worse. We also 
had heard rumors on the street that other banks were suffering 
losses as well. So the losses at that particular time were not 
concerning because they were consistent with others in the 
marketplace and what we were seeing as well.
    But then, in mid-December, the forecast losses accelerated 
dramatically. So it wasn't that we didn't know about losses. 
The concern was the fact that these losses accelerated, and 
that was what gave us the grave concern.
    Chairman Towns. Let me put it this way. Did you move 
forward with the Merrill deal because of pressure from 
Government officials or because you thought it was in the best 
interest of Bank of America and its shareholders?
    Mr. Lewis. There has been a lot of talk about the pressure 
from the Federal Government. It is true that we were told that 
if we went through or--I can't remember the exact words, so 
please give me license with word for word, but basically if we 
went through with calling the MAC, that the Government could or 
would remove management and the board. And I have said in the 
past that the threat was not what gave me concern. What gave me 
concern that they would make that threat to a bank in good 
standing. So it showed the seriousness with which they thought 
that we should not call a MAC, a material adverse change.
    So as a result of that, that was a factor in our decisions, 
because here your regulators and the Federal Government was 
saying we don't think calling the MAC is the best thing for you 
or the financial system.
    But there were also other considerations. You weren't 
assured you would win the MAC. If in fact you lost the MAC, you 
were subject to severe lawsuits and severe amounts of money 
that you would have to pay. So we thought that, given the fact 
that the Government felt that strongly and the fact that there 
was a risk that you would not win the MAC and then, finally, 
that you might end up not getting Merrill Lynch in any sense, 
even after paying the fines, we felt like, because of all of 
those factors, that it was in our best interest, that is, the 
Bank of America shareholders' best interest, to go through with 
the merger.
    Chairman Towns. So you were pressured?
    Mr. Lewis. It is hard to find the exact right word to 
describe what I just described, so I have found, as I have 
tried to have different words, that it is best just to describe 
it and let people come to a conclusion.
    Chairman Towns. I yield to the subcommittee chair for the 
rest of my minutes.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    Mr. Lewis, in our review of the Fed's documents, it reveals 
that, in contrast to your representations to us today, Fed 
officials concluded that you must have known about the 
accelerating losses at Merrill much earlier, as early as mid-
November, when your shareholders could have voted to disapprove 
the merger.
    Now, an email from a senior advisor sent to assistant to 
Chairman Bernanke on December 13, 2008; and it is up there on 
the board for everyone to see. Writes of ``clear signs in the 
data we have that the deterioration at Merrill Lynch has been 
observably underway over the entire quarter, albeit picking up 
significantly around mid-November. Ken Lewis's claim that they 
were surprised by the rapid growth of the losses seems somewhat 
    Another memo, restricted Federal Reserve analysis of Bank 
of America and Merrill Lynch merger, dated December 21, 2008. 
``BAC management's contention that the severity of Merrill's 
losses only came to light in recent days is problematic and 
implies substantial deficiencies in the due diligence carried 
out in advance of and subsequent to the acquisition . . . 
(Talking about Merrill's losses) were clearly shown in Merrill 
Lynch's internal risk management reports that Bank of America 
reviewed during their due diligence.''
    And then there is an email from the Fed General Counsel to 
Chairman Bernanke on December 23, 2008. ``Lewis should have 
been aware of the problems at Merrill Lynch earlier, perhaps as 
early as mid-November, and not caught by surprise. That could 
cause other problems for him around the disclosures Bank of 
America made for the shareholder vote.''
    Now, Mr. Lewis, I am going to ask you a series of simple 
questions, and if you are not forthcoming, I am not going to 
have any choice but to interrupt you. I am asking for your 
    Isn't it true that Bank of America examined Merrill Lynch's 
book of business before signing the merger agreement, and then 
received detailed financial reports every week from Merrill 
Lynch after signing the merger agreement on September 15th?
    Mr. Lewis. That is true.
    Mr. Kucinich. And isn't it true that the Merrill losses of 
mid-December, that you claim motivated you to go to the 
Government, were not the largest week-to-week losses at Merrill 
you observed since agreeing to purchase the company? In fact, 
wasn't the week-to-week loss experienced in mid-November larger 
than the one in mid-December?
    Mr. Lewis. The losses that were causing this forecast to 
increase were partly based on losses in November. So I am not 
saying that the losses in that timeframe were what caused the 
increase; it was the increased projections of the losses based 
on some of those losses in November.
    Mr. Kucinich. Mr. Chairman, I move to insert into the 
record a bar graph representing the week-to-week losses 
reported by Merrill Lynch to Bank of America, which clearly 
shows that the mid-November loss exceeded the one in mid-
    Chairman Towns. Without objection.
    Mr. Kucinich. I also move to insert an analysis by a 
statistics expert finding that the mid-November loss should 
have alerted Bank of America to an accelerating deterioration 
in Merrill Lynch, and the loss evident in mid-December merely 
confirms a trend apparent in mid-November.
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    Mr. Kucinich. Now, Mr. Lewis, isn't it true that you 
understood the composition and performance of Merrill's 
portfolio because it was similar to your own in that it was a 
portfolio that contained complex structured derivative 
products? Isn't that true?
    Mr. Lewis. It is true. The issue, though, is nobody 
predicted a meltdown like occurred in the fourth quarter of 
    Mr. Kucinich. But you were getting weekly reports, and you 
certainly understood Merrill because of the similarities in the 
composition and performance of their portfolio. Now, our 
investigation found that the Fed believed you should have 
understood the potential for losses at Merrill because your own 
portfolio was similar to Merrill's.
    I want you to look at the following from the Fed's 
restricted analysis of Bank of America and the Merrill Lynch 
merger, dated December 21, 2008. ``The potential for losses 
from other risk exposures cited by management, including those 
coming from leverage loans and trading and complex structured 
credit derivative products--what they also call ``correlation 
trading''--should also have been reasonably well understood, 
particularly as Bank of America itself is also active in these 
    Now, Mr. Lewis, how do you explain the apparent 
contradiction between your sworn testimony and the Fed's 
findings that you knew about the acceleration and losses and 
the potential for future losses as early as mid-November?
    Mr. Lewis. I can only tell you what I just said, that part 
of the November losses were causing this projection that we 
were getting in December, so they were a factor in the 
increased projection.
    Chairman Towns. My time has expired, so let me yield now to 
the ranking member from California, Congressman Issa, for his 
10 minutes.
    Mr. Issa. Thank you, Mr. Chairman. Mr. Chairman, at this 
time, I would like to ask unanimous consent that all opening 
statements by all Members be allowed to be inserted into the 
    Chairman Towns. Without objection.
    Mr. Issa. Mr. Chairman, I would also ask unanimous consent 
that the minority background memo, as well as documents 
referred to in it, be included in the hearing record.
    Chairman Towns. Without objection.
    Mr. Issa. Thank you, Mr. Chairman.
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    Mr. Issa. Mr. Lewis, in your 35 years, how many 
acquisitions, including stock trades, would you say you have 
been involved in, roughly? Including boards you sat on or were 
involved in in some tangential way.
    Mr. Lewis. Off the top of my head, 10.
    Mr. Issa. And probably hundreds that you have looked at in 
your review of other people's, competitor's, transactions and 
so on.
    Isn't it true that it is fairly common to get down the 
road, particularly in a stock transaction, and find that the 
original anticipated ratio is changed, either favorably or not 
favorably, and it is often written into the contracts that 
there were certain break points based on a material change in 
stock trading or other material facts, such as you had in your 
MAC agreement, right?
    Mr. Lewis. Yes, that is not uncommon.
    Mr. Issa. OK. So the Fed should not have been surprised 
that would be questioned as this very turbulent market 
continued to have a number of changes in what was going on at B 
of A and what was going on at Merrill Lynch.
    Mr. Lewis. It is hard for me to speak, or I shouldn't and 
can't speak----
    Mr. Issa. Well, let me just say this. Were you at all 
surprised that there were day-to-day, week-to-week changes that 
you had to evaluate and forecast what they really meant over a 
much longer period during this turbulent time?
    Mr. Lewis. No. And the way I would characterize it would 
be, not speaking for the Fed, but somebody on the outside who 
was familiar with mergers and acquisitions, had that person 
known that not strongly considered a material adverse change, 
they would have thought we were asleep at the switch.
    Mr. Issa. And as a fiduciary to your corporation, now the 
combined, but at that time B of A, didn't you have a 
responsibility to weigh that and, in fact, when in doubt, 
assert the possibility? In other words, if you had to err, you 
had to err on the side that you had to look for the material 
adverse change, not assume it wasn't there. You had to assume 
that it could be there and you had to look for it.
    Mr. Lewis. Well, particularly when we saw the acceleration, 
yes, sir.
    Mr. Issa. OK. I don't want to spend a lot of time on that 
part of it because I think it is beyond the purview of this 
committee, but on December 17th, when you called Chairman 
Bernanke and Secretary Paulson to tell them you were thinking 
of exercising the MAC clause, which, again, you had an 
obligation to at least consider, were you motivated to do so 
because of your fiduciary obligation to your stockholders?
    Mr. Lewis. I was, sir.
    Mr. Issa. I am going to ask a question that perhaps shows 
too much of my background off the dais, but to the extent that 
you were borrowing or potentially borrowing money from taxpayer 
money, was that really--let me put it this way--that was still 
borrowed money, it wasn't a gift. You were not trying to 
renegotiate a gift from the Government or even the amount of 
money coming from them. If you had cited and they had said, 
yes, go ahead and exercise that clause, would the more likely 
outcome change have been a difference in the purchase price of 
Merrill Lynch relative to B of A?
    Mr. Lewis. That is one possibility, but I can't predict the 
future, obviously.
    Mr. Issa. OK. And when you looked at the material adverse 
clause, and particularly the losses that were building up, did 
you do so as an officer of a regulated company who, if your 
capital dropped below a certain point, could be in fact closed 
by the FDIC? In other words, were you protecting B of A's 
position that you not take an anchor that could lead to 
insolvency of your own company?
    Mr. Lewis. Yes, that was a factor.
    Mr. Issa. So we have a combination of what was Merrill 
really worth relative to what they were getting in B of A 
stock, and, as a regulated entity, the real risk if you did not 
ensure that B of A's capital base was sufficient--we recently 
had the stress test, obviously--sufficient for you to be a 
going concern.
    Mr. Lewis. I want to at least make sure I give full 
disclosure here. If we had done this deal, at least our tier 
one ratio, which is the one that the regulators look at the 
most, would have still been over well capitalized, but it would 
have been well under our internal objective and would have been 
a relatively low ratio in this environment.
    Mr. Issa. So today's hearing, at least from this Member's 
standpoint, is really about whether or not the Government 
asserted either strong influence that would be outside the 
ordinary influence one would expect from a neutral party or/and 
whether or not you felt that there was an implied threat, 
either to yourself, your board, or your company, in any of the 
verbal or written correspondence you had with Government 
officials, including Bernanke and Paulson.
    Mr. Lewis. Well, there was the strong advice that I just 
mentioned. I do want to put it----
    Mr. Issa. I realize that you don't want to characterize it 
as a threat or any one word, but did you feel that you were 
being pressured to go through with the deal at least as 
strongly as that salesman trying to sell you the car and get 
you to close, or the insurance salesman? You know the pressure 
I am talking about. Were they advocating strongly and using 
both positive and negative forces to do so in those 
    Mr. Lewis. Yes, sir, but I think it was in the context of 
them thinking that was in the best interest of Bank of America 
and the financial system.
    Mr. Issa. I am going to call you to task a little bit. You 
said the best interest of Bank of America and the financial 
system. I am not going to quibble over their motives on the 
financial system, but why do you say Bank of America? Did you 
believe that they really believed this was a good deal for Bank 
of America, even though you were seeing a change which would 
have affected your arm's length negotiation of a price?
    Mr. Lewis. Well, their concern, obviously, was from the 
top, and that is for the financial system. But we are so 
intertwined with the financial system, I think they thought 
that by all of this happening and the uncertainty coming back 
into the financial system, that in fact that would hurt the 
system and us.
    Mr. Issa. OK, so when you say ``and Bank of America,'' you 
really mean the financial system and, as a member of the 
financial system, you would be affected.
    Mr. Lewis. Yes.
    Mr. Issa. But if they went and sold it to somebody else or 
lowered the price and packaged it up, or if Merrill Lynch had 
gone through a bankruptcy and been offered to you free and 
clear, all of those alternatives, strictly relative to Bank of 
America, would have been either better or at least no worse.
    Mr. Lewis. I can't speak to that, but those would be 
options. But I can't speak to whether it would be better or 
    Mr. Issa. My last question, then I am going to yield to one 
of the other Members, if you did not have the Government at the 
table--and I know that is hypothetical, but if you did not have 
the Government at the table, would you have, A, asserted the 
clause and, B, either walked away or substantially changed the 
    Mr. Lewis. It didn't happen that way, so it is hard for me 
to project what I would have ultimately done, but, obviously, 
we were strongly considering it.
