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

     BANK OF AMERICA AND MERRILL LYNCH: HOW DID A PRIVATE DEAL TURN INTO A
                            FEDERAL BAILOUT? PART IV

    =======================================================================

                                 JOINT HEARING

                                   before the

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                                    and the

                        SUBCOMMITTEE ON DOMESTIC POLICY

                                     of the

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               NOVEMBER 17, 2009

                                   __________

                               Serial No. 111-47

                                   __________

    Printed for the use of the Committee on Oversight and Government Reform

      Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                                   index.html
                          http://www.house.gov/reform

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                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                       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 L. MICA, Florida
    DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
    JOHN F. TIERNEY, Massachusetts       JOHN J. DUNCAN, Jr., Tennessee
    WM. LACY CLAY, Missouri              MICHAEL R. TURNER, Ohio
    DIANE E. WATSON, California          LYNN A. WESTMORELAND, Georgia
    STEPHEN F. LYNCH, Massachusetts      PATRICK T. McHENRY, North Carolina
    JIM COOPER, Tennessee                BRIAN P. BILBRAY, California
    GERALD E. CONNOLLY, Virginia         JIM JORDAN, Ohio
    MIKE QUIGLEY, Illinois               JEFF FLAKE, Arizona
    MARCY KAPTUR, Ohio                   JEFF FORTENBERRY, Nebraska
    ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
        Columbia                         AARON SCHOCK, Illinois
    PATRICK J. KENNEDY, Rhode Island     BLAINE LUETKEMEYER, Missouri
    DANNY K. DAVIS, Illinois             ANH ``JOSEPH'' CAO, Louisiana
    CHRIS VAN HOLLEN, Maryland
    HENRY CUELLAR, Texas
    PAUL W. HODES, New Hampshire
    CHRISTOPHER S. MURPHY, Connecticut
    PETER WELCH, Vermont
    BILL FOSTER, Illinois
    JACKIE SPEIER, California
    STEVE DRIEHAUS, Ohio
    JUDY CHU, California

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

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on November 17, 2009................................     1
    Statement of:
        Mayopolous, Timothy J., former general counsel, Bank of
          America; Brian Moynihan, president of consumer and small
          business banking, Bank of America Corp.; Charles ``Chad''
          Gifford, member of the Board of Directors, Bank of America;
          and Thomas J. May, member of the Board of Directors, Bank
          of America.................................................    20
            Gifford, Charles ``Chad''................................    43
            May, Thomas J............................................    46
            Mayopolous, Timothy J....................................    20
            Moynihan, Brian..........................................    36
    Letters, statements, etc., submitted for the record by:
        Connolly, Hon. Gerald E., a Representative in Congress from
          the State of Virginia, prepared statement of...............   102
        Cummings, Hon. Elijah E., a Representative in Congress from
          the State of Maryland, prepared statement of...............    98
        Gifford, Charles ``Chad'', member of the Board of Directors,
          Bank of America, prepared statement of.....................    44
        Issa, Hon. Darrell E., a Representative in Congress from the
          State of California, prepared statement of.................    10
        Kucinich, Hon. Dennis J., a Representative in Congress from
          the State of Ohio:
            Exhibits.................................................    52
            Prepared statement of....................................    14
        May, Thomas J., member of the Board of Directors, Bank of
          America, prepared statement of.............................    47
        Mayopolous, Timothy J., former general counsel, Bank of
          America, prepared statement of.............................    22
        Moynihan, Brian, president of consumer and small business
          banking, Bank of America Corp., prepared statement of......    38
        Towns, Chairman Edolphus, a Representative in Congress from
          the State of New York:
            Closing statement of.....................................    95
            Prepared statement of....................................     4

     BANK OF AMERICA AND MERRILL LYNCH: HOW DID A PRIVATE DEAL TURN INTO A
                            FEDERAL BUYOUT? PART IV