    Mr. Issa. So it would be somewhere between possible and 
    Mr. Lewis. I don't know how to characterize it. I will just 
stick to how I described it, I think.
    Mr. Issa. Thank you. Your constituent, Mr. McHenry, will 
control the balance of my time.
    Mr. McHenry. Thank you, Ranking Member Issa.
    Mr. Lewis, you have been with Bank of America and its 
predecessor companies for how long?
    Mr. Lewis. September will be 40 years.
    Mr. McHenry. Forty years. How many mergers or acquisitions 
have you personally been involved with in your career?
    Mr. Lewis. I would have to take a few moments and count 
them up, but obviously probably more than 1, less than 10.
    Mr. McHenry. OK. Would this be the largest merger or 
acquisition that your company and the predecessor companies 
have taken?
    Mr. Lewis. No. The Nations Bank-Bank of America acquisition 
would have probably been--I would have to think back to the 
market caps and things, but that would be the biggest. This 
would be one of the biggest, however.
    Mr. McHenry. Certainly. Now, in terms of how you analyze 
these deals, do you have a process within your bank to analyze 
appropriate growth measures and acquiring other institutions or 
merging with other institutions?
    Mr. Lewis. We do.
    Mr. McHenry. You do. And did you conduct that same method 
with this Merrill acquisition?
    Mr. Lewis. Yes, we did. We used the same methodology.
    Mr. McHenry. OK. Thank you. My time has expired and I have 
other questions in that regard later. Thank you.
    Chairman Towns. Thank you very much.
    Let me now yield to the chairman of the subcommittee, Mr. 
Kucinich, for 5 minutes.
    Mr. Kucinich. Mr. Chairman, members of the committee, our 
investigation, Mr. Lewis, also finds that Fed officials 
believed that you were potentially liable for violating 
securities laws by withholding material information in your 
possession from shareholders before the vote to approve the 
merger with Merrill Lynch on December 5, 2008.
    Mr. Lewis, please look at the following email from the 
Fed's General Counsel to Chairman Bernanke on December 23, 
2008. ``A different question that doesn't seem to be the one 
Lewis is focused on is related to disclosure. Management may be 
exposed if it doesn't properly disclose information that is 
material to investors. His potential liability here will be 
whether he knew or reasonably should have known the magnitude 
of Merrill Lynch losses when Bank of America made its 
disclosure to get the shareholder vote on the Merrill Lynch 
deal in early December.''
    Mr. Lewis, did Bank of America supplement the proxy 
solicitation it sent to shareholders with what the company 
learned in mid-November about the rapidly mounting losses and 
potential for future losses at Merrill Lynch before the 
shareholder vote on December 5th?
    Mr. Lewis. Congressman, we take disclosure very, very 
seriously. If any----
    Mr. Kucinich. Were there supplements? Can you say were 
there supplements?
    Mr. Lewis. If anybody in our legal group had suggested we 
do anything of that nature, we would have done it.
    Mr. Kucinich. There were no supplements, isn't that right?
    Mr. Lewis. There was no suggestions to have a supplement.
    Mr. Kucinich. There were no supplements. OK. So, Mr. Lewis, 
look at the following email that circulated among officials at 
the Richmond Fed on December 23, 2008. ``I think he's worried 
about stockholder suits. Knows they did not do a good job of 
due diligence, and the issues facing the company are finally 
hitting home and he's worried about his own job after cutting 
loose lots of very good people.''
    Now, Mr. Lewis, was your decision to tell the Government 
you were considering invoking a MAC, which, of course, refers 
to a clause in a merger agreement that allows the acquirer to 
abandon the deal if a material adverse change is judged to have 
occurred, was your threat to invoke a MAC in fact a strategy 
you deployed to protect yourself from shareholder lawsuits?
    Mr. Lewis. No, it was not.
    Mr. Kucinich. Isn't it true, Mr. Lewis, that during the 
course of your conversations with Chairman Bernanke and 
Secretary Paulson, you in fact requested a letter from the 
Government saying that the Government ordered you to close the 
deal to acquire Merrill?
    Mr. Lewis. No, that was not what I asked for. Our board was 
    Mr. Kucinich. Your answer is no? Are you sure that is your 
    Mr. Lewis. Our board was concerned that we had verbal 
assurances, but had nothing in writing, about getting some 
assistance. So I called Chairman Bernanke and asked him----
    Mr. Kucinich. But you are referring to a different letter. 
I am talking about a letter. You requested a letter from the 
Government saying that the Government ordered you to close the 
deal to acquire Merrill. Wasn't there such a letter?
    Mr. Lewis. I don't recall such a letter.
    Mr. Kucinich. You are under oath but your answer is you 
don't recall.
    Mr. Lewis. I do not recall.
    Mr. Kucinich. Isn't it true that your request of that 
letter was motivated by your desire to protect yourself from 
your shareholders?
    Mr. Lewis. Well, sir, if I can't recall it, I can't answer 
the second question.
    Mr. Kucinich. Well, our investigation reveals that Chairman 
Bernanke believed that your request for such a letter was 
motivated by a desire to protect you from shareholder lawsuits, 
as demonstrated in this email from Chairman Bernanke to the 
Fed's General Counsel on December 23, 2008, ``He''--speaking of 
you, Mr. Lewis--``said he now fears lawsuits from shareholders 
for not invoking the MAC, given the deterioration at Merrill 
Lynch. ``He''--they are speaking of you, Mr. Lewis--``still 
asked whether he could use as a defense that the Government 
ordered him to proceed for systemic reasons. I said no.'' This 
is from Chairman Bernanke.
    Mr. Lewis, is Chairman Bernanke's email describing his call 
with you an accurate statement of your concerns and of Bank of 
America's situation?
    Mr. Lewis. I can't recall the exact email, but we did have 
concerns and we wanted some assurances that they would support 
our position.
    Mr. Kucinich. I yield back, Mr. Chairman.
    Chairman Towns. Thank you very much.
    I now yield to the ranking member of Ohio, Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman.
    Let me go back to this so-called threat concern here, Mr. 
Lewis. I just want to be clear. On December 17th, when you 
called Mr. Paulson and Mr. Bernanke, I just want to know the 
nature of your call. Did you say ``we are going to exercise the 
MAC clause'' or did you say ``we are thinking about exercising 
the MAC clause?''
    Mr. Lewis. Again, it seems like a long time ago. To the 
best of my recollection, I said we are strongly considering a 
    Mr. Jordan. So, in other words, the response you then got 
changed your decision. You were going to exercise the clause; 
you felt that was in the best interest of your bank, of your 
shareholders. You were going to do it and then, based on what 
the Government told you, you took a different course.
    Mr. Lewis. No, sir, it was a factor because they felt so 
strongly. But it was not the only factor in making the 
decision. We also thought, after a lot of consideration, that 
there was downside risk in not winning the MAC.
    Mr. Jordan. Let me change direction, because we have talked 
about this a lot. I want to get to just a big concern I have 
with the unprecedented level of involvement the Government now 
has in the private sector in way too many industries, in my 
judgment; and let me provide a little context.
    I was on a conference call a week ago Sunday with members 
of the Auto Task Force, talking about the GM situation. I 
happen to come from car country, as I said in my opening 
statement. We had a GM plant that was closed a week ago Monday; 
800 jobs, 800 families and a whole community impacted, as you 
would expect. The night before that announcement, we were on 
this conference call. Members of the Task Force talked about 
what was going to happen and one member of the Auto Task Force 
indicated, he said, ``we are not going to run General Motors; 
we will only get involved if there is a major event''--major 
event was the language he used--and they explained the whole 
    When we got done, I asked a question. It was Mr. Spurling 
who made that statement. I said, ``Mr. Spurling, define major 
event. Define what is major.'' I said, ``because it is going to 
be pretty major tomorrow in our district when 800 people find 
out they are not going to have a job.'' And he didn't have a 
definition. In fact, he said, ``we don't have a working 
definition; it would be something along the lines of a merger, 
a major change in corporate structure,'' which basically told 
me it could be any darned thing they wanted it to be.
    So my question to you is what day-to-day involvement does 
the Government have in decisions you are making relative to 
TARP funds, relative to any--if any, talk about that if you 
would, please.
    Mr. Lewis. Well, sir, there is an oversight committee, a 
TARP committee that actually does look at our lending and see 
if we are using the TARP funds to lend money, so that is a 
report we just requested. There obviously is the involvement of 
our regulators, as there normally would be.
    Mr. Jordan. I am talking over that, more than that.
    Mr. Lewis. The only involvement that would be explicit 
would be after we were ordered to attain more capital as a part 
of this stress test. They did suggest to all banks that were 
raising that capital to re-look at their boards for financial 
expertise and to look at their management and succession as a 
part of this process; and we have been doing that, but no day-
to-day decisions made by regulators.
    Mr. Jordan. OK, talk to me about TARP funds you have, any 
kind of undue influence you felt there in relation to when you 
initially accepted the TARP dollars.
    Mr. Lewis. No undue influence, no, sir.
    Mr. Jordan. OK.
    I would be happy to yield to the ranking member, Mr. 
    Mr. Issa. Thank you. Just a couple of followups.
    Although the threat seems to have been stated, whether or 
not it influenced you, to your understanding under U.S. law--
and I realize we are not asking a banker to be a lawyer, but 
does the Federal Reserve chairman have the right to fire you or 
any member of your board?
    Mr. Lewis. I think there is something called a ``cease and 
desist,'' which gives them power to do things like that. I have 
been told that; I haven't read it myself.
    Mr. Issa. OK. And the U.S. Treasury Secretary, any similar 
    Mr. Lewis. No, sir, I don't think he would have the power.
    Mr. Issa. OK. But when acting in concert, you would 
perceive that threat to be real, that he could execute on that 
threat, of having you and/or your board relieved.
    Mr. Lewis. My perception was that he was speaking on behalf 
of himself and the regulators. And my perception was, in 
concert, they would have that power.
    Mr. Issa. Thank you.
    Chairman Towns. Thank you very much.
    I now yield to the gentleman from Pennsylvania who has been 
working on these issues for more than 20 years, Congressman 
    Mr. Kanjorski. Thank you very much, Mr. Chairman.
    Mr. McHenry made a comment in his introduction of you that 
Bank of America has business relations with 98 percent of the 
Fortune 500 companies. What I want to know is what are the 10 
companies that aren't doing business with you? [Laughter.]
    Mr. Lewis. I don't know, but it is a very interesting 
    Mr. Kanjorski. Get home and check that.
    Mr. Lewis, in some regard we have important questions that 
we are trying to resolve with reforming regulatory authority in 
the United States, so to that extent these hearings are 
helpful. But I don't hear anything thus far, either by my 
colleagues or yourself in responding, that there was some 
perceived threat or abuse of action on the part of Federal 
regulators, so I am going to ask you directly. Do you think Mr. 
Bernanke or anyone working under the Federal Reserve chairman 
took unauthorized, illegal, or improper action toward you or 
the Bank of America during these trying times?
    Mr. Lewis. I do not.
    Mr. Kanjorski. All right.
    Mr. Lewis. And I would say they strongly advised and they 
spoke in strong terms, but I thought it was with good 
    Mr. Kanjorski. If I had to characterize it, I was thinking 
that if the Titanic were going down and some of us were in the 
life rafts, it sounds like an argument between the captain and 
some that are in the water and they are refusing to get on 
board, and he is ordering them to get on board. Is that not too 
dissimilar to what happened here on this mid-September to 
December period of time, when all of us, admittedly, had our 
hair on fire?
    Mr. Lewis. And I think they saw, probably with their 
perspective, they saw rougher seas ahead that no one 
institution would be able to see.
    Mr. Kanjorski. My Subcommittee on Financial Services is 
charged with looking at the reform of regulation. Is there 
anything that you could see that in, granted, extreme 
circumstances such as that weekend of September 15th and the 
failure of Lehman Brothers and what was happening in the 
implosion or the collapse of the financial system, is there 
anything that we could do in reforming the regulations to 
provide for faster disclosure?
    For instance, the 8-K requirements that were not carried 
out precisely in this case, and that disclosures by the company 
were not necessarily made within the 4-days. I know there is an 
argument as to whether or not they legally had to or were 
defined as required, but is there something we could do to 
assure shareholders, who do get at risk as a result of not 
force, but encouraged, acquisitions such as this, is there 
anything we in the Federal Government can do to clarify that 
problem and to make it clearer that would help the banking 
institutions in future events of this sort?
    Mr. Lewis. Sir, are you speaking to the Lehman or to the 
Merrill Lynch?
    Mr. Kanjorski. No, to the requirement of your filing for 
disclosure notice to your shareholders when all of this was 
pending. You didn't necessarily precisely follow what could be 
considered a notice requirement.
    Mr. Lewis. I think clarity is always better. If it were 
left up to me, I would go to clarity first.
    Mr. Kanjorski. So what would you recommend that we do, go 
into that area and declare more disclosure as to what is 
happening or how it is happening? Shall we put you on the net 
or what?