                                  ----------

                           TUESDAY, NOVEMBER 17, 2009

            House of Representatives, Committee on Oversight
                and Government Reform, joint with the
                Subcommittee on Domestic Policy,
                                                        Washington, DC.
        The committee and subcommittee met, pursuant to notice, at
    10 a.m., in room 2157, Rayburn House Office Building, Hon.
    Edolphus Towns (chairman of the Committee on Oversight and
    Government Reform) presiding.
        Present from Committee on Oversight and Government Reform:
    Representatives Towns, Issa, Cummings, Kucinich, Tierney, Clay,
    Watson, Lynch, Connolly, Quigley, Kaptur, Norton, Davis,
    Cuellar, Welch, Speier, Chu, Bilbray, Jordan, Chaffetz,
    Luetkemeyer, and Cao.
        Present from Subcommittee on Domestic Policy:
    Representatives Kucinich, Cummings, Tierney, Kaptur, Welch, and
    Jordan.
        Staff present: John Arlington, chief counsel--
    investigations; Jean Gosa, clerk; Velginy Hernandez, press
    assistant; Adam Hodge, deputy press secretary; Carla Hultberg,
    chief clerk; Marc Johnson and Ophelia Rivas, assistant clerks;
    Mike McCarthy, deputy staff director; Jenny Rosenberg, director
    of communications; Christopher Staszak, senior investigative
    counsel; Alex Wolf, professional staff member; Lawrence Brady,
    minority staff director; John Cuaderes, minority deputy staff
    director; Rob Borden, minority general counsel; Jennifer
    Safavian, minority chief counsel for oversight and
    investigations; Adam From, minority chief clerk and Member
    liaison; Kurt Bardella, minority press secretary; Benjamin
    Cole, minority deputy press secretary; Christopher Hixon,
    minority senior counsel; Hudson Hollister, minority counsel;
    and Brien Beattie, minority professional staff member.
        Chairman Towns. The committee will come to order.
        Let me begin by thanking all of you for being here.
        When the committee held its first hearing on the Bank of
    America-Merrill Lynch merger over 5 months ago, I asked a few
    simple but vital questions: First, how did a private sector
    deal announced in September 2008 wind up as a major Government
    bailout with the taxpayers on the hook for $20 billion?
        Second, I asked whether the Government forced Bank of
    America to go through with this deal.
        Finally, I asked whether Bank of America CEO Ken Lewis
    really had a legitimate basis for backing out of the Merrill
    Lynch deal, or, when he realized late in the game that there
    were serious problems with the deal, did he threaten to back
    out to gain leverage for a taxpayer bailout?
        Today, as a result of our investigation, I think the
    answers to those questions are much clearer.
        Each senior Bank of America executive who was involved in
    the deal has told the committee that the Government did not
    force them to go through with it.
        Ken Lewis has also told us that nobody in the Government
    did anything improper during this transaction.
        If there are still people who want to say the Government
    forced Bank of America to go through with the deal, they are
    turning a blind eye to the facts we have before us.
        A simple but important fact is that the Government did not
    elbow its way into this transaction. Ken Lewis called then-
    Treasury Secretary Hank Paulson on December 17, 2008, and
    brought the Government to the table. That one phone call
    started everything in motion.
        On that phone call, Ken Lewis claimed that he believed Bank
    of America could back out of the deal with Merrill Lynch based
    on the material adverse change clause in the merger agreement,
    the so-called ``MAC clause.''
        What we know now is that Bank of America's top lawyer, Tim
    Mayopolous, told two top Bank of America executives on December
    1, 2008, that Bank of America did not have a MAC. Mr.
    Mayopolous was suddenly fired 9 days later, without
    explanation, and replaced by a senior insider who had not
    practiced law in years.
        Our investigation has also uncovered documents showing that
    on December 15, 2008, lawyers working for Bank of America knew
    that to win a MAC, ``it is not enough to show a short-term
    earnings decline, no matter how severe. Must show decline in
    value over period of years, not months.''
        Nonetheless, Ken Lewis called Hank Paulson on December 17th
    and said Bank of America actually had a MAC.
        Again, on December 19th, lawyers working for Bank of
    America gave its executives a memo that noted that Delaware
    courts had never found that a MAC occurred allowing the buyer
    to terminate a merger agreement.
        Nonetheless, 2 days after receiving that memo, Mr. Lewis
    again called Secretary Paulson and threatened to back out of
    the deal.
        Finally, the committee has obtained notes showing Bank of
    America's outside counsel believed on December 18th that they
    had at least an 80 percent chance of losing a MAC claim.
    Perhaps the most telling of all documents is the one where a
    lawyer for Bank of America writes, ``threat of MAC-don't push
    too far-could turn against us.''
        The documents and testimony the committee has reviewed
    clarify that the Bank of America was aware that the chances of
    prevailing on the MAC were very slim. Merely invoking the MAC
    could have led to significant adverse financial consequences
    for the company.
        Based on the facts we have before us, it sure looks like it
    was Bank of America that was holding the shotgun at this
    wedding.
        Today, we will hear from Tim Mayopolous, the lawyer who was
    fired 9 days after telling Bank of America executives there was
    no MAC. We will also hear from Brian Moynihan, the person who
    replaced Mr. Mayopolous and who determined some time between
    December 15th and 17th that Bank of America could back out of
    the deal by invoking the MAC.
        After replacing Mr. Mayopolous, Mr. Moynihan served as the
    general counsel for about 44 days. He stopped serving as the
    general counsel about 6 days after the bailout was a done deal.
    He is now president of consumer and small business lending at
    Bank of America.
        We will also hear from two Bank of America directors who
    were on the Board when this deal and the bailout went through,
    and who now are helping choose the next Bank of America CEO.
        At this point, our investigation has shed a great deal of
    light on a deal that was secretly made and that cost taxpayers
    billions. Although the investigation may be coming to a close,
    I am certain that no member of this committee will stop working
    until all the taxpayer dollars that Bank of America received
    are paid back.
        Thank you very much, and on that note I yield to the
    ranking member of the committee, Mr. Darrell Issa of
    California.
        [The prepared statement of Chairman Edolphus Towns
    follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Issa. Thank you, Mr. Chairman. I have greatly
    appreciated your willingness to engage in necessary oversight
    of the Bush administration's--I repeat, the Bush
    administration's--decision to force Bank of America and other
    banks to accept TARP funds and subsequently force Bank of
    America to acquire Merrill Lynch. Unfortunately, the bipartisan
    nature of the investigation appears to have stalled at today's
    hearing.
        First, Mr. Chairman, there has never been a shotgun wedding
    in which the groom held a shotgun to himself. As you have said
    in the past, this was a shotgun wedding and the only people
    that could have held the shotgun was the Bush administration,
    Paulson, and Geithner, and we all know that.
        I regret the investigation today has become an apparent
    cover-up of the continuing activities of the Obama
    administration, and particularly Secretary Geithner, in
    securing promises of billions of dollars of taxpayer support in
    exchange for Bank of America's waiver of its contractual
    right--even if it was only 20 percent likely--to attempt to
    negotiate a lower price using that 20 percent likely MAC clause
    for Merrill Lynch.
        At one time, Mr. Chairman, you were willing to follow the
    trail of misconduct wherever it led. Now that the trail may
    lead to a cabinet officer in the Obama administration, this
    committee's time and resources have been redirected toward the
    political scape-goating of Bank of America.
        As a businessman, I said some time ago that I saw through
    what Ken Lewis was doing. What he had was he had losses which,
    if put back into the correct places they should have been, in
    other words, recalculating the profits not made as a result of
    those losses, he had a good case for a MAC; he had a good cause
    for saying, in an Enron-like fashion, that in fact Merrill
    Lynch had overstated their profits by booking these as good
    when in fact, after the fact, they were known to be wrong.
        That is no different than Enron. You can't call a profit a
    profit when it is clear that it ultimately was a risky
    investment likely to lead to failure and, in fact, it had led
    to billions of dollars in failure.
        Ken Lewis was doing what most tough negotiators do: found
    an opportunity, get a dramatically better price, one that would
    have saved his company money and ultimately the stockholders
    money.
        And yet, the Bush administration, under Secretary Geithner,
    then Fed chairman of New York, and Secretary Paulson forced the
    issue and used money, both literally and figuratively, as
    justification for why they must go through. Literally because
    they offered the money and Secretary Geithner offered it
    repeatedly verbally during the transition team; figuratively
    because they offered to take Ken Lewis and his company down if
    they later needed money and did not go through with the merger.
        Bank of America CEO Ken Lewis repeatedly asked the Bush
    administration to put purely verbal comments for additional
    taxpayers' money into writing, but both Hank Paulson and Ben
    Bernanke refused. Instead, they sought to control disclosure
    for this new bailout until the last possible date.
        The incoming Obama administration's support for the
    commitment of billions of additional taxpayer dollars was
    absolutely essential to ensure Bank of America's cooperation in
    this purely verbal back-door deal.
        Mr. Chairman, we do not want to see lawyers doing verbal
    things, and yet in this case we had no memos that we could rely
    on and no written contracts. Mr. Chairman, where is Tim
    Geithner, who could in fact verbally and under oath give us the
    answers to our questions?
        The fact is, where is Sheila Bair? Where in fact is Mary
    Shapiro, or even where is Chris Cox? Where is the Government?
        Change has come, Mr. Chairman. Under the Bush
    administration, whether Republicans or Democrats were in charge
    of this committee, we brought in administration officials. The
    witnesses we are going to hear from today are appropriate, and
    they will speak to their view of what happened. But we have
    already had Ken Lewis here, under oath, testifying to his
    explanation of what happened, and it has not been refuted by
    any of the subsequent documentation, discovery, or testimony.
        Mr. Chairman, as ranking member, I do not have subpoena
    authority. As ranking member, I do not have the ability to get
    a witness. As ranking member, I will be asking for, in writing,
    another minority hearing. I will because, in fact, we had
    majority and minority agreement on this panel and the panel
    which is not here today. Mr. Chairman, my request for a
    minority hearing will be for the exact people that you have
    chosen to drop off of this list after agreeing. I ask for
    nothing more.
        Mr. Chairman, it is very clear that we cannot field that
    change has come and therefore the Obama administration no
    longer can make a mistake, even when in fact the people who
    made the mistake under the Bush administration are now in the
    Obama administration.
        With that, I yield back.
        [The prepared statement of Hon. Darrell E. Issa follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Towns. Here we go again. Let me say that if the
    ranking member would like for me to pull out a calendar, I am
    happy to do so and remind him that this merger and bailout
    occurred during the previous administration. And if he had such
    strong feelings and concerns about this bailout, I wonder why
    he was not asking the Bush administration the tough questions
    last year.
        I now yield to the gentleman from Ohio.
        Mr. Kucinich. Thank you very much, Mr. Chairman.
        This investigation started with questions: How could a
    merger of the largest bank and second largest investment bank
    in the country require a Government bailout only weeks after
    shareholders had voted to approve it as a private deal? Was it
    true that the financial situation shifted so dramatically in
    that short amount of time? Or did top management know, or
    should they have known, about the changing situation much
    earlier? Did they fail to make necessary disclosures to their
    shareholders?
        When we asked Ken Lewis, Bank of America's CEO, about this
    at our first hearing, he told us that he relied on the advice
    of counsel and that he relied on forecasts from Merrill Lynch.
    Recently, in response to our requests, Bank of America produced
    to us the documents on which they based their decision not to
    make additional shareholder disclosures, as well as the notes
    from some of the discussions that led to that decision. This
    included the actual forecast that was created by Merrill Lynch
    and used by Bank of America's lawyers as the basis to determine
    if there was something shareholders should know before they
    approved the merger.
        Our examination of this forecast and how it was used should
    sound alarms about how Wall Street really operates. The
    forecast, when it was created by Merrill Lynch on November
    12th, revealed that in October the company had absorbed in just
    1 month more losses than in the entire previous quarter, and
    half the amount of losses in the fourth quarter of the previous
    year. Yet, incredibly, the forecast omitted to make any
    projections of how the most troublesome investments--
    collateralized debt obligations, subprime mortgage-backed
    securities, credit default swaps--would perform in the next 2
    months, November and December. The forecast assumed those
    investigations would have zero effect on Merrill Lynch's bottom
    line for two-thirds of the remaining fourth quarter.
        Bank of America saw the deficiency in the document, but
    they have not shown us that they actually did any actual
    analysis to make up for Merrill's omissions. On the contrary,
    the evidence we have suggests that Bank of America pulled a
    number out of thin air. Far from being consistent with the
    actual experience of October, or what they knew about the third
    quarter, the guess wishfully assumed that the markets for
    collateralized debt obligations and credit default swaps would
    be significantly better in November and December. It was
    assumed that Merrill Lynch would almost break even for
    November, thereby spreading October's bad results over 2
    months.
        Then the attorneys at Bank of America and Wachtell Lipton
    went to work. They did not question the financial information
    they were given. They began with the assumption that additional
    shareholder disclosure was necessary and they discussed what
    kind of disclosure they would make. But after studying the
    question for a week, they decided that the news was not
    sufficiently out of line from past performance and previous
    disclosures to warrant further shareholder disclosure. Thus, on
    the advice of counsel, Bank of America did not make any further
    disclosures to its shareholders in advance of the merger vote.
        Within only weeks, however, reality crowded out the wishful
    thinking. Far from having a small effect, those collateralized
    debt obligations and other exotic instruments continued to lose
    large amounts of money. Bank of America's guess, which had
    played a significant role in the decision not to make
    additional disclosures to shareholders, proved to be billions
    off the mark. That is when Bank of America went to the U.S.
    Government for help.
        This investigation has opened up a rare window onto the
    management suite of the largest bank in the country. Here is a
    story of how Bank of America's top executives allowed
    guesswork--guesswork--to masquerade as actual expert knowledge,
    and how numbers pulled out of the air, without any actual
    analysis, served as the basis for corporate decisions made
    about other people's money, shareholders' money.
        Unfortunately for all of us, I doubt Bank of America is
    unique. Look around to see what the geniuses of Wall Street
    have wrought. The house of cards they have built has buried our
    constituents under debt they can't pay, record rates of
    foreclosure and joblessness. If you think these bankers and
    financiers deserve the millions of dollars they are paid and
    the bonuses they award themselves, if anyone thinks they can be
    trusted with running companies that are too big to fail, think
    again. The wizards of Wall Street are no more wizard than the
    Wizard of Oz, except, unlike the Kingdom of Oz, when that
    kingdom falls, there is wreckage all over America.
        I yield back.
        [The prepared statement of Hon. Dennis J. Kucinich
    follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Towns. Thank you very much. I now yield to the
    gentleman from Ohio, Mr. Jordan.
        Mr. Jordan. Thank you, Mr. Chairman. Mr. Chairman, I just
    want to respond to your previous statement. This is not about
    holding one administration accountable and not the other. This
    is about holding Government accountable. I mean, that is this
    committee. This is the Government Oversight Committee, and the
    ranking member's suggestion that we need Ms. Shapiro, Mr. Cox,
    Ms. Bair, and Mr. Geithner here is exactly on target.
        No one in our previous hearings, which I appreciate, no one
    went after the previous administration, specifically Secretary
    Paulson, harder than Ranking Member Issa and myself. We just
    want the opportunity to question the same folks who are now in
    our current administration who were involved in this decision.
        The chairman mentioned a shotgun being held. The only
    shotgun involved here was what the Government held to Bank of
    America's head when they forced them to take TARP. Nine days
    after this passed, when Bank of America had to sit down with
    eight other big institutions in this country, forced them to
    take TARP money. Then, in the deal itself. That is why we need
    officials who were involved in this whole decision here.
        As I suggested in some of our previous hearings, I think
    Mr. Paulson actually misled the Congress when he came in front
    of the Congress last year asking for the TARP money and then,
    as I said, 9 days later changing course dramatically and saying
    we are not going to purchase any of these mortgage-backed
    securities, we are just going to give capital to the banks.
        So the question that Mr. Issa asked I think is right on
    target. The unprecedented moves we have seen from the
    Government, the unprecedented pressure we have seen from the
    Government on this institution I think requires us to get Mr.
    Geithner, Mr. Cox, Ms. Bair, and Ms. Shapiro in front of this
    committee, and I hope that the chairman will do that so we can
    have a full airing of what took place and ask the appropriate
    questions.
        With that, I would yield some time to the ranking member,
    if he would like.
        Mr. Issa. I thank the gentleman. I just want to set the
    record straight a little bit because I think it is important.
        First of all, we understand that we are not the Financial
    Services Committee; the SEC does not report to us and, in fact,
    the SEC has more jurisdiction over this commercial portion than
    we do. But we the Government Oversight Committee and I would
    join with my colleague from Ohio, in this case Marcy Kaptur. We
    led the charge and worked to try to defeat the TARP because we
    knew that the money would not be properly spent the way the
    administration brought it to us. And, as it turns out, just
    days after they got the money, they spent it in a very
    different way.
        So I think that when we are setting the record straight, we
    are setting the record straight that we didn't think the last
    administration should have these hundreds of billions of
    dollars of walking around money loosely disguised as an
    emergency fund for a specific reason, and that, in fact, a
    merger which was approved on December 5th, consummated on
    December 31st, in those 20 days that President Bush was still
    in office, there wasn't any oversight we could have done; we
    weren't even in session except to organize.
        What we did do is those of us who fought, on a bipartisan
    basis, the funding of TARP continued to say that these were
    outlandish ways to spend the money, that this was wrong for us
    to be part and parcels of mergers and acquisitions and price
    setting.
        So today I think this committee needs to stand up to what
    we were doing in the last Congress and continue to look at
    where Government failed us; and it doesn't matter whether it
    was Republican or Democratic Government. We need to continue to
    do that and we certainly need to see that the remainder of the
    TARP not continue to be spent in a way that you yourself, Mr.
    Chairman, have called a shotgun wedding.
        I thank the gentleman for yielding.
        Mr. Jordan. Thank you, Mr. Chairman. I yield back.
        Chairman Towns. Let me just say, before we move forward, I
    think that to make that assessment before we hear from our
    witnesses, I mean, you don't know what they are going to say,
    how much they are going to say. And based on the fact that,
    what has been said up to this point by Mr. Lewis, who indicated
    that the Government in no way acted improperly--this is what he
    said. Now, the question is if you don't believe him in terms of
    his comments or his statements, then that is another issue.
    But, in the meantime, we are going to move forward.
        Would the witnesses please stand?
        [Witnesses sworn.]
        Chairman Towns. Let the record reflect that the witnesses
    answered in the affirmative.
        You may be seated.
        Going from my left to right, our witnesses today are
    Timothy Mayopolous, who was general counsel of Bank of America
    for nearly 5 years, from January 2004 until December 10, 2008.
    He is currently the executive vice president of general counsel
    and secretary of Fannie Mae.
        Mr. Moynihan was the general counsel of Bank of America
    from December 10, 2008 to January 22, 2009. He currently serves
    as the president of consumer and small business lending at Bank
    of America.
        Mr. Gifford and Mr. May are currently on Bank of America's
    Board of Directors, and were on the Board last December when
    the Bank received its bailout. They are both also on the
    committee that is selecting the replacement for Mr. Lewis.
        Mr. Mayopolous, please give your opening statement. You
    have 5 minutes, and the light starts out on green, then it
    turns to yellow, and then, of course, it turns to red, and when
    it gets to red we ask that you stop, which will allow the
    Members an opportunity to be able to raise questions after all
    the witnesses have finished. Thank you.