    Mr. Lewis. I am not sure I am following you in terms of the 
disclosure that you are speaking to, so I am a little shaky on 
your question, frankly.
    Mr. Kanjorski. OK. Well, do you know of any disclosure, do 
you have any feelings of any disclosures that could be made at 
those highly charged, extreme circumstances that you were 
operating under? Is there anything that we could create in the 
reform of our regulatory requirements on acquisitions or 
    Mr. Lewis. It would be difficult because you don't have an 
event, many times, because you are still looking at 
alternatives and negotiating Lehman or the Merrill Lynch-Bank 
of America situation, and then it could be well into the 
morning before you actually get a signed deal, and then you do 
announce it the next day, for instance. So the ebb and flow of 
the circumstances would make it very difficult to describe it 
as an event, because it just may not happen that way.
    Mr. Kanjorski. Now, I understood in your testimony you 
pointed out that the Merrill Lynch acquisition was responsible 
for 75 percent of your last quarter's profits. Are you aware of 
shareholders that are complaining about that acquisition as a 
result of that?
    Mr. Lewis. No, sir, not now.
    Mr. Kanjorski. OK. Thank you very much.
    I yield back.
    Chairman Towns. Thank you very much.
    I now yield to Mr. Chaffetz, the gentleman from Utah, for 5 
    Mr. Chaffetz. Thank you, Mr. Lewis. I appreciate your being 
here. I am looking at some notes here dated December 31st. 
These are your notes. Also looking at some notes taken by Joe 
Price, the CFO at Bank of America, that were taken on December 
21, 2008, about the attempt to use the MAC clause and get out 
of the Merrill Lynch transaction. In those notes it says ``fire 
board of directors if you do it, irresponsible for country. TG 
    TG, I would assume, would be Timothy Geithner?
    Mr. Lewis. Those are Joe Price's notes?
    Mr. Chaffetz. Yes.
    Mr. Lewis. I would have to assume with you, because they 
are his notes.
    Mr. Chaffetz. Based on your recollection of what was going 
on and based on the notes that we see from the CFO that was 
there, ``fire board of directors if you do it.'' Was that your 
    Mr. Lewis. That is probably a reference to the conversation 
I have mentioned that I had with Secretary Paulson. But again, 
those are his notes.
    Mr. Chaffetz. But based on your personal recollection, is 
that your understanding, that the board of directors would be 
let go if this MAC clause was invoked?
    Mr. Lewis. You know, I mentioned that I need a license with 
whether he said could or would, but basically the premise was 
that management and the board would be removed if in fact we 
did call the MAC.
    Mr. Chaffetz. Including yourself.
    Mr. Lewis. Correct.
    Mr. Chaffetz. So if the suggestion from the Federal 
Government was to have your job removed, as well as the board 
of directors, can it be looked at any other way other than a 
    Mr. Lewis. Well, actually, we didn't actually have much of 
reaction to the comments themselves as it related to us being 
removed. Again, what impressed us was here was the Government 
telling a bank in good standing that they would do something 
like this. So it was the seriousness of it which caused us to 
believe that they really did believe that there was an issue 
here with the MAC and not calling it that did influence us. But 
it wasn't the threat to have us lose our jobs, it was the 
seriousness because they made it, not the threat it itself.
    Mr. Chaffetz. I am sorry, I didn't catch the last part of 
    Mr. Lewis. It was the seriousness with which they made it, 
not the threat itself.
    Mr. Chaffetz. Tell me about your discussion. You call, at 
one point, as I am looking at the time line here, Mr. Paulson 
is taking a bike ride, I guess, on December 21st. Tell me 
specifically what was going on in that conversation.
    Mr. Lewis. Well, I called him to get an update and I think 
that was the Sunday. I am pretty sure that was the Sunday that 
I called him. As I recall the conversation, he said ``I want to 
give you some blunt language and I first want to start out by 
saying that we are very supportive of Bank of America,'' and 
then went one step further and said what I have already said. 
He said ``but we feel very strongly that you should not call 
the MAC, and if in fact you do,'' and, again, I think he said 
would, but it was would or could, as I recall, ``remove the 
board and management.''
    Mr. Chaffetz. Well, that certainly sounds like a threat to 
me and an amazing use of power there. Tell me about your 
interactions with Timothy Geithner. How early in this process 
was he involved and engaged in this process?
    Mr. Lewis. After the confirmation hearings or once he 
excused himself from the New York Fed, I had no contact with 
Mr. Geithner.
    Mr. Chaffetz. But he was involved before he was named and 
brought in as the Treasury Secretary, correct?
    Mr. Lewis. Well, he had been involved in the original TARP 
money, yes.
    Mr. Chaffetz. Right. And tell me about Mr. Summers, the 
interaction and place of involvement that he had in this 
    Mr. Lewis. I personally had no involvement with Mr. 
    Mr. Chaffetz. He was not engaged in any of these?
    Mr. Chairman, I would ask unanimous consent that Mr. 
Price's notes from December 21, 2008 and Mr. Lewis's notes from 
the conversation with Ben Bernanke on December 31, 2008 also be 
entered into the record.
    Chairman Towns. Without objection, so ordered.
    Mr. Chaffetz. Thank you.
    Tell me about the interaction that you continue to have 
with Mr. Bernanke and Mr. Geithner at this point.
    Mr. Lewis. Well, I have had very little conversation with--
in fact, I can't recall a conversation that I have had with Mr. 
Bernanke in terms of being one-on-one. I am a member of a 
council called the Federal Reserve Advisory Council, and there 
are 12 of us, and we have a dialog with the Federal Reserve, 
including Mr. Bernanke, but that is in a group setting. So no--
    Mr. Chaffetz. Any interaction with the administration----
    Chairman Towns. May I say to the gentleman from Utah, your 
time has expired.
    Mr. Chaffetz. My apologies, Mr. Chairman. Thank you.
    Chairman Towns. I now yield 5 minutes to the gentleman from 
Maryland, Mr. Cummings.
    Mr. Cummings. Mr. Lewis, I have listened to your testimony 
very carefully and, you know, I understand and I have read a 
lot about you. You are a great man, but I think one of the 
things that you have tried to do today is to walk a very thin 
line. You just heard Republicans and Democrats say, to some 
degree, that whatever was said to you about losing your job and 
the board being dismissed, basically what we have said is we 
don't buy it.
    I assume the minutes are accurate from your board meetings. 
Are these things you vote on, the minutes from board meetings?
    Mr. Lewis. Yes, sir, we do----
    Mr. Cummings. Very well. I am talking about December 22, 
    Mr. Lewis. Yes. Right.
    Mr. Cummings. Let me read something you to. It says ``Mr. 
Lewis reported a series of calls,'' and you talk about a number 
of things, but this is one thing that I found very interesting, 
the second point. This is what you told your board. It says 
``the Treasury and the Fed stated strongly that were the 
corporation to invoke the material adverse change, MAC, clause 
in the merger agreement with Merrill Lynch and fail to close 
the transaction, the Treasury and the Fed would remove the 
board and management of the corporation.''
    If that isn't a threat, I don't know what is. If I say I am 
going to fire you if you don't do what I tell you to do, not 
only am I going to fire you, but I am going to fire your board. 
I mean, what you said--and I know that you are caught in a 
difficult situation. I know that after this merger was done 
your folks benefited tremendously, and I know that Bank of 
America is doing fine now. But I am here to tell you that no 
matter how great Bank of America is doing today, the means does 
not justify the end. In other words, throughout these 
transactions we must have honesty, integrity, and transparency, 
    So what I am saying to you is I know you are trying to be 
nice, but here we have a situation where, apparently, Mr. 
Paulson has told you, ``do it.'' Sort of like the Nike 
commercial, just do it. And then you come in here trying to 
tell us, ``oh, no, I was worried, the sky was falling, I was 
just so upset.'' And we don't buy it. So I am going to give you 
another chance. You didn't feel threatened?
    Mr. Lewis. Well----
    Mr. Cummings. I mean, don't get us to describe it. We are 
trying to figure out what you were feeling. And you know why we 
want to know? Because we want to straighten out this mess.
    Mr. Lewis. I have been pretty consistent, as you have just 
described it as it happened.
    Mr. Cummings. Yes, well, maybe you need to be inconsistent 
and tell us how you felt.
    Mr. Lewis. Well, I did, as I think I have said at some 
point in time, maybe not today, it was a strong influence on my 
decision, but it wasn't the only influence.
    Mr. Cummings. I understand. So apparently you are going 
to--OK. Now, let me ask you this. Did Mr. Bernanke have any 
influence with regard--I understand you just answered the 
question, but did he ever say that you should not disclose 
certain information, you should do this deal? I mean, did that 
ever come to you in any kind of way from Bernanke?
    Mr. Lewis. No, sir. Well, he never said we should not 
disclose anything that was disclosable; that would be our 
decision. And I never heard from him on the issue of us not 
disclosing something.
    Mr. Cummings. All right. Or anything else? You look like 
you are trying to go somewhere. Go ahead.
    Mr. Lewis. Well, the second piece I thought that you asked 
me, sir, was the issue of him not wanting us to call the MAC, 
and he did express that to us.
    Mr. Cummings. And when did he do that?
    Mr. Lewis. He expressed it on more than one occasion. I 
can't remember which dates, but several times.
    Mr. Cummings. And last but not least, you are an 
experienced man. I understand you have great judgment. 
Apparently, when you thought about this MAC thing, it was based 
upon your own experiences, was it not?
    Mr. Lewis. Yes, sir.
    Mr. Cummings. You just don't say I think we may have a MAC 
here out of the clear blue sky. What were you thinking?
    Mr. Lewis. I was thinking that the losses had accelerated 
to a point that they were out of line with other institutions 
and our institution.
    Mr. Cummings. Now, if you were to go back, you think it was 
not a MAC situation?
    Mr. Lewis. I wouldn't change my decision, but I can't say 
that there wasn't a MAC, because we never called it, so we just 
don't know.
    Mr. Cummings. Very well. I see my time is up.
    Mr. Issa. If the gentleman would yield for a moment.
    Mr. Cummings. My time is up.
    Chairman Towns. The gentleman's time is expired.
    I now yield to Congressman Flake from Arizona. Congressman 
Flake for 5 minutes.
    Mr. Flake. Thank you, Mr. Chairman.
    I just want to share my colleague's skepticism here about 
whether or not this was a threat. It just seems completely 
incredulous that this wouldn't be considered a threat. If this 
wouldn't be considered a threat, if I might just ask you what 
would be considered a threat. I mean, kidnap the family dog, 
release your college GPA scores? What is a threat if this is 
not a threat, firing and the firing of your board?
    Mr. Lewis. I am just trying to describe the circumstance 
and not put one word to it myself.
    Mr. Flake. Well, from this vantage point, it seems there is 
kind of a Stockholm Syndrome thing going here. I mean, you are 
still regulated by these entities and it seems that you have 
identified with your captors or your regulators in some way 
here. But we would like to have a candid answer here, and I 
don't know if you can wiggle your pinky finger at us or give 
some sign that nobody else will see. The big grin, maybe that 
gives it away. But let me just tell you from this vantage point 
it just seems very difficult to accept that would not seem 
threatening behavior.
    Now, again, from the notes that I believe Mr. Price, the 
CFO, took during one of these meetings, identified Hank P., 
Hank Paulson here, ``fire board if you do it, invoke the MAC; 
irresponsible for the country. Tim G. agrees.'' I mean, it just 
seems like there is no other explanation here. And I can 
understand, maybe from the smile and whatnot, that you agree 
but can't say it here, but let me just say if you learned later 
on that there was $12 billion in losses that you didn't know 
about, but you said they were compelling. It wasn't so much 
what they said, but how they said it, the seriousness of which 
they explained the need for you to move forward with this 
merger. If not $12 billion, where is the threshold that you 
would have said ``can't do it?'' Can you enlighten us there a 
    Mr. Lewis. I can't because I dealt with the circumstances 
that existed, and I don't think there is a rule of thumb or 
whatever to cause that to happen. But to your point, whatever 
you want to call it, I wouldn't change how I described it. So I 
will let you put the word to whether it was a threat or 
whatever, but the circumstances that I described remain the 
    Mr. Flake. Well, how compelling was the seriousness of that 
conversation? Would it have compelled you if the losses were 
twice as big, as you didn't understand that they were, $24 
billion instead of $12?
    Mr. Lewis. Well, at some point you couldn't have made it a 
viable deal, so there is, at some point, a number that the hole 
would have been just too big.
    Mr. Flake. But if the taxpayers backfill, $24 is just as 
easy as $12.
    Mr. Lewis. No, sir, because you would, all of a sudden, 
have--remember, this is 8 percent after tax dividends that you 
are paying, and at some point you just couldn't bear the burden 
of that kind of cash-flow drain.
    Mr. Flake. But the $12 billion was within the range.