     STATEMENTS OF TIMOTHY J. MAYOPOLOUS, FORMER GENERAL COUNSEL,
      BANK OF AMERICA; BRIAN MOYNIHAN, PRESIDENT OF CONSUMER AND
    SMALL BUSINESS BANKING, BANK OF AMERICA CORP.; CHARLES ``CHAD''
    GIFFORD, MEMBER OF THE BOARD OF DIRECTORS, BANK OF AMERICA; AND
       THOMAS J. MAY, MEMBER OF THE BOARD OF DIRECTORS, BANK OF
                                AMERICA

                   STATEMENT OF TIMOTHY J. MAYOPOLOUS

        Mr. Mayopolous. Chairman Towns, Ranking Member Issa, and
    members of the committee, thank you for the committee's
    invitation to appear before you today. My name is Tim
    Mayopolous. Bank of America recently waived its attorney-client
    privilege with respect to the Merrill Lynch merger and has
    instructed me that I am free to answer questions the committee
    may have for me.
        Accordingly, as the committee has requested, I will briefly
    summarize, and have set forth in more detail in my written
    testimony, the legal advice Bank of America received in
    connection with the Merrill Lynch merger, as well as the
    circumstances of my departure from the company on December 10,
    2008.
        I served as general counsel of Bank of America for 5 years.
    I was responsible for overseeing a very large number and wide
    range of legal matters. In the case of the Merrill Lynch
    merger, I relied heavily on the company's outside counsel, who
    were leading lawyers at the esteemed law firm of Wachtell
    Lipton Rosen & Katz, as well as my own in-house legal
    department.
        Questions have been raised about what legal advice Bank of
    America received as to whether to disclose to shareholders the
    amount of the potential 2008 bonus pool for Merrill Lynch
    employees. To my recollection, I had no role in this issue. I
    do not recall anyone raising or discussing with me whether the
    potential year-end bonus pool for Merrill employees should be
    disclosed to shareholders. As far as disclosure was concerned,
    as was my practice, I relied on Wachtell Lipton and our in-
    house legal staff to prepare the proxy statement properly and
    accurately.
        The committee has asked what legal advice Bank of America
    received regarding the material adverse change provisions of
    the merger agreement. The only advice I recall giving about
    these provisions was on December 1, 2008. I advised Joe Price,
    Bank of America's chief financial officer, and Greg Curl, then
    Bank of America's head of corporate strategy, that for
    Merrill's poor financial performance to constitute a material
    adverse change, it had to be disproportionate to that of other
    companies in the industry, including Bank of America. We
    discussed the relative performance of the two companies since
    the merger had been announced, and I advised Mr. Price and Mr.
    Curl that there was no basis to conclude that a material
    adverse change had occurred with respect to Merrill Lynch.
        The committee has also asked what advice Bank of America
    received with regard to whether it should disclose Merrill
    Lynch's projected losses for the fourth quarter of 2008. The
    Wachtell Lipton lawyers and I gave advice on that topic to Mr.
    Price. Everyone involved concluded that disclosure of the
    projected losses was not warranted. There were a number of
    reasons.
        First, because the materials announcing the merger on the
    proxy statement did not contain any projections or estimates of
    Merrill Lynch's future performance, there was no legal duty to
    update past disclosures about future performance.
        Second, Merrill Lynch's recent financial performance put
    investors on notice that Merrill might well suffer multi-
    billion dollar losses in the fourth quarter. Over the 12-month
    period beginning with the fourth quarter of 2007, Merrill Lynch
    had experienced after-tax losses of approximately $22 billion,
    for an average quarterly after-tax loss of more than $5
    billion.
        Third, the proxy statement and other disclosure statements
    clearly informed investors that unprecedented adverse market
    and business conditions could continue to impact Merrill Lynch
    negatively.
        Finally, there were also many highly publicized events that
    were warning signs to investors that financial institutions
    would remain under great stress and might continue to incur
    significant losses, including, among others, the near failure
    of Bear Stearns, the collapse of Lehman Brothers, the
    Government's rescue of AIG--and the Government's extraordinary
    actions to authorize the expenditure of $700 billion to try to
    save the financial system.
        Moreover, the estimates were based in part on guesses as to
    what the loss would ultimately be. It is obvious, in hindsight,
    that if either the $5 billion or the $7 billion loss estimates
    of which I was informed had been publicly disclosed to
    shareholders at that time, shareholders would have been misled,
    as these estimates turned out to be wildly incorrect. No one
    ever suggested to me that the losses were expected to reach $15
    billion, as they ultimately did.
        With regard to my departure from Bank of America, Amy
    Brinkley, the company's Chief Risk Officer, advised me a little
    before noon on December 10, 2008, that Ken Lewis had decided to
    replace me as general counsel. Ms. Brinkley said I was being
    terminated effective immediately and that I was to leave the
    premises immediately. I was stunned. I had never been fired
    from any job, and I had never heard of the general counsel of a
    major company being summarily dismissed for no apparent reason
    and with no explanation. I cannot tell you why I was fired. I
    don't know.
        After I left Bank of America on December 10th, I was never
    consulted about any of the matters I had been working on.
    Accordingly, I cannot tell you what legal advice the company
    received after I was gone.
        I can assure the committee that at all times I acted in
    good faith to provide legal advice that I believed to be
    appropriate, considered, and in the best interest of Bank of
    America and its shareholders. I did my best to be a good,
    careful, and honest lawyer.
        I would be pleased to answer any questions that Members may
    have.
        [The prepared statement of Mr. Mayopolous follows:]

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        Chairman Towns. Thank you very much, Mr. Mayopolous.
        Mr. Moynihan.

                      STATEMENT OF BRIAN MOYNIHAN

        Mr. Moynihan. Good morning, and thank you, Mr. Chairman,
    Congressman Issa, Subcommittee Chairman Kucinich, Ranking
    Member Jordan, and the rest of the committee.
        My name is Brian Moynihan and I serve as the president of
    Global Consumer, Small Business, and Card Services at Bank of
    America. Prior to that job, I served in many capacities,
    including running the group that Merrill Lynch came into in
    January 2009. I also served as Bank of America's general
    counsel. Prior to that I served as deputy general counsel for a
    predecessor company. Prior to that I was a law partner in
    private practice, and I specialized in mergers and
    acquisitions, financial institutions, securities law, and other
    matters relating in particular to the financial sector.
        I want to touch on two points today. First, while not the
    specific point, but the backdrop of this committee's hearing, I
    want to briefly discuss how our company, Bank of America,
    continues to help homeowners, families, and businesses weather
    the economic challenges we all face.
        Second, I want to talk about how our acquisition of Merrill
    Lynch helped prevent a further financial collapse last winter.
    The deal turned out to be a good deal for our shareholders and
    our customers. But, most importantly, it turned out to be a
    good deal for the taxpayers who provided assistance. We acted
    in good faith, in the best interest of our shareholders and the
    country in mind.
        Let me turn to my first point. I know you hear from
    constituents, as we hear from our customers, about the
    challenges they face in today's economy.
        Bank of America is doing all we can to help them. We
    understand the public expects that of us, especially as a
    financial institution that received taxpayer assistance.
        As we recently announced in our quarterly lending and
    investment report, we have extended $759 billion in loans since
    our first report late last year. That represents $17 for every
    $1 of financial assistance we have received.
        Making home loans is a priority for our company. In the
    first 9 months of 2009, we have made almost $300 billion in
    home loans available to over a million customers. We have also
    made $255 billion of credit available to large and small
    businesses. In addition to that, we made $26 billion in credit
    available to municipalities and other non-profits.
        All these figures don't include the $1.5 trillion that we
    committed to invest in low- and moderate-income communities
    around our country, and also don't include the $200 million in
    support we provide to charitable organizations on a yearly
    basis.
        I now turn to my second point, the topic of today's
    hearing. I think it is important to keep one thought in mind
    throughout our discussion today. Although the Merrill Lynch
    transaction, and Merrill Lynch itself as a company, was
    severely impacted by the worst dislocation that the financial
    markets have seen since the Great Depression, our acquisition
    of Merrill Lynch is a success.
        First, the acquisition has provided great benefits to our
    customers. A stable Bank of America-Merrill Lynch platform can
    simply provide more capital to more businesses in these tough
    times.
        Second, the taxpayers are also benefiting, from a stronger
    financial system and more directly in the form of the financial
    return they are receiving on their investments.
        Third, closing the transaction in December 2008 was in the
    best interest of the financial system, the economy, and the
    country. As the committee has heard in prior testimony, the
    failure of Merrill Lynch in December 2008, particularly on the
    failure of Lehman Brothers and other financial firms, would
    have exacerbated the economic havoc that our country faced, and
    I am proud that Bank of America stepped forward.
        Bank of America has cooperated and will continue to
    cooperate with this committee to help develop a better
    understanding of the circumstances surrounding this
    transaction.
        The record created by the testimony and those documents
    shows--and I hope my testimony today will help further
    demonstrate--that throughout the deliberations with Merrill
    Lynch around the acquisition, Bank of America acted in good
    faith and consulted with one of the premier law firms in the
    country to address very difficult issues.
        Business people, confronted with complex business and legal
    issues, acted in an open and honest manner. All the parties
    involved, including the lawyers, did their level best to
    address and balance the merits of these complex questions in a
    time of great stress and in the face of unprecedented economic
    conditions.
        Thank you for the opportunity to make this statement, and I
    am pleased to answer your questions.
        [The prepared statement of Mr. Moynihan follows:]

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        Chairman Towns. Thank you very much, Mr. Moynihan.
        Mr. Gifford.