    Mr. Lewis. Within the range. It was painful and it caused 
us to have to push out our horizon in terms of accretion for 
the deal to work, but it was workable.
    Mr. Issa. Mr. Flake.
    Mr. Flake. I would yield to the gentleman from California.
    Mr. Issa. I would like to associate myself both with your 
comments and the gentleman from Maryland when you are a little 
incredulous, when it has been previously stated under oath 
before the New York attorney general, that in fact the 
gentleman was threatened. We are, oddly enough, arguing over 
whether, when you are threatened, you feel threatened, but we 
are not arguing over whether in fact there was a threat. I 
think we have made that pretty clear today and I appreciate 
your sticking to a position of not further indicting those who 
regulate you. But it is our job to get to the truth, and I 
think we have.
    Yield back.
    Chairman Towns. Thank you very much.
    I now yield to the gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Towns. I want to thank Chairman 
Kucinich as well, along with Ranking Member Issa and Ranking 
Member Jordan.
    Thank you, as well, Mr. Lewis, for coming before the 
committee. Let me just go back to a point that Mr. Cummings and 
also Mr. Kucinich raised a little earlier. Mr. Kucinich seemed 
to be hung up on the fact of when there was a significant 
indicator that Merrill Lynch was in rapid decline, and rather 
than focus of November 2008, we can go all the way back to fall 
of 2007 when they announced an almost $8 billion loss and Mr. 
O'Neill was forced into retirement. There is a long history of 
decline here, albeit accelerated to some degree around the time 
of your purchase, but there was significant evidence that they 
had overloaded with collateral debt obligations and other 
complex derivatives and they were in pretty tough straits for a 
while, isn't that true?
    Mr. Lewis. Yes, sir, it is true.
    Mr. Lynch. Let me ask you. There are a couple of emails 
and, unfortunately, they are very, very small up there, but let 
me try to help you. One is from Chairman Bernanke to a 
selection of the Board of Reserve Governors, and this is 
December 21, 2008, around the time that you were thinking about 
this material adverse change being existent or not. This is a 
quote from Chairman Bernanke: ``I think the threat to use the 
MAC''--which is the material adverse change--``is a bargaining 
chip and we do not see it as a very likely scenario at all. 
Nevertheless, we need some analyses of that scenario so that we 
can explain to Bank of America with some confidence why we 
think it would be a foolish move and why regulators will not 
condone it.''
    The other email sort of reinforces that, and that is from 
Jeffrey Lacker, who was a President, I believe, of the Federal 
Reserve Bank of Richmond at the time, and I think he is a 
member of the Federal Open Markets Committee now, a voting 
member. This email was also cc'd to the chairman, I believe, 
and it says ``Just had a long talk with Ben.'' Ben Bernanke, I 
presume. ``Says they think the MAC threat is irrelevant because 
it is not credible. Also intends to make it even more clear 
that if they''--meaning Bank of America--``play that card and 
then need assistance, management is gone.'' Then, in 
parentheses, says ``Forgot to tell him that K.L.''--I believe 
that is you, Ken Lewis--``is near retirement.''
    So there is a different dynamic going on here. Remember the 
context of all this is the sky is falling, as Mr. Cummings 
said, and tremendous pressure on everyone. And they think you 
are playing a game, they think you are throwing this thing out 
as a red herring, and they think what you are really trying to 
do, and what some people suggest you might have been doing, is 
to leverage taxpayer support by falsely putting this MAC out 
there, the fact that you are going to let this deal crash, walk 
away, even asserting you don't have to win the MAC, as you said 
before, you don't have to win it, this deal just has to stop, 
and then I think the weight of all the forces at play there, 
with Lehman and everything else, you know, we are in some 
pretty deep trouble.
    So what I am asking you is was that your strategy here? Did 
you use this MAC as leverage to force Bernanke and Paulson to 
come in with taxpayer support? I also want to note that your 
own firm was in pretty tough shape at the time. Everybody seems 
to think there was a perception that you were the white knight 
here and you were the strong party, but I think, as Mr. 
Kucinich has indicated, Bank of America had its problems, too, 
at this time. But tell me what your strategy was in your 
negotiations there and what was the motivating force behind 
your decision to put forward this MAC.
    Mr. Lewis. Thank you. And thank you for reminding us we 
were in the middle of a pretty bad financial crisis, and I do 
think we had people of good intentions, despite what they have 
said about me. We grew more and more convinced that there was a 
distinct possibility that we had a MAC as a result of these 
accelerated losses.
    Mr. Lynch. You didn't disclose that to your shareholders, 
    Mr. Lewis. But the acceleration really took place about a 
week after. That is when you saw massive acceleration, not 
necessarily those days, but as result of the forecast 
increasing. So this was not some wild bluff. We thought we had 
the real possibility of a MAC.
    Mr. Lynch. OK.
    Mr. Chairman, I yield back.
    Mr. Kucinich [presiding]. The Chair recognizes Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman.
    Were there specific details that the Federal Reserve and 
Treasury told you not to disclosure to your shareholders?
    Mr. Lewis. No, sir. Neither Secretary Paulson, nor the 
chairman of the Federal Reserve, Mr. Bernanke, ever told me not 
to disclose something that we thought should be publicly 
    Mr. McHenry. OK. Mr. Kucinich referenced some emails, and I 
just wanted to get on the record had you seen those emails 
before today?
    Mr. Lewis. No.
    Mr. McHenry. OK. I just wanted to make sure we got that on 
the record, Mr. Chairman, with all due respect to you.
    Mr. Lewis, as I asked earlier, you have been involved in a 
number of mergers and acquisitions. Your institution has been 
involved in dozens upon dozens over your career with the bank. 
To your knowledge, have there been material adverse change 
clauses included in previous deals of this sort?
    Mr. Lewis. Virtually every acquisition would include some 
form of material adverse change clause, and it is not totally 
uncommon to have them invoked.
    Mr. McHenry. Has your institution invoked this clause 
    Mr. Lewis. Yes, sir. We invoked it on a deal that was with 
Sally Mae.
    Mr. McHenry. All right. And looking at the list of Federal 
Reserve regulators who were second-guessing your decision or 
your raising the issue of the material adverse change clause, 
it is probably fair to say that you have done more of these 
deals than they have in their careers as bureaucrats. Is that 
safe to say?
    Mr. Lewis. I am sorry?
    Mr. McHenry. Is it safe to say you have done more deals 
that include MAC clauses than the bureaucrats that were second-
guessing your decision?
    Mr. Lewis. I don't know their backgrounds.
    Mr. McHenry. OK. Well, I understand you are still a 
regulated institution, so no need to hit on the Federal Reserve 
and their staff there. To go to another subject matter, there 
have been reports about efforts of various banks to raise 
capital in the wake of stress test results. What is the status 
of your capital-raising efforts?
    Mr. Lewis. We were required to raise $33.9 billion, and I 
am pleased to say that we have raised that amount and we will 
raise more than that. That should be completed sometime toward 
the end of this month.
    Mr. McHenry. OK. My constituents are concerned about access 
to credit. We have a mortgage foreclosure issue that is 
widespread across this country. Can you tell me about Bank of 
America's actions as it relates to foreclosure mitigation and 
helping those folks that are facing the loss of their homes?
    Mr. Lewis. One of the issues with the loan modification 
issue was that, initially, the banks were just not staffed up 
to handle that kind of volume and the different type things 
that were being asked. Since then, we now have 7,200 associates 
that just focus on loan modifications. And since July 2008, so 
less than a year, we actually already have modified 311,000 
    Mr. McHenry. There's been a discussion about access to 
credit and whether or not institutions are lending. With the 
downturn in the economy, certainly, institutions have a more 
difficult time in a down economy to find creditworthy 
individuals and make loans. Can you discuss the loans that you 
have made over the last two or three quarters?
    Mr. Lewis. Well, it is a great question and it is also the 
key to us getting this country back on track, because, if the 
financial system doesn't make loans, then we have an issue.
    First, I would say that I am very proud that Bank of 
America is the largest lender in the United States. I am very 
proud of that. Second, I can assure you that we are making 
every good loan that we can make. Simply put, banks take 
deposits and make loans; that is how we make money. So it is in 
our own self-interest to do that. If we don't, we don't 
optimize our profits.
    But I will say, to your point, that in a recession that is 
this deep and this prolonged, you do get an issue with demand. 
People start cutting back, they spend less, and companies 
expand less. So I can't assure you that these loan increases 
are going to continue because of loan demand. What I can assure 
you is we are going to make every good loan there is to be 
    Mr. McHenry. Thank you, Mr. Chairman.
    Mr. Kucinich. The gentleman's time has expired.
    The Chair recognizes Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    It is good morning, still. There has been discussion of a 
new stress test as it relates to our financial institutions. I 
guess the question comes was the current test good enough? Do 
we need a new one? And would either of these kinds of stress 
tests have helped us to understand or prevent these issues when 
all these issues took place with your acquisition?
    Mr. Lewis. I do think the stress test was a good one, and I 
think the fact that they probably used higher standards in 
terms of things getting worse than hopefully they will was 
helpful too, because those things can happen. So I know it has 
caused us to look forward with a greater sense of pessimism or 
greater sense of things could be worse than we actually think 
they are, so you should have higher buffers of capital; and 
that will show up in our internal objectives going forward. So 
I do think it was a very good thing.
    I don't see any evidence, particularly as we talk about 
there being some signs that the economy may be improving 
somewhat, to put another stress test on top of that. If you 
think about the last 2 years, the industry has gone through a 
significant stress test in actuality, and then we were getting 
a stress test on top of that. So I think that is enough.
    Mr. Quigley. But you know what the stress test was that we 
just went through. If Merrill had gone through that stress test 
and you had gotten the results prior to the board's vote, would 
it have affected what your board did?
    Mr. Lewis. I don't know if--the stress test, of course, 
came after the fact of all of this happening. What we didn't 
project, and what nobody that I know projected, was the 
severity of the credit crunch or the credit crisis that 
occurred during that fourth quarter. It wasn't that we hadn't 
identified the instruments; we just didn't see the depth of the 
decline that happened during that quarter, and most people 
didn't. So, to answer your question, if in fact we had been 
able to predict that, no, we would not have done the deal, 
because the hole would have been too big.
    Mr. Quigley. So you don't think that this stress test would 
have indicated the problems that Merrill was going to face 
because you couldn't have predicted the fourth quarter 
    Mr. Lewis. No, sir. I don't know of anybody that would have 
predicted that. Actually, you can see some evidence of that in 
the fact that virtually every major bank had an operating loss 
in the fourth quarter, and even the financial analysts were not 
predicting those losses prospectively.
    Mr. Quigley. Sure.
    Switching ground here just for a second, you also acquired 
with that acquisition a significant ownership in BlackRock?
    Mr. Lewis. Yes, sir, 49.9 percent.
    Mr. Quigley. OK. I am aware they do have contracts with the 
Federal Reserve and the Department of Treasury, BlackRock?
    Mr. Lewis. Yes, they do. I think they do. We don't manage 
them, but----
    Mr. Quigley. I am sorry?
    Mr. Lewis. We don't manage the company, but I have heard 
they do have contracts, yes.
    Mr. Quigley. So you may not know, then, were any of these 
contracts given to BlackRock in furtherance of financial 
support to Bank of America from the Government?
    Mr. Lewis. No. There is a big distinction in the management 
of the two companies, and we in fact make it a point not to be 
part of the management team.
    Mr. Quigley. But you could see the potential for a conflict 
of interest, then. You have to have some control over them.
    Mr. Lewis. We actually don't, but I do see the cosmetics of 
the potential conflicts.
    Mr. Quigley. And cosmetics are becoming important.
    Mr. Lewis. They certainly are, yes, sir.
    Mr. Quigley. So how do you avoid even the appearance of 
conflicts or impropriety in that vein?
    Mr. Lewis. Well, you make it very clear, in terms of how 
the company is managed, that you have nothing to do with their 
management; and it is pretty clear in the bylaws of the company 
that we do not manage the company.
    Mr. Quigley. Very good. Thank you.
    Chairman Towns [presiding]. We now go to one of our senior 
Members in Congress in terms of service, not age, Marcy Kaptur 
from Ohio.
    Ms. Kaptur. Thank you, Mr. Chairman. You are a very 
diplomatic man.
    Mr. Lewis, thank you for appearing this morning. As you can 
tell, there are serious questions being raised about how much 
you actually knew about Merrill Lynch's condition and, indeed, 
the condition of Bank of America that you then did or didn't 
share with your shareholders; and I would like to cast a wider 
lens on a pattern of behavior of Bank of America, and perhaps 
other institutions in our country that some have dubbed ``crony 
capitalism'' that has led our Nation to the precipice that it 
now faces.
    On August 20, 2007, the Federal Reserve replied to a Bank 
of America request to waive banking regulation that limited the 
amount that federally insured banks can lend to related 
brokerage companies to 10 percent of bank capital. Until that 
point, banking regulation was that banks with federally insured 
deposits should not be put at risk by brokerage activities.