                 STATEMENT OF CHARLES ``CHAD'' GIFFORD

        Mr. Gifford. Chairman Towns, Ranking Member Issa,
    Subcommittee Chairman Kucinich, Ranking Member Jordan, my name
    is Chad Gifford. I have been a member of the Bank of America
    Board of Directors since 2004, when Bank of America acquired
    FleetBoston, where I had served as chairman and chief executive
    officer. I was chairman of the Bank of America Board from April
    2004 to January 2005, and I have continued to serve as a member
    of the Board since then.
        Mr. Chairman, I understand the committee's interest in
    gaining my perspective on Bank of America's acquisition of
    Merrill Lynch. I would only like to make two observations at
    this point.
        First, I believe the Bank of America-Merrill Lynch
    combination is already bearing fruit. Merrill Lynch has been
    accretive to Bank of America's earnings for the year-to-date,
    and the systemic benefits envisioned when the Board approved
    the merger are already beginning to take hold. Although it is
    fair to say I had a number of probing questions about the
    transaction at the start, I firmly believe that over the long
    haul Merrill Lynch will continue to be an important contributor
    to Bank of America's profitability.
        Second, as someone who has spent his entire professional
    career in the banking sector, I can attest that the financial
    crisis of 2008 was simply unprecedented in its depth, breadth,
    and velocity. Even in the midst of it, predictions of how bad
    it would get consistently understated the scope, the severity,
    and its duration. Our Government, elected and appointed
    officials, took bold action and made extraordinary decisions to
    stabilize the financial system.
        For these measures, those of us in the banking industry
    should be grateful. I want to take this opportunity to
    personally say thank you to the American people. As the process
    of the recovery moves forward, admittedly slowly, we at Bank of
    America will always remain mindful of what was done to
    stabilize our system and of our important role in helping these
    decisions work for our customers--families, businesses, and
    investors.
        Thank you again for the opportunity to participate in
    today's hearings, and I too look forward to your questions.
        [The prepared statement of Mr. Gifford follows:]

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        Chairman Towns. Thank you very much, Mr. Gifford. We were
    caught off-guard by your shortness. That is unusual around
    here; we generally have to stop people. Thank you.
        Mr. May.

                       STATEMENT OF THOMAS J. MAY

        Mr. May. Chairman Towns, Ranking Member Issa, Subcommittee
    Chairman Kucinich, and Ranking Member Jordan, my name is Tom
    May. I am chairman, president, and CEO of NSTAR, a
    Massachusetts-based public utility holding company, and I have
    been a member of the Bank of America Board of Directors since
    2004.
        I also appreciate the opportunity to be here today to
    discuss Bank of America's acquisition of Merrill Lynch. I would
    like to associate myself with the remarks of Mr. Gifford and
    Mr. Moynihan so that I can be brief also.
        The Bank of America-Merrill Lynch merger is working, thanks
    in no small part to our extraordinary associates. We all remain
    mindful of the extraordinary circumstances the global financial
    system faced in late 2008, the assistance we received to
    complete the Merrill merger and the commitments we made at that
    time to the American taxpayers. We look forward to fulfilling
    those commitments and to ensuring that the Bank of America and
    Merrill Lynch continue to provide exceptional value to our
    customers and our investors.
        I also am pleased to answer any questions you may have
    today.
        [The prepared statement of Mr. May follows:]

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        Chairman Towns. Thank you very much. Let me thank all of
    you for your testimony.
        Let me begin with you, Mr. Mayopolous. On December 1, 2008,
    did you tell Bank of America CFO Joe Price that you did not
    think Bank of America could back out of the Merrill Lynch deal,
    by invoking the MAC?
        Mr. Mayopolous. Yes, Mr. Chairman, I gave that advice.
        Chairman Towns. Were you fired 9 days after giving that
    advice?
        Mr. Mayopolous. Yes, Mr. Chairman, I was.
        Chairman Towns. Do you know why you were fired?
        Mr. Mayopolous. No, Mr. Chairman, I don't know why I was
    fired. I don't know whether it had anything to do with the
    advice I gave or might give, or whether it had to do with
    something else. I don't know why I was fired; I wasn't given an
    explanation.
        Chairman Towns. Did you, at any point, have a conversation
    with Ken Lewis, talking about your role after the merger of
    Bank of America and Merrill Lynch? At any point did they talk
    to you about what your role would be after that?
        Mr. Mayopolous. Yes, Mr. Chairman. On the evening that we
    negotiated the Merrill Lynch merger, Mr. Lewis told me
    personally that I would be the general counsel of the combined
    company following the merger.
        Chairman Towns. But it didn't happen.
        Mr. Mayopolous. No, sir, it didn't.
        Chairman Towns. Let me just move forward to you, Mr.
    Moynihan. Just to make sure I am clear, did anyone in the
    Government force Bank of America to go through with this deal?
        Mr. Moynihan. No, sir.
        Chairman Towns. No one in the Government?
        Mr. Moynihan. No, sir.
        Chairman Towns. We know much more now about the MAC and
    this entire deal than we did last summer. If you believe there
    was something material about the Merrill deal that made you
    want to back out of it, why didn't you think it was material to
    the average American who was thinking about buying some of your
    stock and disclosing it publicly?
        Mr. Moynihan. Mr. Chairman, when I became general counsel
    and we worked and looked at the $18 billion loss that we were
    facing at Merrill Lynch, we believed that we had a valid claim
    for a MAC. The disclosure requirements would arise when we had
    a duty to disclose those, which was later, when we announced
    our earnings in January.
        Chairman Towns. Being you are sitting next to Mr.
    Mayopolous, let me ask you a question. Did you think he was a
    good lawyer? You are sitting next to him.
        Mr. Moynihan. Yes, sir, I did think Tim was a good general
    counsel.
        Chairman Towns. I am sorry?
        Mr. Moynihan. Yes, I did think he was a good general
    counsel.
        Chairman Towns. Do you think it made sense to fire someone
    who had been the top lawyer for the previous 5 years,
    especially right in the middle of one of the biggest deals in
    Bank of America's history? Didn't you feel uncomfortable with
    that?
        Mr. Moynihan. Mr. Chairman, the times that we were going
    through in December 2008 was we were downsizing the company
    relatively dramatically, and we were changing 10 percent of our
    executives, were terminated then, which was terrible things and
    terrible times to go through, but part of the economic stress,
    and the changes that were made, as best I know, were made in
    the context of us changing the numbers of senior executives we
    had because of the economic stress we were under. It is a tough
    thing to go through, but it is part of being about business,
    and I think it is clear that is what drove the decision.
        Chairman Towns. I just want you to repeat one thing. There
    are some questions about the Government's involvement here. The
    Government did not pressure you at any point to do anything
    that you did not want to do?
        Mr. Moynihan. I did not personally feel at any point
    pressure by the Government to do something that was not in the
    best interest of our shareholders.
        Chairman Towns. Thank you.
        Mr. Gifford, the committee has obtained two emails you sent
    regarding the Bank of America deal with Merrill Lynch. In one
    of those emails you used the phrase ``screw the shareholders.''
    Screw the shareholders. In the other you expressed disagreement
    with the way Bank of America approved mergers. Can you tell us
    anymore about what you had in mind when you wrote those emails?
    Is there anything else you can tell us?
        Mr. Gifford. I can, Mr. Chairman. I am, obviously, not
    terribly proud of the choice of words, to be sure. The first
    reference to an email was, as I recall, the middle of January,
    and it happened during the middle of a board meeting in an
    exchange with a very good friend, and we were being rather
    informal, as the words might suggest. We were going back and
    forth, and it was during that meeting that we were announcing
    earnings for January, for the fourth quarter in the year, which
    were certainly unsatisfactory and we knew would have a very
    negative effect on share price. We also eliminated the dividend
    down to a penny.
        For me, my holdings in Bank of America are very significant
    for me and my family, so you took it a little out of context.
    The actual expression or the actual line was ``Unfortunately,
    it is also screw the shareholders.'' I don't like saying that
    word in a public forum. What I was doing was expressing remorse
    for all shareholders.
        Chairman Towns. Let me just ask this very quickly, before
    we move on. Mr. May and Mr. Gifford, Ken Lewis told this
    committee that he and the Board ultimately decided to go
    through with the Merrill deal because it was in the best
    interest of the company. Do you agree that buying Merrill Lynch
    was in the best interest of Bank of America?
        Mr. Gifford. Yes, I do, sir. Back in September, when the
    Board was first presented with this opportunity, after many
    probing questions, I might add, because these were difficult
    times,--it was not a, if you will, a slam dunk transaction--
    but, in my opinion, the long-term strategic benefits were such
    that I voted for the transaction.
        Mr. May. I also voted for the transaction and, to this day,
    still feel that it is a tremendous combination of two wonderful
    companies.
        Chairman Towns. Yield 5 minutes to the gentleman from
    California, Mr. Issa.
        Mr. Issa. Thank you, Mr. Chairman.
        And thank you both for your doing your fiduciary duty; I am
    sure it was not easy as $10, then $18 billion of unexpected
    losses piled up at a company in the middle of a merger. I have
    done a few acquisitions in my day and still sit on the board of
    my company, and I wouldn't want to try to decide whether to
    pull the trigger or not pull the trigger with so many people on
    both sides, and particularly at a time when Secretary Paulson,
    President Bush himself were up here on the Hill telling us it
    was a crisis, and, if we didn't vote money in a matter of
    hours, the world as we knew it was going to come to an end. Of
    course, as you know, the world, as you know, it never comes to
    an end in Washington because we just print money. We have had
    no layoffs.
        Mr. Moynihan, it won't surprise you, but Government has
    grown net by 139,000 new employees just since this
    administration took office. We don't feel your pain.
        But let me go through a couple of set the record straight.
    If we can put up slide 1.
        Slide 1: When it gets up there, is hard to read, but it
    says ``before formally call MAC, get Government in. Geithner
    gone on vacation.'' This is from Eric Roth, BofA lawyer.
        Then slide 2: ``Fire Board if you do it. Tim G. agrees.
    Larry Summers and Tim agree.'' This is from Joe Price, one of
    your CFOs of the company.
        Slide 3: ``Hank Paulson made it clear that Treasury and the
    Fed were prepared to deliver an assistance package. Hank made
    it clear that he had concurrence of the Fed and Tim Geithner
    and others. Ben also stated that Geithner and, in addition,
    Larry Summers were both on board with this transaction.''
        Those, Mr. Chairman, are the words of Ken Lewis.
        Slide 4: ``Ben says $45 billion TARP available if
    necessary. Obama team informed and agrees.'' Tommy Franks, BofA
    Board member, not here today, of course.
        Slide 5: ``Incoming team at Fed and Treasury in
    agreement.'' This is from another Board member not here, Tim
    Sloan of your Board.
        Slide 6: ``Paulson and Bernanke spoke to Geithner. You have
    our commitment that this will be resolved. You will get some
    additional investment.'' Eric Roth, BofA lawyer.
        Questions for you gentlemen: None of these are in dispute
    here today. None of the testimony that we have had up until now
    disputes the fact that, in various ways, then Fed New York Bank
    Chairman Tim Geithner was in the loop, because this was after
    he was the likely and, in fact, now is the Secretary.
        Knowing all of this, do you believe today that if the money
    had not been made available--and this is for the Board members
    primarily--in the form of a loan or, in this case, a loan
    through preferred stock with interest, do you believe that you
    would have likely pulled the MAC and disputed going through
    with the deal at the current cost based on the $18 billion in
    losses?
        And, Mr. Gifford, particularly, I would like you to answer
    that, since your career has been in banking. If you take $18
    billion out of your balance sheet and then try not to have the
    FDIC come in and take you out, isn't that a real concern that
    you would have had to deal with?
        Mr. Gifford. Ranking Member Issa, it was a confusing time,
    for sure. I can tell you that as we learned--we, the Board--
    originally on December 19th of the growing and very significant
    losses at Merrill Lynch, management presented to the Board the
    opportunity to exercise the privileges of a MAC, material
    adverse change clause, and get out of the transaction because
    of how much damage had been, if you will, invoked on Merrill
    Lynch. We then talked later with Mr. Lewis, we being the Board,
    a few days later, and he expressed the fact that the Government
    thought it would be a major mistake for us to walk away; they
    thought it was be very dangerous systemically and very
    dangerous and not positive at all for the Bank of America.
        Mr. Issa. Let me just interrupt you. Did he express that if
    you walked away from it and then needed help later, the Fed
    wasn't going to be there for you?
        Mr. Gifford. No, he didn't. He expressed the sentiment, and
    there was another session later in the month, that the
    Government would provide financing. There was nothing in
    writing, but it was from a very senior official of the
    Government that one would believe would follow through. The
    details were not reviewed with the Board. I can tell you, as a
    member of the Board of Directors--and I can only speak as one
    person--the issue was relatively clear to me. In a perfect
    world, it would have been better to walk away.
        Mr. Issa. Sure. One last question for the two of you very
    quickly. As CEOs, as business leaders who have had generals
    counsel, don't you normally require two things: your general
    counsel give you honest statement, which you take his legal
    advice, but don't you need to have at all times a general
    counsel who is on board with your leadership decisions?
        Mr. Gifford. A general counsel who is on board with our
    leadership decisions?
        Mr. Issa. In other words, would you keep a general counsel
    who is constantly telling you not to do what you have already
    decided to do from a business standpoint?
        Mr. Gifford. Any member of the Board has to make up their
    own mind. You would like to be in a position to believe your
    general counsel is going to provide good counsel.
        Mr. Issa. Mr. May.
        Mr. May. I agree with that totally.
        Chairman Towns. The gentleman's time has expired.
        I now yield 5 minutes to the gentleman from Ohio,
    Congressman Kucinich.
        Mr. Kucinich. Thank you, Mr. Chairman. I ask unanimous
    consent to enter into the record documents that will be part of
    this questioning.
        Chairman Towns. Without objection, so ordered.
        Mr. Kucinich. Thank you.
        [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Kucinich. Mr. Mayopolous, as general counsel at Bank of
    America, you determined whether or not the Bank made additional
    disclosures to shareholders to update its proxy solicitation.
    What threshold of quarterly losses would have led you to
    recommend additional disclosure to shareholders before the
    vote? Wasn't that threshold anything above a $10 billion
    forecast quarterly loss?
        Mr. Mayopolous. Congressman, the historical experience at
    Merrill Lynch over the prior four quarters is it had quarterly
    losses ranging from $2 billion to $10 billion. Certainly, as
    you got to $10 billion or higher in after-tax losses, I think
    the case for disclosure became much more compelling.
        Mr. Kucinich. You state in your testimony that you received
    a copy of a forecast dated November 12th and that the
    information in it played a role in your legal deliberation
    about making additional disclosure about the financial
    situation at Merrill Lynch. Let's look at the November 12th
    forecast you received. Staff has already provided the gentleman
    with a copy of what we are talking about here.
        Merrill Lynch's most illiquid and volatile assets--the
    collateralized debt obligations, the credit default swaps, and
    subprime mortgage-backed securities--were tracked in the rows
    marked ``significant items, total marks.'' Now, if you follow
    that across to the column entitled ``BTG,'' which stands for
    ``balance to go,'' or the estimate of performance for the
    remainder of the quarter, in that gray highlighted box they are
    blank. There are no numbers there, is that correct?
        Mr. Mayopolous. I don't see any numbers there, sir.