    Four months after that waiver was provided to Bank of 
America, Bank of America bought Countrywide, which has proven 
to be the worst subprime lender in our Nation, and I would like 
to place in the record a report by the Center for Public 
Integrity that documents that.
    The question that I have is who headed Bank of America at 
the time that the request was made of the Fed to waiver that, 
to allow Bank of America to enter into that brokerage activity?
    Mr. Lewis. I was the chairman and the CEO of the company.
    Ms. Kaptur. You were chairman and CEO. So you made the 
    Mr. Lewis. I don't know of this particular request.
    Ms. Kaptur. But you are aware that Bank of America then 
bought Countrywide 4 months later.
    Mr. Lewis. Yes, ma'am, I am very aware of that.
    Ms. Kaptur. OK. What kind of due diligence was done on 
their portfolio?
    Mr. Lewis. We did a great deal of due diligence on the 
portfolio, and I am proud to tell you that we bought them, we 
changed all of their lending practices. They are now a prime 
lender. They are the ones that are doing these loan 
modifications. They are not doing Alt-As and subprimes. Bank of 
America had gotten out of subprime in 2001; we were not doing 
it at all. So we have turned that company around to a very 
reputable mortgage lender doing the right things.
    Ms. Kaptur. But you had to absorb all their losses?
    Mr. Lewis. No, ma'am. In the transaction, there is an 
accounting thing called purchase accounting, where you mark the 
assets down before you buy them.
    Ms. Kaptur. That sort of leads me to my next question. It 
has been stated that the Bank of America, in 2008, conspired 
with Merrill Lynch in a sweetheart deal to give out exorbitant 
bonuses to Merrill executives totaling over $4 billion--that is 
with a B--in December 2008. Soon after, Bank of America got 
major infusions from taxpayer TARP money. But in 2008, on its 
Federal taxes, Bank of America, though it earned $4.4 billion 
that year, apparently paid just $120 million in taxes and 
deferred $5 billion in taxes for 2008.
    Some people are saying that Bank of America acquiesced to 
the Merrill bonuses because, otherwise, all of Bank of 
America's 2008 earnings would have been consumed with bonuses 
for Merrill. How do you respond to that?
    Mr. Lewis. Well, the transaction with Merrill took place on 
January 1st of this year, and until that time they had a 
separate board and a separate compensation committee. We had 
entered into agreement which allowed us to cap the bonuses and 
to have influence on the bonuses, but that the final decision 
would be made by their compensation committee and their board, 
because it was still a separate public company. So there was 
not a connectivity fully until after they became a subsidiary 
of Bank of America.
    Ms. Kaptur. But it certainly looks like, I don't want to 
use the word hedge, but it certainly looks like financial 
people inside your company were anticipating what might occur, 
and the deferral of taxes in 2008 seems most curious.
    Mr. Lewis. Well, I am no a tax attorney and I don't know 
exactly what the hedging was, but it was not--I don't see the 
connection to Merrill because Merrill was the next year.
    Ms. Kaptur. Well, I would sure appreciate, Mr. Lewis, if 
you could provide for the record what net effective tax your 
company paid in 2008, because, to me, it looks like you paid 
one-fiftieth of what you should, and I would like to compare 
what tax rate was paid and the amount that was paid versus what 
the average middle-class family in our country pays. I think 
the record will show you paid actually substantially less.
    Mr. Lewis. I would be happy to do that.
    Ms. Kaptur. I have a request, Mr. Chairman, if I could, for 
information for the record.
    Mr. Lewis, is it possible that in the spring of 2008, I 
have information that Bank of America bought a portfolio of 
subprime loans from the Federal Deposit Insurance Corporation 
that had been previously originated by Superior Bank of 
Illinois. Subsequently, Bank of America sold those same loans, 
valued at hundreds of billions of dollars, to investors who, as 
of last year, have now suffered major realized losses. Has Bank 
of America estimated the amount of those losses attributable to 
the acquisition of the Superior FDIC portfolio sold to Bank of 
America and can you provide that to the record?
    Mr. Lewis. Yes, ma'am, I would be happy to do that.
    Chairman Towns. Thank you very much.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Chairman Towns. I now yield to Congressman Welch from 
    Mr. Welch. Thank you, Mr. Chairman, and thank you, Mr. 
Lewis, for being here.
    A couple of questions. My understanding is that the 
original transaction started out as a private deal between Bank 
of America and Merrill Lynch, correct?
    Mr. Lewis. Yes, sir.
    Mr. Welch. And you did the due diligence financial review 
to make you come to the conclusion that it was in the best 
interest of the shareholders of Bank of America to proceed, 
    Mr. Lewis. Yes, that is correct.
    Mr. Welch. And then, sometime after you made this decision, 
you became aware of the $12 billion additional hole in the 
balance sheet, is that correct?
    Mr. Lewis. Yes, sir.
    Mr. Welch. And that was on December 14, 2008?
    Mr. Lewis. That is when we saw the accelerating losses.
    Mr. Welch. Well, accelerating as in $12 billion additional.
    Mr. Lewis. Correct.
    Mr. Welch. OK. Now, your shareholders had already voted to 
approve the merger based on information that you had provided 
up to that point, is that correct?
    Mr. Lewis. Yes.
    Mr. Welch. But the $12 billion figure that you became aware 
of on December 14th was of such magnitude that it made you 
believe that, in your capacity as the CEO, you would have to 
consider invoking the MAC clause, is that correct?
    Mr. Lewis. Yes, sir.
    Mr. Welch. And is it fair to say that the MAC clause would 
be considered, in effect, the nuclear option?
    Mr. Lewis. I don't know----
    Mr. Welch. Well, here is what I mean. If you invoke the MAC 
clause to get out of a deal that you entered into, then there 
is obviously reputational consequences in litigation, correct?
    Mr. Lewis. Yes, sir, that is a possibility.
    Mr. Welch. And if you lose the litigation, there are 
financial consequences to your shareholders, correct?
    Mr. Lewis. Yes, sir.
    Mr. Welch. So you wouldn't even consider invoking the MAC 
clause unless there was something of enormous magnitude and 
consequence to the company and the shareholders, correct?
    Mr. Lewis. That is correct.
    Mr. Welch. Now, in order to invoke the MAC clause and avoid 
the consequences of perhaps losing, would it be prudent, in the 
ordinary course, to get financial advice from your financial 
advisors as to the impact of this $12 billion hole on the 
business plan that justified the original decision to enter 
into the agreement?
    Mr. Lewis. Well, we had finance people looking at all of 
that, so we were looking at that issue.
    Mr. Welch. Well, obviously. This is my question: If you 
found out about a $12 billion additional hole, whatever model 
you had about payback and value to the shareholders, now it was 
called into question, right?
    Mr. Lewis. I tried to mention this before, but it extended 
the amount of time that you were going to get your payback, 
    Mr. Welch. It affected shareholder value, correct?
    Mr. Lewis. Correct.
    Mr. Welch. All right, basically two questions. One, did you 
get a financial analysis that you reviewed before you made a 
decision to discuss with the Treasury officials the invocation 
of the MAC----
    Mr. Lewis. There was financial analysis that I saw, yes.
    Mr. Welch. OK. These were made available to you?
    Mr. Lewis. Yes.
    Mr. Welch. And what was the conclusion of those financial 
    Mr. Lewis. The conclusion was that you pushed out your 
payback or your accretion because you had these preferred 
shares now that you were having to pay back.
    Mr. Welch. That is obvious. I mean, the bottom line is was 
there a conclusion about what the viability of this transaction 
    Mr. Lewis. Well, we still felt very strongly that all the 
strategic issues that were being addressed prior to Merrill 
Lynch were being addressed by the acquisition of Merrill Lynch.
    Mr. Welch. Have you made these financial studies available 
to the committee for its review?
    Mr. Lewis. I don't know. I don't know what this committee 
    Mr. Welch. All right. So what you are saying is that you 
did review financial statements from your advisors. Those being 
whom, by the way?
    Mr. Lewis. Our financial advisors are us.
    Mr. Welch. So all internal. And on the basis of that you 
decided that, despite the knowledge of the $12 billion hole, it 
was prudent to proceed, correct?
    Mr. Lewis. Yes, sir.
    Mr. Welch. So whatever threat or whatever word it is we are 
going to use for Mr. Bernanke and Mr. Paulson interactions, you 
had come to an independent conclusion on the basis of financial 
review by your people that it still made sense for your 
shareholders to proceed, correct?
    Mr. Lewis. No. As I recall, they were done in the context 
of receiving the money.
    Mr. Welch. Let's be clear. You are saying two things now. 
One, you did an independent financial analysis that said it 
will stretch out the payback time, but it still is prudent to 
proceed; but, on the other hand, you had Bernanke and Paulson 
breathing down your neck, so that was a factor. Are you saying 
those two things?
    Mr. Lewis. No, I don't think I am. I am trying to say that 
    Mr. Welch. OK, I am going to interrupt. I don't understand 
that, because I think you have said those two things.
    Another thing that is very important I think to 
shareholders, $12 billion is of consequence to you, correct?
    Mr. Lewis. Yes, it is.
    Mr. Welch. Did you tell your shareholders that you had come 
upon this information that the deal they voted on is not the 
deal that was going through because it had a $12 billion hole 
that was accelerated? Did you tell them that?
    Mr. Lewis. The $12 billion was what we discovered later.
    Mr. Welch. And do you think after the fact information is 
not of interest to investors?
    Mr. Lewis. What I do know is that when our lawyers tell us 
we have a disclosable event, we disclose it.
    Mr. Welch. If you have----
    Chairman Towns. I must interrupt the gentleman.
    Mr. Welch. If I can ask just one final question.
    If there is an event that you consider so significant that 
it may allow you to invoke the material adverse consequence 
contract clause, do you not think that same event is of 
interest to shareholders and requires you, in your fiduciary 
duty, to disclose it?
    Mr. Lewis. I leave that decision to our security lawyers 
and our outside counsel.
    Mr. Welch. You are not CEO?
    Mr. Lewis. I am not a securities lawyer.
    Mr. Welch. You are not the ultimate one responsible?
    Chairman Towns. I have to interrupt the gentleman. We have 
votes and we have other Members who have not had an 
    Mr. Welch. OK. Thank you. Yield back.
    Chairman Towns. The gentleman from Virginia, Mr. Connolly.
    Mr. Connolly. I thank the chairman.
    Again, Mr. Lewis, thank you for being here this morning. 
Several questions. One is when did you decide that the 
financial losses being incurred by Merrill Lynch should be 
disclosed to your shareholders?
    Mr. Lewis. Again, I don't decide on disclosures; we have 
securities lawyers, and many times they talk to external 
counsel to determine that.
    Mr. Connolly. Well, presumably, you--I mean, I worked for a 
company. Presumably, you, as the CEO, are in those 
    Mr. Lewis. No. They come to me and they are done.
    Mr. Connolly. Right. So when did that happen? When was the 
decision made and how was it made to disclose or not to 
disclose to the shareholders of your company?
    Mr. Lewis. We disclosed the losses at Merrill Lynch 
consistent with disclosing the agreement we had with the 
Government and consistent with us announcing our earnings on 
January 16th.
    Mr. Connolly. January? Why such a long delay?
    Mr. Lewis. Again, I am not a securities lawyer. That is 
when we announced according to schedules given to us by our 
    Mr. Connolly. Were you ever encouraged or pressured by 
anyone at the U.S. Treasury or by the Federal Reserve not to 
disclose until January?
    Mr. Lewis. No. We were working on a goal of getting 
everything done at once.
    Mr. Connolly. I am sorry, I cannot hear you.
    Mr. Lewis. We were working on a goal of getting everything 
done at once so that we didn't have an announcement of 
something that would cause more damage to the economy. But 
nobody ever told us that we should not disclose a disclosable 
    Mr. Connolly. So, for example, nobody at the Federal 
Reserve and no one at the U.S. Treasury urged you to manage the 
timing of the disclosure so that Merrill's earnings and the 
receipt of TARP money were all disclosed in January?
    Mr. Lewis. The target was to do that so that we didn't 
damage the economy any more.
    Mr. Connolly. So there were discussions about that with the 
U.S. Treasury and with the Federal Reserve.
    Mr. Lewis. It was about announcing everything at once.
    Mr. Connolly. I understand, but the timing is interesting; 
let's announce it in January, not in December. Was there 
something critical that had happened on Wall Street that made 
it better in January than December?
    Mr. Lewis. There was not an agreement in December.
    Mr. Connolly. I am sorry?
    Mr. Lewis. There was not an agreement in December.
    Mr. Connolly. There was not an agreement among whom?
    Mr. Lewis. Among us, us being the Federal Reserve or the 
    Mr. Connolly. So there were discussions, but not an 
agreement, in December.
    Mr. Lewis. There were discussions, but not an agreement, 
    Mr. Connolly. Did those discussions involve the Secretary 
of Treasury himself and the chairman of the Federal Reserve 
    Mr. Lewis. Yes, they did.