        Mr. Kucinich. OK. So there is no projection for
    collateralized debt obligations and other illiquid assets that
    were losing a lot of money at that time. When my staff asked
    Merrill Lynch's CFO, whose team produced this spreadsheet, why
    a forecast would contain no projections for these assets, he
    told us that this document was not intended to be a valid
    forecast, despite its title.
        Mr. Mayopolous, did you notice that omission and did you
    ever question whether or not the November 12th forecast
    document was a valid forecast?
        Mr. Mayopolous. Representative, no one ever told me that
    this was not a valid forecast. I was informed--
        Mr. Kucinich. So that is a no?
        Mr. Mayopolous. That is a no. I was never told it was not--
        Mr. Kucinich. OK, I need to move on here. I want you to
    look at the bottom margin of the page. Those notes were added,
    we understand, by Bank of America's Treasurer to the Merrill
    Lynch forecast document on the morning of November 13th. They
    were intended to help fill in the omission noted above. Can you
    read those lines aloud?
        Mr. Mayopolous. There is a line that says minus the 675
    Alt-A from OCI to P&L.
        Mr. Kucinich. OK, I am referring to the line that says
    ``Neil, gut?'' Was your understanding at the time--do you see
    that, first of all?
        Mr. Mayopolous. Yes, sir, I do.
        Mr. Kucinich. OK. So what was your understanding at the
    time, was that a reference to Neil Cotty's gut feeling?
        Mr. Mayopolous. I don't remember discussing that
    specifically. I do recall being informed that there was a $1
    billion contingency in this $5 billion forecast, and that seems
    to correspond to the ``Neil, gut?'' line there.
        Mr. Kucinich. Well, when my staff interviewed Mr. Cotty, he
    said that the November 12th forecast was of ``questionable
    validity.'' He also said that he did not have time to delve
    deeply into the details of the forecast. Did you know that Mr.
    Cotty had not delved deeply into the details of the forecast
    before a billion dollar guess called Neil's gut was added to
    it?
        Mr. Mayopolous. No, sir.
        Mr. Kucinich. Did the words ``Neil's gut'' create any
    concern, any concern in your mind at all that it might be a
    number pulled out of the air, a gut feeling?
        Mr. Mayopolous. I understood that this forecast was in part
    a guess, that it was an estimate.
        Mr. Kucinich. OK, so it was in part a guess. My
    understanding is you did not transmit the November 12th
    document to the attorneys at Wachtell Lipton. The record
    portrays you, sir, as the individual who relayed the relevant
    financial information to your outside counsel. Do you recall
    telling the Wachtell attorneys, on November 12th and 13th, that
    the October losses were $7 billion and that Merrill Lynch could
    break even in November, allowing you to spread October's losses
    over 2 months?
        Mr. Mayopolous. No, sir, I don't recall that.
        Mr. Kucinich. But if you look at the documents here, you
    are quoted--and to members of the committee--as saying, in a
    conversation with Nicholas Demo, that you said that ``Merrill
    Lynch lost $7 billion so far in October, how do we get the
    number out;'' and that also, in the meeting notes, Wachtell
    Lipton attorneys, your comments are mentioned again relating to
    the $7 billion number. Now, when you spoke with your attorneys
    at Wachtell Lipton, did you recall telling them that the fourth
    quarter forecast received from Merrill Lynch omitted November-
    December projections for CDOs, CDS, and subprime mortgage-
    backed securities, which alone lost $6.4 billion in October?
        Mr. Mayopolous. No, sir. I recall telling them that I had
    received a forecast from the Finance Department, and I
    described for them what the bottom line numbers were.
        Mr. Kucinich. Mr. Mayopolous, do you happen to know what
    the quarterly loss for Merrill Lynch turned out to be?
        Mr. Mayopolous. For the fourth quarter? My understanding
    was approximately $15.3 billion after taxes.
        Mr. Kucinich. Well, in conclusion, Mr. Chairman, in other
    words, the actual losses acknowledged just 2 weeks after the
    shareholder vote were well above the threshold that would have
    led you to recommend additional disclosure. In fact, if Bank of
    America had simply extrapolated October's losses into November
    and December, you would have come pretty close to the actual
    magnitude of losses for the quarter, but neither Merrill Lynch
    nor Bank of America did that or any financial analysis at all.
    Mr. Chairman, they relied on someone's gut feeling.
        Yield back.
        Chairman Towns. Thank you very much.
        I yield 5 minutes--
        Mr. Jordan. Thank you, Mr. Chairman.
        Let me just try to tell the story the way I see it
    unfolding. So last fall you make a decision, circumstances are
    such that you are going to acquire Merrill. In the midst of all
    that, the TARP bill passes. Through our testimony we got from
    Mr. Lewis earlier this year, he indicated 9 days after TARP
    passes, the biggest financial institutions are brought to
    Washington; they are told they need to accept TARP money. He
    makes a call to Board members and decides to do that.
        In the midst of all this last fall, you look to exercise
    the MAC to, in my judgment, put more pressure on Merrill
    because you see they are losing more than you initially
    thought; you want to get a better deal, what two businesses do
    all the time. The Government said no to that.
        In fact, based on testimony we have heard--even though Mr.
    Moynihan, in answering the chairman's question, said
    differently--based on what we have heard, there was some kind
    of at least subtle pressure placed on Bank of America to go
    through with the deal. In fact, we have the letter from
    Attorney General Cuomo which suggests that, says that Mr. Lewis
    and the Board would be gone if in fact they did not follow
    through on the Merrill deal.
        You sought assurances, as Mr. Issa pointed out in his
    questioning, from the incoming players, likely players in an
    Obama administration. You actually sought that in writing; they
    said they wouldn't put anything in writing, but our assumption
    is you got some kind of verbal assurances to proceed further
    with this.
        So let me just ask a couple questions. Is that in fact the
    case, that you received assurances in some form, other than
    writing, from the likely folks to be involved in the Obama
    administration at the Treasury Department that, if in fact
    things got worse, they would be there with additional TARP
    dollars to help Bank of America? And we can go right down the
    list. And I would like a yes or no to that, if we could. Mr.
    Moynihan, we will start with you.
        Mr. Moynihan. We received statements from the current
    Secretary Paulson and Chairman Bernanke that, as we work
    through from mid-December and the 2-weeks we had to work
    through it, that if we went forward we could receive some sort
    of assistance, which we finally negotiated and actually closed
    in January 2009.
        As to the statements of the incoming administration, I
    think Mr. Lewis has testified to that, that in his
    conversations with those people he was told that they had heard
    about the transaction. I was not part of those discussions.
        Mr. Jordan. So I just want to be clear. Was there a promise
    made from the incoming Obama administration that they would be
    there to back you up if in fact that is what Bank of America
    needed?
        Mr. Moynihan. I don't know that, because I was only told
    what Mr. Lewis's conversation was, which I assume--
        Mr. Jordan. Mr. Gifford. Mr. May. Mr. Mayopolous.
        Mr. Gifford. I was aware of no such promise.
        Mr. Jordan. OK.
        Mr. May. Neither was I.
        Mr. Jordan. Were you aware of assurances? I mean, something
    short of the word promise, were you aware of that?
        Mr. Gifford. As I understood it from our chief executive,
    he was told--there are a lot of he told, he told--that--
        Mr. Jordan. And he related that to you?
        Mr. Gifford. He related that to us, that the new Members,
    the new administration, were aware of the discussions.
        Mr. Jordan. OK.
        Mr. Gifford. Not implying--
        Mr. Jordan. Mr. May, would you agree with that?
        Mr. May. We were being apprised pretty regularly of the
    progress that was being made from the mid-December meetings.
        Mr. Jordan. OK, let me move to the end of the story here,
    at least what we hope is the end; kind of cut to the chase of
    where we are today. How much TARP money has Bank of America
    received?
        Mr. Moynihan. We have received $45 billion in total.
        Mr. Jordan. $45 billion. And what is your cash position
    today? All of you said this was a good deal; it has worked out
    for the shareholders; wonderful apple pie, God bless America,
    the whole thing. So what is your cash position today?
        Mr. Moynihan. Our cash position is in excess of $150 to
    $200 billion.
        Mr. Jordan. Have you paid back to the TARP money?
        Mr. Moynihan. We have not paid it back yet. We have been
    clear that our goal is to pay it back as soon as possible.
        Mr. Jordan. And why haven't you paid it back, Mr. Moynihan?
        Mr. Moynihan. Last week they issued a series--the Federal
    Government issued a series of requirements to pay it back and
    we are looking at those and--
        Mr. Jordan. Have you asked the Federal Government to pay it
    back, yes or no?
        Mr. Moynihan. It is not--
        Mr. Jordan. Have you got permission--what is preventing
    you? You have a $150 billion positive cash position and you owe
    the taxpayers of this country $45 billion. Why isn't it paid
    back?
        Mr. Moynihan. You can look at the guidelines. It takes a
    series of steps and a series of requests and answers.
        Mr. Jordan. If you could, would you pay it back?
        Mr. Moynihan. If we could, yes, we would pay it back. We
    have been clear that our intention is to pay it back as soon as
    possible.
        Mr. Jordan. In your judgment, are there hindrances or
    obstacles that the Obama administration is putting in place
    that are preventing you from paying it back?
        Mr. Moynihan. I think the question that the Government is
    looking at this is to make sure we can all stabilize the
    economy, which was the intention, and I think, as I said
    earlier, we have done a pretty good job of doing that, as have
    our colleagues that received the money; and I think--
        Mr. Jordan. In your professional judgment, why the
    hindrances? Why can't you get that money back to the Federal
    Government to pay back the taxpayers?
        Mr. Moynihan. I think we just have to be assured that, if
    we do that, then the economy is in the kind of shape for a
    company like ours, which supports America and around the world
    businesses, that we can--
        Mr. Jordan. Would you agree that, in fact, in October we
    ran the highest single month deficit in American history? Last
    fiscal year ran the highest single annual deficit in American
    history? Wouldn't you think that the new administration would
    want that money to get back into the Treasury and help with
    that situation?
        Mr. Moynihan. I think you would have to ask them that. Our
    intention is that we will pay it back as soon as we can.
        Chairman Towns. The gentleman's time has expired.
        Let me ask all of you to pull your mics closer. We have
    some senior citizens up here having trouble hearing.
        Yes, I yield to the gentleman from Maryland, Mr. Cummings.
        Mr. Cummings. Thank you very much, Mr. Chairman.
        Mr. Moynihan, I find your testimony very troubling, and I
    don't know who you think we are, but I have to tell you I find
    some of the things that you have said not believable. First of
    all, the chairman asked you why Mr. Mayopolous was fired, a
    seasoned attorney was fired 9 days after he gave an opinion,
    and you basically said you all suddenly got into downsizing
    fever. Is that right, is that basically what you were saying,
    you were downsizing?
        Mr. Moynihan. I said I wasn't personally involved in the
    decision, but it was in the context of downsizing.
        Mr. Cummings. Well, you replaced him, didn't you?
        Mr. Moynihan. Yes, I did.
        Mr. Cummings. And what did they tell you--and I remind you
    that you are under oath--was the reason why he was fired?
        Mr. Moynihan. Ken asked me to take the job as general
    counsel and I said I would take that.
        Mr. Cummings. I am sorry, say that again.
        Mr. Moynihan. Mr. Lewis asked me to take the job as general
    counsel and I said I would take the job.
        Mr. Cummings. You didn't answer my question. I said were
    you told--you were replacing somebody; you hadn't practiced in
    years, and you are replacing somebody who is a seasoned
    attorney, who had just given an opinion that apparently Mr.
    Lewis did not like or others did not like, and you mean you are
    walking into a job and you didn't say, ``well, what happened to
    the last guy?'' That is a logical question.
        Mr. Moynihan. That is absolutely a logical question.
        Mr. Cummings. And what did you find out? Did you ask the
    question, first of all, or did you know?
        Mr. Moynihan. I didn't ask the question and I went about
    doing--
        Mr. Cummings. So you didn't care, right?
        Mr. Moynihan. I cared for Mr. Mayopolous as a person,
    obviously, but I met with the director and started my job.
        Mr. Cummings. And if you were advising a client the size of
    Bank of America, what would you say to the management if they
    told you they wanted to fire their in-house counsel and replace
    him with a senior business executive, who, while an experienced
    attorney, had not practiced law in 10 years and was not even
    licensed at the time? Would you advise them to make that move?
        Mr. Moynihan. I think if the decision was made for me to be
    general counsel, I think it was a wise move on behalf of the
    company and I was competent to do it.
        Mr. Cummings. That is very interesting. Now, let me ask you
    this. You had an opportunity to talk to our committee staff,
    did you not?
        Mr. Moynihan. Yes, I did, sir.
        Mr. Cummings. And you believed that there was a MAC, a MAC
    was appropriate, there was a case for a MAC, is that right?
        Mr. Moynihan. I believe we had a valid claim.
        Mr. Cummings. And at the time that you talked to the
    committee staff, you produced no evidence with regard to why
    you had that opinion. Do you have any evidence today?
        Mr. Moynihan. Representative, the evidence is that in the
    fourth quarter of 2008 Merrill Lynch lost $21 billion pre-tax,
    and it was not clear that they would be able to use tax
    benefits. That was twice as much as they had ever made as a
    company and completely depleted their capital by 50 percent.
    So, therefore, that was a material change in their
    circumstances. Their ability to earn money at the level they
    were supposed to was impaired by their capital going down.
        Mr. Cummings. Now, that was inconsistent with the law firm
    Wachtell and what Mr. Mayopolous had said, is that right? Was
    that inconsistent?
        Mr. Moynihan. I think--
        Mr. Cummings. In other words, you all had hired a big law
    firm and you had a general counsel, and then you come in, you
    hadn't practiced law in 10 years, and you come along and say,
    ``ahh, I think this is a good time, the MAC is fine.'' So I am
    trying to figure out how did you get there.
        Mr. Moynihan. I relied on Wachtell Lipton, who was of the
    same opinion, we had a valid claim for a MAC and informed as
    such. I also relied on my experience in dealing with MAC
    clauses and having taken apart deals for MAC clauses in my
    experience in the past, the hundreds of deals I have done as an
    attorney and a business person; and we were all of the same
    opinion that this was, at $21 billion in losses, this was a
    material change in the circumstances of Merrill Lynch that we
    had to address--
        Mr. Cummings. Well, let me get to Mr. Mayopolous, because
    apparently he had a different opinion. Is that what Wachtell
    had said, Mr. Mayopolous? He says they were all in agreement.
    Is that right? That is not what they told you, is it?
        Mr. Mayopolous. We didn't have any conversations. I didn't
    have any conversations with Wachtell about the material adverse
    change clause.
        Mr. Cummings. All right.
        Now, Mr. Gifford, Mr. Moynihan is one of the people that
    you are considering to take Mr. Lewis's place, is that right?
        Mr. Gifford. That is what I read in the newspapers, sir.
        Mr. Cummings. That is what you read in the newspapers? What
    do you mean?
        Mr. Gifford. We have tried very hard, Congressman Cummings,
    not to be talking publicly about individuals.
        Mr. Cummings. Well, the fact is, the reason why I am
    talking about it is this the guy--I am just trying to figure
    out is this the guy that we have to face when we are trying to
    deal with Bank of America, when we have $45 billion invested in
    a company? I am just trying to figure out is this the face that
    we are going to be facing.
        Mr. Gifford. And I am responding, Congressman.
        Mr. Cummings. And I am not asking you for your decision; I
    am just asking is he one of your top candidates.
        Mr. Gifford. He is a very talented executive at Bank of
    America.
        Mr. Cummings. Thank you very much, Mr. Chairman.
        Chairman Towns. Thank you very much.
        I now yield to Mr. Luetkemeyer from Missouri.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        I would like to follow along this line of questioning. Mr.
    Mayopolous, in our documents here, it indicates that you
    informed Mr. Price that Bank of America did not have the basis
    for invoking a MAC. What was the basis of that decision?
        Mr. Mayopolous. The basis of that decision was that, in
    order for there to be a material adverse change, there had to
    be an event that had occurred that had a disproportionate
    impact on Merrill Lynch in contrast to other companies in the
    industry, including Bank of America. And as I discussed with
    Mr. Price, the stock price of Bank of America had declined
    almost as much as Merrill Lynch's. Bank of America had gone out
    and raised substantial capital, had cut its dividend, its
    earnings had been reduced. So basically both companies had
    suffered significant downturns in their prospects in the time
    since the merger had been announced.
        Mr. Luetkemeyer. Was the information that you had, did you
    not have the information that Mr. Moynihan had with regards to
    the $21 billion loss at the time that you made your advisory
    opinion to Mr. Price?
        Mr. Mayopolous. That is correct, I did not have that
    information.
        Mr. Luetkemeyer. OK, if you had known that, what would your
    advice have been at that time?
        Mr. Mayopolous. I believe my advice would have been--
    although I don't have all the information that the company had
    at that time since I was gone, but my view would have been that
    invoking material adverse change clause would be a dangerous
    and risky prospect. But I didn't have the information and I
    didn't study that question.
        Mr. Luetkemeyer. So what you are saying is you would have
    gone along with saying that the MAC would have been a very
    viable way of--go ahead and invoke MAC, then?
        Mr. Mayopolous. No, sir, I am not saying that. I am saying
    that I think it would be a very difficult decision to invoke
    the material adverse change clause. I believe I would have
    suggested that the company sit down with Merrill Lynch and try
    to renegotiate price, but, if that didn't work, I don't know
    that I would have threatened to invoke the material adverse
    change clause.
        Mr. Luetkemeyer. Well, do you believe, then, that the
    reason that the MAC was eventually then used as a bargaining
    chip--or was it used as a bargaining chip, in your judgment, to
    extract a better price from the Government?
        Mr. Mayopolous. Congressman, I don't know what it was used
    for. I was never privy to any of the discussions; I was gone.
        Mr. Luetkemeyer. OK. Along this line, also, obviously, in a
    lot of our documentation here and in the testimony, there is
    the threat to fire Mr. Lewis, as well as the entire Board. Can
    you tell me, can any of you gentlemen tell me the circumstances
    under which they, No. 1 had the authority to do that and, No.
    2, the circumstances under which they believed that you as a
    Board or as Mr. Lewis as chairman, were doing something wrong
    that they could fire you for?
        Mr. Moynihan. Well, I think the discussion about that is, I
    think, reflective of the very serious circumstances that we
    faced in December 2008. The economy was in a total disarray--
        Mr. Luetkemeyer. They were going to fire you for the
    economy?
        Mr. Moynihan. The economy was in disarray; the regulators
    were serious about us thinking about the pros and cons, and
    using our judgment around the MAC and what we would do as a
    company; and I think that I always took that as a view of how
    serious the situation and how serious they wanted to think
    about it. We were prepared, if it was the right interest for
    our shareholders, to exercise the MAC irrespective of what
    would happen to management, and I assume Mr. Gifford and Mr.
    May would say the Board.
        Mr. Luetkemeyer. Unfortunately, Mr. Moynihan, that answer
    does not fly with me. You cannot tell me that Bank of America
    is going to cause their entire economy go down if you don't do
    this and because of that they are going to replace your entire
    Board and the chairman. You expect me to believe that?
        Mr. Moynihan. The point, I think, was would we feel that if
    we had to be removed if the Government said that we had to be
    removed, that did not factor into our decision of what our
    course of action--
        Mr. Luetkemeyer. So basically they were extorting your
    decision to go along and accept Merrill Lynch as a business
    partner, is that what you are saying?
        Mr. Moynihan. What I said was that we did not let that
    factor into our decision of what the best interest to our
    shareholders was.
        Mr. Gifford. If I may respond as a member of the Board,
    Congressman Luetkemeyer.
        Mr. Luetkemeyer. Yes.
        Mr. Gifford. We heard on I believe it was December 22nd the
    CEO reporting to the Board that the Government, Secretary
    Paulson, had made it clear that the Government felt very
    strongly that this transaction should continue; it was in the
    best interest of the American financial system as well as Bank
    of America. And we also heard the comment and, if it doesn't
    happen, there is a risk to members of the Board and management
    keeping their jobs.
        I can assure you, sir, as much as I care about the American
    financial system, our job is representing shareholders, and
    that did not, one iota, factor in the decision that I and I
    believe my cohorts made in proceeding with the transaction. To
    do so would be just directly dishonoring our fiduciary duty.
    And we made that clear in our discussions at the Board.
        Mr. Luetkemeyer. OK, I have one more quick question before
    my time expires.
        Obviously, Mr. Moynihan, you testified that Merrill Lynch
    lost $21 billion. Can you tell me what the problems were, why
    they lost that money, and have those problems been rectified
    now that Bank of America owns the company?
        Mr. Moynihan. The problems were due to the markdowns of
    securities and other things that were going on in December 2008
    as the markets continued to deteriorate. They are rectified
    because Merrill Lynch makes money, but the context of that is
    Merrill Lynch, being owned by Bank of America, with a stable
    capital base and ability to keep its balance sheet, is now able
    to produce the kind of money and do the kinds of things for our
    customers which are strong. But in December 2008, those were
    not--
        Mr. Luetkemeyer. Do they still involve themselves in a lot
    of the investment derivative type activity that caused a lot of
    the problems?
        Mr. Moynihan. They continue to trade with their clients. I
    think a lot of their ``legacy'' positions that you hear people
    talk about are not being renewed, are running off as we speak.
    But I think it is a much more straightforward, clear, and less
    risky platform than it was as a standalone company due to the
    stability and capabilities that Bank of America and Merrill
    Lynch together have.
        Chairman Towns. The gentleman's time has expired.
        Mr. Luetkemeyer. OK. Thank you, Mr. Chairman.
        Chairman Towns. I yield 5 minutes to the gentleman from
    Massachusetts, Congressman Tierney.
        Mr. Tierney. Thank you, Mr. Towns.
        Mr. Gifford, at what point in time did you become aware
    that Mr. Mayopolous was being relieved of his duties and that
    Mr. Moynihan was assuming the role of general counsel?
        Mr. Gifford. I believe, Congress Tierney, it was the
    afternoon of December 9th, following a Board meeting.
        Mr. Tierney. So that was the day before he actually had
    unceremonious firing incident.
        Mr. Gifford. Having just heard the December 10th, yes.
        Mr. Tierney. OK. Would you tell us what was discussed when
    you learned that he was being fired and that Mr. Moynihan was
    being hired?
        Mr. Gifford. I and the rest of the Board, Congressman, was
    informed at the end of that December 9th Board meeting that Mr.
    Moynihan was leaving the company because he wasn't able to take
    a job that the CEO wanted him to take. A number of Board
    members, within a couple minutes timeframe, expressed regret
    because, as I said earlier in testimony, Mr. Moynihan is one of
    the most talented executives I have ever worked with, and we
    expressed that regret to the chief executive officer.
        At that point, I and a bunch of others who live in Boston
    got on a plane, went back to Boston. I, at that point, thought
    Mr.--I knew nothing about Tim; all I knew was that Brian was
    leaving the company. When I returned to Boston, I got, sometime
    in the late afternoon, an email, as did all members of the
    Board, from Ken Lewis, the chief executive officer, informing
    him that Brian was staying at Bank of America and becoming
    general counsel.
        Mr. Tierney. Thank you.
        Mr. May, were you privy to that same set of facts, the same
    conversations?
        Mr. May. Yes, I was. That day, at the Board meeting, we
    found out that Brian was leaving the company. I did express to
    Ken Lewis a concern about that because of his versatility. I
    indicated he can play third base, he can catch, he can pitch;
    we have had him in almost every aspect of the business, whether
    it was wealth management, whether it was investment banking, or
    whether it was in legal, and we were happy to hear that he had
    found a solution. Again, you have to recall that this was at a
    time when a merger was going on, so we don't usually use the
    word fired during mergers, but positions are eliminated; you
    have two treasurers, you have two controllers, you have two
    presidents, and things were being eliminated and the top
    management of the organization was shrinking.
        Mr. Tierney. You don't really think that this all happened
    in the context of the merger and you were shuffling positions
    around, just at that critical moment, instead of waiting until
    after the transaction was completed by the Board, then you are
    going to shake out? You want us to think that while that was
    going on you decided to do all that?
        Mr. May. This absolutely was happening. Mr. Moynihan had
    been in investment banking, he was leading the Bank of America
    investment bank. The merger with Merrill Lynch eliminated his--
    not eliminated his position, but someone else was chosen to
    lead the investment bank and Brian was asked to go to the
    credit card business in Wilmington. That was a job that he