    Mr. Connolly. And yourself.
    Mr. Lewis. Yes, they did.
    Mr. Connolly. And the agreement was ``let's hold off until 
January because we are not in agreement yet about what to 
disclose and when to disclose it?''
    Mr. Lewis. We did not have an agreement and we had not 
agreed on all the details or the amounts.
    Mr. Connolly. Were the reports that you were reluctant to 
accept TARP funds true?
    Mr. Lewis. I am sorry? I couldn't hear you.
    Mr. Connolly. There was a report that you did not want to 
accept TARP funding. Is that correct?
    Mr. Lewis. It is true that we did not think we needed the 
TARP funds at the time we were asked to take them.
    Mr. Connolly. And was there any connection between your 
reluctance in accepting them and the exhortation from Secretary 
Paulson at that time to accept them and the issue of don't 
disclose the $12 billion worth of losses you had just 
    Mr. Lewis. No, absolutely not.
    Mr. Connolly. It never came up?
    Mr. Lewis. No.
    Mr. Connolly. Why did you accept TARP funds if you didn't 
think you needed them?
    Mr. Lewis. Because after hearing the various regulators, I 
felt like, given what they were saying about the potential of 
further deterioration in the economy, that we should have a 
healthy fear of the unknown.
    Mr. Connolly. How much in TARP funds did you accept, Mr. 
    Mr. Lewis. $15 billion.
    Mr. Connolly. That is a lot of money for insurance against 
the unknown, especially if your initial reaction was we don't 
need them.
    Mr. Lewis. Yes. But if you then see that credit meltdown of 
epic proportions that happened in the fourth quarter, it may 
not have been such a big insurance policy after all.
    Mr. Connolly. My time is almost up. One final question. 
Greg Curl replaced Amy Brinkley at BoA's chief risk officer. 
Given the fact that Mr. Curl failed to notice $12 billion of 
Merrill Lynch's losses, is it wise to have Mr. Curl be your 
chief risk officer, and did you approve of that decision?
    Mr. Lewis. Mr. Curl didn't miss the instruments which 
caused the loss. What happened is we did not anticipate the 
meltdown of such significant proportions in the fourth quarter. 
So he had identified everything properly; no one thought things 
would get as bad as it did in the fourth quarter. And I made 
that decision.
    Mr. Connolly. You made the decision that Mr. Curl should go 
ahead to become the CRO.
    Mr. Lewis. To become the COO. I am sorry, the CRO.
    Mr. Connolly. Thank you. My time is up.
    Chairman Towns. Let me thank you too. Let me announce that 
we have two votes on the floor and that we will recess until 
12:30, and we will be returning at 12:30 and, of course, 
continue the questions. So the committee is in recess until 
    Chairman Towns. The committee will resume. May I remind the 
witness that he is still under oath.
    At this time, I yield 5 minutes to the gentlewoman from 
California, Ms. Diane Watson.
    Ms. Watson. Thank you, Mr. Chairman, and thank you, Mr. 
Lewis for enduring all of this time.
    In your testimony, you stated that 9 days afer the 
shareholders' vote approving the merger, you became aware of 
significant accelerating losses, the MAC, at Merrill Lynch, 
raising concerns that the Bank of America might want to avoid 
finalizing the deal due to the revelation of MAC. However, it 
is difficult to understand how this came as a complete 
surprise, given reports by the New York Times that shortly 
after the deal was announced in September, B of A had quickly 
installed 200 people at Merrill Lynch to thoroughly review 
their books.
    Were any of the 200 Bank of America employees responsible 
for analyzing Merrill Lynch aware of the potential for the $12 
billion loss before you allegedly discovered it in mid-
    Mr. Lewis. I apologize if I haven't been clear. We did have 
people there and we did know that there were losses; that was 
clear both at our company and theirs. We could see that was 
happening and there were rumors on the street that was 
happening across all financial institutions, and we saw 
evidence of that after the fourth quarter close because we saw 
most everybody had losses.
    The thing that caused us to be concerned was the 
acceleration that we saw when we got the numbers that we did on 
the 14th.
    Ms. Watson. Did you feel that the reviews of Merrill 
Lynch's books were thoroughly adequate? Were they researched 
and analyzed adequately?
    Mr. Lewis. Yes, ma'am. I thought the due diligence was done 
adequately. We identified the instruments that we thought might 
have issues if you have credit deterioration, but we did not 
expect the magnitude of the deterioration that occurred in the 
fourth quarter.
    Ms. Watson. So you are saying that you really weren't aware 
of the substantial loss before the shareholders' meeting on 
December 5th?
    Mr. Lewis. No, ma'am. We saw losses, but they seemed 
consistent with what we were hearing about in the marketplace 
and consistent with what we were seeing at our company. It was 
only when we saw the acceleration, when we got the reports, 
when we did, that caused the alarm.
    Ms. Watson. Well, do you think if you had that knowledge 
before, you would have proceeded with that merger differently?
    Mr. Lewis. Well, I can't--it is hard to predict what I 
would have done other than what we did when we had them, so----
    Ms. Watson. Well, the scenario that I just gave you. If you 
were aware, would you have proceeded differently?
    Mr. Lewis. Well, I don't know because it didn't occur that 
    Ms. Watson. In testimony to the New York State attorney 
general, Andrew Cuomo, you stated that you had been advised by 
representatives from the Treasury Department and the Federal 
Reserve not to disclose details of Merrill Lynch's difficult 
financial position. So why do you believe that representatives 
from the Federal Government would not want you to disclose 
knowledge you had of Merrill Lynch's increasingly dire economic 
    Mr. Lewis. During all of that time, there was never ever a 
time that the Federal Reserve or the Treasury Department told 
me that we should not disclose something that we thought would 
be a disclosable event.
    Ms. Watson. So there was never a time that you were told to 
hold back on this information?
    Mr. Lewis. Not as regards something that should be 
    Ms. Watson. OK, remember you are under oath.
    OK, despite the fact that the plan for a merger was 
announced on September 15, 2008, there was no mention of the 
$20 billion capital injection from the Government until January 
16th. At what point during the negotiations between the B of A, 
Merrill Lynch, and the Federal Government was it determined 
that this money would be necessary for the merger to be 
    Mr. Lewis. The discussions around the injection of the 
preferred stock took place after we went to the Federal Reserve 
and the Treasury on the 17th, so during that time we began to 
talk about various ways to inject capital and so-called filled 
the hole. We did not come to a conclusion about amounts and the 
nature of the structure until sometime well into that first few 
weeks of January 2009.
    Ms. Watson. Thank you. My time is up.
    Thank you, Mr. Chairman.
    Chairman Towns. Thank you very much, gentlewoman of 
    Just before I move to the other Members, let me just ask a 
couple other questions.
    Mr. Lewis, did Merrill Lynch give you all the information 
that you needed to make a decision, an informed decision? Did 
you get all the material that you needed in order to be able to 
make an informed decision?
    Mr. Lewis. Yes, sir, they did. We, in fact, not only were 
we looking at the data, but we had an outside firm that had 
looked at the data before, a company run by Chris Flowers, who 
was looking at the data alongside of us, and he had looked at 
their data some time ago, a few months before then, so they had 
a very good knowledge of the various instruments and 
securities. So we actually had two sets of eyes looking at 
that. Again, sir, it was not the fact that we didn't identify 
the securities, it was that we did not expect the credit to 
deteriorate like it did in the fourth quarter.
    Chairman Towns. So do you agree that the decision on 
whether to proceed with the merger was ultimately yours? Was it 
    Mr. Lewis. Well, it was my recommendation to the board and 
it was mine and the board's decision to go forward, yes, sir.
    Chairman Towns. Thank you very much.
    I understand that we got out of rotation here. I understand 
it was Mr. Connolly next and then go back to Mr. Jordan. OK, 
Congressman Connolly.
    No, no, no, Mr. Jordan has to--you yield to him?
    Mr. Connolly. I thank my colleague.
    Chairman Towns. Briefly, he says.
    Mr. Connolly. I will be brief. I have to get back to the 
floor. So I thank my colleagues and I thank the Chair.
    Mr. Lewis, if you look at the minutes of the Bank of 
America dated December 30, 2008, it says ``special meeting.'' 
Starting at the top of page 3, it reads, ``Mr. Lewis reported 
that management has obtained detailed oral assurances from the 
Federal regulators with regard to their commitment and has 
documented those assurances with emails and detailed notes of 
management's conversations with the Federal regulators.'' It 
goes on to say that you discussed in detail ``the commitment of 
the Federal regulators to deliver assistance in the form of 
capital and asset protection to the corporation.''
    In all, the word ``commitment'' in those minutes is used at 
least nine times. But just before the committee recessed for 
this vote, in response to my question, you said there was no 
agreement in December. In fact, you said that it was for lack 
of agreement in December that you decided to make the 
announcement in January, and that all three parties--Treasury, 
Federal Reserve, and Bank of America--agreed to that. How do 
you reconcile your testimony today with what you told the board 
on December 30th?
    Mr. Lewis. Well, we had an agreement that we would work 
toward a solution, but even from December 30th until the time 
that we signed the agreement, there was back and forth in terms 
of amounts, in terms of structure, and in terms of securities 
to be included in what was then called a wrap. So we had 
agreement for a solution, but we didn't have any kind of 
agreement as I would think of it as a business person.
    Mr. Connolly. Well, what about commitment? What was your 
understanding of the commitment, that word used nine times in 
those minutes?
    Mr. Lewis. Commitment to work toward a solution.
    Mr. Connolly. Well, but it says that you received, as part 
of that commitment, detailed oral assurances from the Federal 
regulators with regard to their commitment.
    Mr. Lewis. Yes, sir. And you can----
    Mr. Connolly. That sounds like more than a commitment to 
find a solution. That sounds like it is pretty detailed and we 
have already worked out the solution, and I am verbally sharing 
with you at the ``special meeting'' the nature of that 
    Mr. Lewis. No. Different structures had been talked about, 
different amounts had been talked about, so there was a back 
and forth about different types of securities, different types 
of ways we could go about filling the hole. But there was never 
a specific agreement with specific numbers of that sort. So it 
took several more weeks before we could actually come to terms 
as to exactly what it would look like.
    Mr. Connolly. And it is your testimony that it is that 
failure to come to a specific agreement in December, that is 
the reason the announcement was put off until January?
    Mr. Lewis. That and the desire by the Federal Reserve and 
the Treasury to have an objective of having it all be able to 
be announced at one time, so that it would not spook the 
capital markets because they were so fragile.
    Mr. Connolly. Final question, if I may, Mr. Chairman.
    Was there any intentional reason not to put the agreement 
in writing?
    Mr. Lewis. No, sir, because there was not enough specifics 
to put into writing.
    Mr. Connolly. But at some point there were.
    Mr. Lewis. Yes, sir, and that was in the first few weeks of 
January of the following year.
    Mr. Connolly. But I want to be very clear. Under oath, it 
is your testimony today there was no intentional evasion or 
reason to not put the agreement in writing. Nobody had a 
conversation with Treasury, the Federal Reserve, or at the Bank 
of America ``let's not put this in writing right now.''
    Mr. Lewis. I can only speak to what was happening at the 
time. I don't know what was said to everybody, but the two 
things that I would continue to say is, No. 1, the goal was to 
get this done comprehensively so it was one time and we would 
not shock the markets with something that was dangling that was 
needed; and, second, we had not come to a final conclusion and 
did not do so for several weeks.
    Mr. Connolly. I yield back and I thank my colleagues for 
their indulgence.
    Chairman Towns. Thank you very much.
    I now yield to Mr. Jordan, gentleman from Ohio.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Lewis, thank you. I know sitting there for 3 hours and 
answering questions is not the greatest thing in the world to 
be able to have to do.
    In my first round, I asked about whether you felt the 
Government, in connection with the TARP program, exercised any 
excessive influence in day-to-day operations, and your answer 
was no. But I want to go back to--and I am taking this from a 
May 13th Bloomberg News story, documents obtained by Judicial 
Watch relative to a meeting that you had with Mr. Paulson, Mr. 
Bernanke, Mr. Geithner, and Ms. Bair. Did you and eight other 
bank CEOs meet with those individuals here in Washington back 
in looks like October 13th?
    Mr. Lewis. Yes, sir, we did.
    Mr. Jordan. OK. Tell us what happened at that meeting, 
because what the documents indicate is that we had a lot of 
conversation, discussion about the threat that has been talked 
about here by just about everyone relative to the MAC clause, 
but it looks like there was maybe threats here or at least 
strong suggestions that you initially participate in the TARP 
program. So can you tell me about what took place at that 
meeting and walk me through that October 13th meeting?
    Mr. Lewis. The nine chief executives were called by Hank 
Paulson, or at least I was----
    Mr. Jordan. Let me interject, if I could, real quick. You 
said earlier, I believe, too--and I forget to which Member's 
questions--that you initially, your board and your bank and you 
felt your bank did not need any infusion of cash or TARP money 
from the Government. Is that right?
    Mr. Lewis. Yes, sir, and it was----
    Mr. Jordan. What was that date? When did you make that 
decision as a bank?
    Mr. Lewis. Well, the first reaction that I had to the fact 
that we were being offered $15 billion was that we didn't need 
it; the prior week we had raised $10 billion in equity.
    Mr. Jordan. OK.
    Mr. Lewis. And that it could have been--I am speculating, 
but it could have been that is why we were offered $15, and not 
$25, like some of the other big banks were.
    But, as you mentioned, the people that were there, they 
were on the other side of the table. There were nine of us, the 
nine bank CEOs, and each of those people spoke about the 
possibility of deterioration in the economy. Finally, and I 
think it is a little grey with me, but I think it was Secretary 
Paulson then began to tell each bank what amount they should 
    Mr. Jordan. Were you required to sign a form at that 
    Mr. Lewis. Yes.
    Mr. Jordan. What did the form say?
    Mr. Lewis. It basically was a very short form that talked 
about the interest rate of the preferred and the amount. In 
fact, we wrote in the amount. It was a blank and so each 
individual wrote in----
    Mr. Jordan. You wrote in the amount, but it was suggested 
by the Treasury Secretary?
    Mr. Lewis. We were told what to write in, so to speak.
    Mr. Jordan. OK. You did that at that meeting? You wrote in 
the amount at that meeting?
    Mr. Lewis. Not until I had called my executive committee.
    Mr. Jordan. OK.
    Mr. Lewis. So we talked about various things----
    Mr. Jordan. So how long did this meeting last?
    Mr. Lewis. I think it was less than an hour, but, again, it 
has been a while.
    Mr. Jordan. In less than an hour, nine banks decided to 
take billions of dollars?
    Mr. Lewis. Well, we ended up----
    Mr. Jordan. Sign a form? Did you have to check with your 
board first before you signed the form?
    Mr. Lewis. No, no. I ended up, at least, in a position, and 
I think most of my colleagues in the various banks ended up, 
thinking that if this group of people, with the knowledge they 
have of the economy, were saying that this may be necessary, 
you should take it, that we felt like it was probably the right 
thing to do to have a healthy fear of the unknown. So on that 
basis I called my executive committee and got permission to 
sign it.
    Mr. Jordan. OK. And did the events of that hour, on that 
day in October, did that weigh on your mind fast-forward a few 
months in December, when you were deciding or thinking about--I 
think your answer to me earlier was when you called Secretary 
Paulson and Mr. Bernanke and told them about the MAC clause, 
you said you were seriously considering. I think that was your 
answer to me earlier.
    Did the events of October, that meeting, that 1 hour 
meeting, where they put a form in front of you and said ``you 
need to sign this, you need to write in the amount, you are 
going to participate in this program whether you like it or 
not,'' did those events impact your decision in December, when 
they said ``we don't want you exercising this MAC clause?''
    Mr. Lewis. No, I didn't correlate them or connect them in 
any way. I was never thinking about that in relation to the 
    Mr. Jordan. Did you know--if I could, Mr. Chairman.
    When you walked into that meeting in October, October----
    Mr. Kucinich. Request unanimous consent to give the 
gentleman another 2 minutes.
    Chairman Towns. Without objection, so moved.
    Mr. Jordan. I thank the subcommittee chairman and the 
    When you walked into that meeting on the 13th, did you know 
what it was about? Did you know it was going to be they are 
going to ask us all to take TARP dollars?
    Mr. Lewis. No, sir, I did not.
    Mr. Jordan. You had no idea? You thought it was about just 
the general concern of the economy?
    Mr. Lewis. I didn't know, but----
    Mr. Jordan. What were the rumors on the street? I think 
that is the term you used earlier about some other information 
you had gathered about Merrill Lynch. What were the rumors on 
the street amongst your colleagues in the other big lending 
institutions and banks around the country?
    Mr. Lewis. It was a weekend. I think Monday was a holiday 
or something, so I didn't hear a lot of things in that time 
period. So I don't know if it ever got out as to what was going 
to--but I did talk to at least one other person, and he did not 
know anything about it either.
    Mr. Jordan. Did anyone in that meeting express any 
reservations about--and forgive me, I don't have the data in 
front of me. Did anyone not sign?
    Mr. Lewis. Not to my knowledge. I think everyone signed.
    Mr. Jordan. Did anyone express reservations about not 
    Mr. Lewis. One person expressed reservations, yes.
    Mr. Jordan. Was that you?
    Mr. Lewis. No, it was not I.
    Mr. Jordan. OK.
    Mr. Chairman, thank you for the time. I have to run to a 1 
o'clock meeting.
    And I want to thank the witness for his patience and his 
thoughtful answers.
    Chairman Towns. Thank you very much.
    I now yield to the gentleman from Ohio again, this time, 
Mr. Kucinich.
    Mr. Kucinich. Thank you, Mr. Chairman.
    Mr. Lewis, we would hope that a CEO would have both a good 
memory and the integrity to take responsibility for his 
decisions. Mr. Lewis, you stated, in response to my previous 
question, that you did not recall asking for a letter from the 
Government stating that Bank of America was ordered to proceed 
with the purchase of Merrill Lynch. This is the lynchpin of 
clarifying whether you were threatened by the Fed or whether 
the Fed was tough with you because you were threatening to be 
irresponsible. I want to direct your attention to an email 
response from the Fed's General Counsel to Chairman Bernanke's 
email, which I previously disclosed.
    ``Mr. Chairman,'' it says, ``I don't think it is necessary 
or appropriate for us to give Lewis a letter along the lines he 
asked. First, we didn't order him to go forward; we simply 
explained our views and what the market reaction would be and 
left the decision to him. Second, making hard decisions is what 
he gets paid for, and only he has full information needed to 
make the decision, so we shouldn't take him off the hook by 
appearing to take the decision out of his hands.''
    I am entering this into the record.
    Chairman Towns. Without objection.
    Mr. Kucinich. Now, Mr. Lewis, is it still your testimony 
that you don't recall asking for a letter to absolve you of 
your responsibility for acquiring Merrill Lynch's huge losses?
    Mr. Lewis. Congressman, what I do remember is calling 
Chairman Bernanke and asking him if he could give us something 
in writing along the lines of what the solution would be.
    Mr. Kucinich. We are now updating Mr. Lewis's previous 
    Mr. Lewis. Sir----
    Mr. Kucinich. That may help you escape perjury, but it 
doesn't get away from the question of whether or not you were 
trying to absolve yourself of responsibility for acquiring 
Merrill Lynch's huge losses. I mean, we are talking about 
events that transpired only a few months ago, and the decision 
to withhold from Bank of America's shareholders material 
information about the deterioration of Merrill Lynch's finances 
was key here. This isn't about a threat, this is about your 
responsibility, and your failure to inform your shareholders 
could constitute a fundamental violation of security laws.
    I have just given you documentation, Mr. Chairman, that Mr. 
Lewis tried to deflect the matter to the Fed by asking for a 
letter that they made him do it.
    Now, I want to ask you, Mr. Lewis, our investigation finds 
that Mr. Bernanke believed that your threat to invoke a MAC was 
not credible. I want you to take a look at the following email 
from Chairman Bernanke dated December 21, 2008. ``I think the 
threat to use MAC is a bargaining chip, and we don't see it as 
a very likely scenario at all.''
    You did get a significant amount of financial assistance 
when you dropped the threat to back out of your deal, isn't 
that true?
    Mr. Lewis. Yes, we did.
    Mr. Kucinich. Tell the committee what you received, how 
much money.
    Mr. Lewis. $20 billion.
    Mr. Kucinich. And you got the promise of $118 billion, 
didn't you, in asset protection for a combination of Merrill 
and Bank of America toxic assets? Didn't you get that?
    Mr. Lewis. We hadn't settled on an amount until some time, 
but the wrap was being considered, yes.
    Mr. Kucinich. Now, that was in addition to the $15 billion 
in TARP moneys you received directly in October, $10 billion in 
TARP moneys you received upon acquiring Merrill, isn't that 
    Mr. Lewis. We did not ever sign the agreement on the wrap.
    Mr. Kucinich. Now, our investigation also finds that, 
contrary to your representations to the Fed, that you were 
concerned primarily about the losses at Merrill Lynch. 
Merrill's losses were less than half of the problem you faced; 
losses originating at Bank of America itself were larger than 
the losses at Merrill.
    Mr. Lewis, please look at the following email dated 
December 18, 2008, between officials at the New York Fed. One 
reports his findings saying that on the total of 30 basis 
points deterioration of the tangible common equity ratio of the 
combined Bank of America-Merrill Lynch entity, they go on to 
say that 16 basis points of deterioration is due to Bank of 
America, 14 basis points due to Merrill Lynch. The other 
official described this discovery as a ``smoking gun.''
    Isn't it true that more than half of the decline in your 
all-important tangible common equity ratio evident in mid-
December was not caused by Merrill Lynch?
    Mr. Lewis. Your apples and oranges. The securities----
    Mr. Kucinich. Well, maybe it is rotten apples and rotten 
apples, because isn't it true that you were told that if you 
went through with the MAC, and if you later needed financial 
assistance from the Government, you wouldn't get it? Isn't that 
    Mr. Lewis. I am sorry, repeat that, please.
    Mr. Kucinich. That if you went through with the MAC, and if 
you later needed financial assistance from the Government, 
weren't you told you wouldn't get it?
    Mr. Lewis. I think I have seen that in an email, but I 
    Mr. Kucinich. Were you told that, yes or no?
    Mr. Lewis. I do not recall being told that.
    Mr. Kucinich. Isn't it true that given the precarious state 
of your balance sheet and especially your inadequate levels of 
tangible common equity, you believed at the time you reasonably 
could need financial assistance from the Government in the 
    Mr. Lewis. The preferred stock does nothing to help your 
tangible common equity ratio.
    Mr. Kucinich. You wouldn't think about it? I mean, if you 
got $15 billion in October and you are going to come back 2 
months later and ask for another $20 billion--you to $15 and 
then, 2 months later, $20 billion--doesn't it show that it 
really increased your Tier 1 capital ratio? Doesn't it show 
    Mr. Lewis. Not tangible.
    Mr. Kucinich. Tier 1.
    Mr. Lewis. Tier 1, yes.
    Mr. Kucinich. Now, Mr. Lewis, the Government believed that 
you knew or should have known about the Merrill losses long 
before you said you did based on data that Bank of America 
possessed and had reasonably reviewed. The Government believed 
you could be in violation and breach of securities laws.
    The Government didn't believe you that Merrill was the 
primary cause of your problems, but thought that Merrill losses 
were less significant than the losses that Bank of America was 
experiencing as a standalone entity. The Government even 
thought that you were making the threat to use MAC as a 
bargaining chip and that it was not credible. The Government 
had already given you $25 billion before you approached it 
about Merrill Lynch.
    If the Government believed all of that about you and your 
management team, were you surprised that the Fed arranged for 
you to receive considerable additional financial support in 
January? Did that surprise you?
    Mr. Lewis. We received $15 billion, not $25 billion, from 
the original TARP package. It did not surprise me they were 
willing to give us more because we had talked about coming to a 
solution to get the Merrill Lynch deal done.
    Mr. Kucinich. Well, there was a financial crisis and they 
thought it was necessary for----
    Unanimous consent for 2 more minutes, and then I should 
wrap it up.
    Chairman Towns. Without objection.
    Mr. Kucinich. There was a financial crisis and they thought 
it was necessary for the system for the deal to go through. If 
there is one thing about your record that is clear, it is that 
you have experience in negotiating deals. What do you believe 
your leverage with the Government was at the end of 2008?
    Mr. Lewis. The only leverage I would say we had was that 
two honorable people trying to come to the right solution had 
given me their word that they would try their best to find a 
    Mr. Kucinich. Isn't it true that it was because Bank of 
America is a big bank, and if you hadn't been the CEO of the 
largest bank in America, if you had been the top executive, 
let's say, at a mid-size or small regional bank and you had 
been acquiring another similarly sized bank during the fall of 
2008, you think the Federal regulator would have behaved in the 
same way?
    Mr. Lewis. Well, sir, I don't think I was such a favorite 
son from some of the emails that you have just read.
    Mr. Kucinich. Well, wouldn't you have, if you were a 
smaller institution, been taken over and liquidated?
    Mr. Lewis. I can't speculate on that, sir.
    Mr. Kucinich. It is fair to say we have a large financial 
institution, Mr. Chairman, that doesn't face the same 
consequences for management as small ones, and the Fed had an 
opinion that there was considerable evidence of mismanagement. 
There has been a misconception here that the Government put a 
gun to the head of Bank of America, when it is quite possible 
that it was the Bank of America that put a gun to the head of 
the Fed by threatening to invoke the MAC, and I think that this 
whole idea, Mr. Chairman, about Mr. Lewis somehow being a 
victim here flies in the face of the fact that you were CEO of 
the largest bank and that you are pretending that you didn't 
ask for help from the Government to take the burden off your 
back, that you didn't ask for a letter.
    You are going to have to excuse me, but this is not 
credible. You are trying to change the scenario from you as a 
victim to you as a powerful CEO who made a decision that denied 
your stockholders, your shareholders material information that 
they needed prior to a vote on a merger, and I think that is 
the central point of this hearing, and I am sorry that you 
haven't been forthcoming enough about that central point.
    I yield back.
    Chairman Towns. Well, one thing is for sure, there was a 
shotgun marriage, a shotgun wedding. There is no question about 
    Let me just sort of raise this issue. On December 22, 2008, 
Mr. Lewis, you sent an email to your board, and let me just 
quote. It says, ``I just talked with Hank Paulson. He said that 
there was no way the Federal Reserve and the Treasury could 
send us a letter of any substance without public disclosure, 
which, of course, we do not want.'' Do you remember that?
    Mr. Lewis. Yes, sir. I do, yes, sir.
    Chairman Towns. And I was raising this because of the 
answer that you gave to my colleague from Virginia, Mr. 
Connolly. I didn't get that point that you actually sent that 
memo. I mean, it seemed to me, in his questioning, that didn't 
come out.
    Mr. Lewis. No. May I give you the context?
    Chairman Towns. Sure.
    Mr. Lewis. I had called Mr. Bernanke and said ``is there 
something you can give us in writing, because my board is 
concerned that everything is verbal and we have nothing 
concrete, and we are going in toward the end of the year and 
about to have to consummate this deal without anything in 
writing.'' And he said ``let me think about it,'' and the next 
call I got was from Hank Paulson, and he told me that, first of 
all, if they gave us any kind of agreement, it would be so 
watered down that the board would not find it satisfactory and, 
second, that they did not want disclosure. He was talking about 
the Government not wanting to create a disclosable event and 
have to disclose, not Bank of America.
    Chairman Towns. You sure didn't make that clear with my 
colleague from Virginia. But let me just move on.
    Mr. Lewis. I apologize.
    Chairman Towns. Congresswoman Kaptur from Ohio.
    Ms. Kaptur. Thank you, Mr. Chairman, very much.
    Mr. Lewis, I have been here since this morning and find 
your testimony a bit disquieting today for some of the 
following reasons: Bank of America owns 49.9 percent of 
BlackRock, but you seem not to know anything of its activities.
    No. 2, you are the person who was in charge when Bank of 
America acquired Countrywide over a year ago, but you 
apparently weren't aware of its books and the losses inherent 
in that purchase.
    No. 3, you are the CEO of the largest bank in the country 
and you seem to present yourself as having a rather hands-off 
relationship with the Federal Reserve and the Treasury. I find 
that somewhat incredulous.
    So let me ask some followup questions. In terms of the 
purchase of BlackRock that was a part of your Merrill Lynch 
merger, it is my understanding that BlackRock now is valued at 
over $1.3 trillion and that they just received five no-bid 
contracts from the Federal Reserve, among them managing 
troubled subprime mortgages in the Freddie Mac and Fannie Mae 
portfolios. The people of the United States, through the Fed, 
have propped up Fannie and Freddie now to the tune of over $200 
billion. For the record, can you provide the contract that 
BlackRock has with the Fed, particularly the one regarding the 
management of Fannie Mae and Freddie Mac's portfolios?
    Mr. Lewis. I don't know if I can because, again, we don't 
run BlackRock. We have two or three seats on the board, but we 
don't have a CEO or chairman, and he does not report to anybody 
in Bank of America-Merrill Lynch.
    Ms. Kaptur. And yet you own 49.9 percent of it? Isn't that 
a rather strange relationship?
    Mr. Lewis. Well, we don't own 51 percent. That would be the 
    Ms. Kaptur. Do you know how much BlackRock will earn from 
that contract with the Federal Reserve to manage Fannie and 
Freddie paper?
    Mr. Lewis. No. Possibly some of our board members would, 
but I don't.
    Ms. Kaptur. Let me mention the New York Times wrote the 
following: ``Can a company that is being paid to price and sell 
troubled assets for the Government buy the same kinds of assets 
for private clients without showing preference? And should the 
Government seek counsel from a company whose clients stand to 
make or lose billions if those policies are enacted?''
    Can you outline for us how the Bank of America will avoid 
conflict of interest in its mortgage portfolios and insider 
dealing charges as mortgage portfolios are resolved and Bank of 
America mortgages are involved when BlackRock is actually the 
designee to manage the Freddie and Fannie portfolios on behalf 
of the Federal Reserve?
    Mr. Lewis. BlackRock would have to manage those and with 
the client would have to manage anything like that.
    Ms. Kaptur. But obviously Bank of America, some of your 
mortgages are held by Fannie Mae and Freddie Mac. You were the 
acquirer of Countrywide, the largest subprime abuser in the 
country, so you must have a pretty healthy portfolio there that 
is going to undergo scrutiny.
    Mr. Lewis. And BlackRock would have to take that into 
account, yes.
    Ms. Kaptur. Can you provide for the record the documents 
that you may have at Bank of America that contain or record the 
conflict of interest review undertaken by Bank of America to 
ensure proper ethics as these mortgages are resolved?
    Mr. Lewis. The conflict would be with BlackRock and the 
client, which would be Freddie or Fannie Mae. And, by the way, 
Countrywide is doing quite well, and we have changed the 
policies dramatically to become one of the most responsible 
lenders in the country.
    Ms. Kaptur. Well, you know, I think there is a whole 
hearing that could be held just on Countrywide, and----
    Mr. Lewis. It would be pre-Bank of America.
    Ms. Kaptur. And are any of the former Countrywide staff on 
your staff now at Bank of America?
    Mr. Lewis. There is some staff, but nobody in executive 
    Ms. Kaptur. I beg your pardon?
    Mr. Lewis. Nobody in executive management. We sent our CEO 
to run the company, a woman named Barbara Desoer.
    Ms. Kaptur. You know, Mr. Chairman, it wouldn't be bad to 
hold a hearing on the interrelationship between Bank of 
America, BlackRock, Countrywide, the Federal Reserve, Fannie 
Mae, and Freddie Mac, and explore these interlocking, rather 
shadow, relationships that you claim have no bearing on 
activities within your institution, but which sound very 
unusual as you state them before the committee today.
    I wanted to just, in my second question here, relating to 
Superior Bank, which had the largest settlement in American 
history at the FDIC in 2001, over $450 million as a result of 
their subprime activities in Chicago and beyond, including 
servicing by Merrill Lynch, which is how you would acquire the 
Superior troubled loans. Let me ask you, when Bank of America 
acquired those loans, did you audit them prior to reselling 
them to investors?
    Mr. Lewis. I am not sure of that transaction, so I would 
have to get you somebody who was more familiar with the 
    Ms. Kaptur. Well, then explain to us, as head of this 
massive and important bank in our country, what is your plan 
for dealing with bad loans such as the Superior loans that came 
to you through the FDIC Merrill acquisition?
    Mr. Lewis. Well, to the extent that you have loans you can 
rehabilitate, you do. To the extent that you can sell loans for 
discounts, you do. To the extent that you can't do either, you 
hold them on your books and at some point write them off.
    Ms. Kaptur. But if you sell them to knowing investors and 
they were bad loans, what happens?
    Mr. Lewis. Well, you would take a massive discount. The 
bank selling them would take a massive discount.
    Ms. Kaptur. Well, I would certainly like the paper trail, 
the audit trail on those Superior loans that your bank has been 
    I thank you, Mr. Chairman.
    Chairman Towns. Thank you very much. I thank the 
gentlewoman from Ohio.
    I now yield 5 minutes----
    Ms. Kaptur. Mr. Chairman, may I ask the gentleman to yield 
just for a second? May I place in the record an article from 
the Atlantic Monthly, May 2009, on the financial crisis, 
    Chairman Towns. Without objection.
    Mr. Kucinich. I ask unanimous consent to insert all the 
emails that I offered on the screen there for the record.
    Chairman Towns. Without objection.
    [The information referred to follows:]
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    Chairman Towns. The gentleman from Maryland.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Lewis, I am confused. Just picking up on some of the 
things that the chairman and Mr. Kucinich were just asking 
about, I can kind of understand your reaction to discovering 
that there was a $12 billion loss suffered by Merrill Lynch, 
especially when it was coming after a shareholders' vote to 
purchase Merrill Lynch. I can understand you telling the Fed 
and Secretary Paulson and Treasury you were thinking of backing 
out of the deal. I can understand that. I think that was based 
upon your expertise and your experience.
    I cannot understand the agreement that you made with 
Treasury and the Fed, which they both deny, to disclose the $12 
billion loss. If the loss made this a horrible business deal to 
acquire Merrill Lynch, why did you still do it? And I know you 
have told us over and over again, but let's be frank. I mean, I 
am wondering how do you determine what it is you must disclose? 
I mean, we have shareholders here who are concerned.
    You are about to go into a deal with a company that is 
worse off than is made to believe, and it just seems to me that 
a person with your experience, there are a lot of people in 
this situation--and I don't care what Paulson may have said. I 
don't care what Bernanke may have said. They would have said 
``to hell with you.'' They would have said ``I am going to 
stand on principle, and my principles tell me that there is a 
MAC here, and here is a real problem; and if I go down, I go 
down, but I am going down on principle.''
    I just want to give you an opportunity to tell us, because 
I have to tell you I am kind of concerned, because I think 
there are some serious credibility issues, and I think Mr. 
Kucinich has raised some things that, if I were your lawyers, I 
would be concerned about. So help me.
    Mr. Lewis. You are referring to the fact that, despite the 
fact we thought we could have a MAC, we relied on the----
    Mr. Cummings. Yes. And I am also going to the point that I 
believe that when you said to--you don't just go and tell the 
Feds and you don't tell Paulson that, ``look, I smell a rat 
here.'' Somebody of your stature. I can understand if you were 
some guy that just came off the street 6 months ago and the 
last thing you did was you were a bank teller--no offense to 
bank tellers, but that was all you did. You are a major player, 
and when you speak, people listen.
    So I am trying to figure out. I mean, you said there is a 
problem here, but then you let these folks--and all due respect 
to Bernanke, all due respect to the Feds, all respect to 
Paulson. You are the head of this bank, you are the head of 
Bank of America; they are not. They may be on high, but you 
have to answer to the shareholders.
    And I am trying to figure out why--and this is stuff that, 
seems to me, if I had this kind of information, I wouldn't even 
want my shareholders to be voting on something and they did not 
have full disclosure, and I am trying to figure out where does 
the disclosure come in, why weren't things disclosed. I get the 
impression that there was insufficient due diligence. I know 
you were dealing with a crunch time. I know it was only a 
matter of hours that you were trying to turn all of this over. 
I got that. But a man of your stature, I refuse to believe that 
you set integrity, honesty, and transparency to the side for 
expediency. I just don't believe it. And I am trying to give 
you an opportunity to explain this to us. Now, if you don't 
want to, that is up to you, but I am asking you to.
    Mr. Lewis. Yes, sir. Well, if you ask, I will do my best. I 
don't know what else I can say other than we were influenced by 
the strong nature of the wording from the Federal Reserve and 
the Treasury in the sense that they obviously felt very 
strongly that we did not have a MAC. I also still thought we 
had strategic reason to do Merrill Lynch, despite the fact it 
had a financial issue. And then, third, I thought the downside 
of calling the MAC and not winning was pretty severe. So all of 
those factors were factors in me making that decision. But if I 
had thought that it was a MAC and all these other things didn't 
matter, I would have called a MAC, or we would have called a 
    Mr. Cummings. I see my time is up, Mr. Chairman.
    Chairman Towns. Let me thank the gentleman from Maryland 
and let me say that, as we come to the conclusion of this 
hearing, it is important to remember that we have heard only 
one side of the story today. The committee needs to hear from 
Mr. Paulson and Mr. Bernanke before we draw any hard and fast 
conclusions. I do believe in fairness.
    However, I do think it is fair to observe that a flawed 
financial regulatory process was at work in this case. We see 
closed door meetings, coded messages, motives, questions, and 
private emails. Basically, the regulators and financial 
institutions seemed to be making up the rules as they went 
    As Congress considers financial regulatory reform, one of 
the lessons from this case is that we need much more 
transparency and accountability in the financial regulatory and 
oversight process. The American taxpayers and corporate 
shareholders deserve no less. They need to know what is going 
    Let me again thank you, Mr. Lewis, for being here today. 
Before we adjourn, let me state that this committee has and 
will continue to protect the American taxpayers, and will 
continue to make sure the taxpayers' dollars are spent in a 
transparent and wise manner.
    Without objection, I enter this binder into the committee 
record and, without objection, the committee stands adjourned.
    [Whereupon, at 1:25 p.m., the committee was adjourned.]
    [The prepared statements of Hon. Edolphus Towns, Hon. Diane 
E. Watson, Hon. Gerald E. Connolly, and additional information 
submitted for the hearing record follow:]