    turned down. We were going to potentially leave him. So, yes,
    sir, he was a victim of a merger synergy.
        Mr. Tierney. How long did he hold his job of general
    counsel after it was decided that he had to have that job?
        Mr. May. I am not sure of the exact--a couple months.
        Mr. Tierney. Forty-four days?
        Mr. May. Something like that, yes, sir.
        Mr. Tierney. So it doesn't strike you as incongruous that
    you give a position for 44 days, that holds him on to the
    company, then you shuffle him off to supposedly where he didn't
    want to go to begin with?
        Mr. May. Again, that is the fragility of an organization
    that is going through transition, and there was fallout. There
    were people that left Merrill that were former Merrill
    executives that left the combined company, and we were
    fortunate to have Brian to put him into some of these holes.
        Mr. Tierney. Mr. Mayopolous, didn't Mr. Moynihan tell you
    that you were going to be the general counsel of the merged
    entities?
        Mr. Mayopolous. Yes, sir, he did.
        Mr. Tierney. Did you believe him when he told you that?
        Mr. Mayopolous. Yes, I did.
        Mr. Tierney. Mr. Moynihan, did you tell Mr. Mayopolous that
    he was going to be the general counsel of the combined units?
        Mr. Moynihan. Yes.
        Mr. Tierney. And why did you lie to him?
        Mr. Moynihan. At the time, he was the general counsel, he
    was one of four or five different people I had working for me,
    35,000, 40,000 associates, and he was the general counsel.
        Mr. Tierney. And you believed that he was capable of doing
    the job?
        Mr. Moynihan. Absolutely.
        Mr. Tierney. So then tell me why it was that a man that you
    believed to be capable of doing the job got bounced out in the
    fashion that he did? Why did he get fired?
        Mr. Moynihan. Congressman, I know this is difficult, but in
    the business world this happens. When I took the job to run the
    combined Bank of America-Merrill Lynch Global Banking Wealth
    Management, the person who had that job left that day also. We
    have to make decisions; it is very difficult economic times.
    The decision was made to eliminate 10 percent of the senior
    executives and one of the outcomes of that decision was a
    change between Tim and I. It is not great for people and I know
    it is hard to understand if you are outside business, but in
    these tough times those are the things that happen.
        Mr. Tierney. And the fact that it happened just a matter of
    days after he told Mr. Lewis--Mr. Price, at least, that the MAC
    wasn't an option has nothing to do with it?
        Mr. Moynihan. I had no knowledge it had anything to do with
    it.
        Mr. Tierney. My time is up.
        Chairman Towns. Thank you very much.
        I now yield 5 minutes to the gentleman from Louisiana, Mr.
    Cao.
        Mr. Cao. Thank you, Mr. Chairman.
        This is my question, I would assume, to the members of the
    Board, and maybe even to Mr. Moynihan. I have heard your
    statements saying how good the acquisition of Merrill Lynch is
    to Bank of America. My question to you here is if I were to ask
    you to compare Bank of America now without the purchase of
    Merrill Lynch with the Bank of America with the purchase of
    Merrill Lynch, which of the two would be a stronger institution
    today?
        Mr. Moynihan. I think from the ability to serve customers
    standpoint, there is no doubt we are a stronger institution
    today with the product capabilities we have not only in the
    United States, but around the world, to serve customers,
    whether they are an individual, a small business, a large
    business, investor across the world. The capabilities we have
    when you put these two companies together are better than the
    capabilities either one had before they came here.
        Mr. Cao. And do you have, for example, any kind of profit
    studies with respect to Bank of America without Merrill Lynch
    and Bank of America with Merrill Lynch?
        Mr. Moynihan. I mean, the eggs are scrambled at this point
    in terms of decisions we have made, so it is hard to separate
    it, but just to give you a sense, the legacy Bank of America
    investing banking platform would have been maybe five, six in
    some businesses and two or three in other parts of that
    business. Now we have received the second highest amount of
    investment banking fees every quarter this year, second to J.P.
    Morgan and ahead of every other investment banking firm you can
    name. So that shows you that the combination together is more
    than Bank of America had in that business.
        I could do that and go through every one of the businesses,
    whether it is the 15,000 financial advisors, whether it is what
    we have in the sales trading investment banking capability. All
    that is true and it happens in every business. We are better
    now today than we were as two separate companies.
        Mr. Cao. Now, knowing that a company were to face a loss of
    billions of dollars, was the $45 billion in TARP money, was
    that one of the reasons why Bank of America purchased Merrill
    Lynch?
        Mr. Moynihan. I think you have to separate the TARP money
    that we received, for lack of a better term, irrespective of
    the transaction would have been 25, and then we got 20 in
    connection with the transaction to help handle the losses that
    Merrill Lynch in the fourth quarter of 2008, and particularly
    in the latter half of that. So I think the investment helped
    stabilize the economy, stabilize the financial system. If
    Merrill Lynch would have failed, it would have been a complete
    surprise at that point and would have wrecked damage on the
    whole system. It would have hurt our company just because we
    are a participant in the markets.
        Mr. Cao. Is the answer yes or no, was it factored in the
    $45 billion in TARP money?
        Mr. Moynihan. The $20 billion relates to the Merrill Lynch
    transaction; the other stuff doesn't relate to anything, it was
    done before the Merrill Lynch transaction closed.
        Mr. Cao. Now, did I hear correctly that you are one of the
    potential candidates to replace Mr. Ken Lewis, pursuant to the
    questions of Congressman Cummings?
        Mr. Gifford. That is probably not a question for Mr.
    Moynihan, Congressman Cao.
        Mr. Cao. Well, would that be a question to you, Mr.
    Gifford?
        Mr. Gifford. OK, sir. We are trying, and it is very
    difficult with the visibility of Bank of America, to keep the
    selection process confidential, I think for obvious reasons. It
    is very difficult for us when presumed candidates appear in the
    press; it makes it difficult for their current jobs.
        Mr. Cao. Let me ask you another question.
        Mr. Gifford. I am trying to say, as I did as best I could
    to Congressman Cummings, that we are not disclosing publicly
    those that we are considering.
        Mr. Cao. So based on what I have heard so far, you are
    saying that Mr. Ken Lewis is not doing a very good job?
        Mr. Gifford. I hope I didn't imply that, sir.
        Mr. Cao. If he is doing a good job, why would you want to
    replace him?
        Mr. Gifford. Mr. Lewis announced 2 months ago that he
    wished to retire at the end of this year.
        Mr. Cao. OK.
        Mr. Gifford. That is what prompted this search.
        Mr. Cao. That is all the questions I have.
        Mr. Issa. Would the gentleman yield?
        Mr. Cao. Yes, please.
        Mr. Issa. Thank you.
        Just following up on that, the question earlier from Mr.
    Jordan, you have $100 billion-plus in the bank. If it were not
    for the regulatory rules of how much capital you have, would
    you, in the ordinary course of business, pay back the $45
    billion? And I am going to caveat it in a way Mr. Jordan
    didn't. If you could get it back tomorrow, would you pay it
    back today? In other words, is the only reason you are not
    paying it back that, if you pay it back, it can't come back out
    again? Mr. Moynihan.
        Mr. Moynihan. I don't think I meant to say that. What I am
    saying is--
        Mr. Issa. No, I want to try to get it straight. You have
    the money. You would pay the Government; you would happily pay
    the Government if you ``were later deemed to need it,'' and it
    was a line of credit, you would pay it back. The only reason
    you are not paying it back today is the Government has put
    hurdles in your way to prove that you can not only pay it back,
    but you can still pass the stress test, isn't that right?
        Mr. Moynihan. Mr. Issa, our goal is to pay this back and
    return the money to the taxpayers.
        Mr. Issa. No, I appreciate that, but Mr. Jordan didn't get
    the answer from you that I have asked. The fact is you have the
    money. In the ordinary course, if it were just another
    creditor, you would pay it back. There are regulatory questions
    the Government has put up and there are questions about
    ``capital provisions.'' But notwithstanding that, you are not
    putting that money to use today. For Mr. Cummings and others,
    you are not loaning that money out; it is cash. You would pay
    it back if there were not hurdles to cross, isn't that correct?
        Mr. Moynihan. I think you are talking about a cost of $2.3
    trillion balance sheet we have cash. You asked me what our cash
    balance was; I told you. The fact of the matter is money is
    fungible, so this capital provides our ability to lend and help
    support our balance sheet.
        Mr. Issa. So it is a balance sheet question. But the fact
    is, for the Board, you would pay this money back in the
    ordinary course if it were just normal--
        Mr. Gifford. We stated, Ranking Member Issa, that we would
    like to pay back TARP. The Board--
        Chairman Towns. The gentleman's time has expired.
        I now yield 5 minutes to the gentlewoman from California,
    Ambassador Watson.
        Ms. Watson. I want to direct this question to Mr. Moynihan.
        After Kenneth Lewis approached officials at the Fed and the
    Treasury Department about invoking the MAC, Fed Chairman
    Bernanke expressed skepticism about the truthfulness of Bank of
    America's claim stating, in an email, that he thought the
    threat to use the MAC is a bargaining chip and we do not see it
    as a very likely scenario.
        Was the MAC, and do you know, used as a bargaining chip to
    get more Federal assistance and/or a lower purchase price?
        Mr. Moynihan. Congresswoman, the MAC was a right under the
    agreement to terminate the agreement if there had been a
    material adverse change. The $21 billion loss in the fourth
    quarter constituted, gave us a valid claim for a MAC.
        What immediately became clear is we had a very, very
    difficult situation in very difficult times that I think
    reasonable people tried to figure out a solution that
    necessarily didn't result in litigation, and in the aftermath
    of having a company that could have failed that we would have
    had to litigate against; and it was those judgments that led us
    to take the course of action we did, which we believe and was
    in the best interest of not only our shareholders, but the
    economy, and that is how it came down. So the MAC was a right
    we had the right to exercise, but the context of where we ended
    up was a discussion about what is the best course for our
    company.
        Ms. Watson. Mr. Mayopolous, before the issue of the MAC
    arose, had the Bank of America engaged in any discussions with
    representatives of the Federal Government about receiving
    additional TARP funds? Do you know?
        Mr. Mayopolous. Not that I am aware of.
        Ms. Watson. OK. Had they not attempted to invoke a MAC and
    do you think Bank of America would have received the additional
    $20 billion in TARP funds announced on January 16th?
        Mr. Mayopolous. I don't know.
        Ms. Watson. OK, Mr. Gifford, in your testimony you stated
    that you had a number of tough decisions and questions about
    the reaction or transaction at the start. Could you please
    describe the problems you foresaw with the merger?
        Mr. Gifford. Yes, Congresswoman Watson. Overwhelmingly, my
    issues back in September--this was in September--had to do with
    timing. We were at a time when the next day Lehman failed, the
    day after that there was an AIG bailout, if you will, and
    within 2 weeks after that, I think, WaMu failed and Wachovia
    was taken over by Wells Fargo.
        So my point is, at a time like that, inevitably, your guard
    is up, and when we are looking at a transaction at a time like
    that, admittedly in a short time period, I was just in a, if
    you will, a very sensitized state. So it was much more along
    those lines than it was Merrill Lynch itself. Merrill Lynch,
    for a long time, we knew was a terrific addition to Bank of
    America.
        As I said in my testimony, I believed and believe it is a
    terrific strategic combination. It was very difficult in
    December and January, as the markets became much worse than we
    or anybody had expected. So that is my background, ma'am.
        Ms. Watson. Well, do you think the shareholders were given
    adequate information about Merrill Lynch's economic condition
    and compensation practices prior to their vote to approve the
    merger?
        Mr. Gifford. As a Board member, Congresswoman Watson, I
    felt, had felt continuously and do feel that management--and it
    really is a management issue to determine--working with inside
    and outside lawyers what should and shouldn't be disclosed.
    There was absolutely nothing in my mind that we were holding
    back information that we should. I can assure you that if I or
    any member of the Board felt that way, which, again, we did
    not, we would have raised the issue.
        Ms. Watson. Well, do you think the shareholders will
    ultimately benefit from the merger?
        Mr. Gifford. I do indeed, ma'am. In fact, so far, year-to-
    date this year, which started out hard, it has been accretive
    to our earnings.
        Ms. Watson. Let me go back to Mr. Mayopolous. During your
    tenure as general counsel, you did not report directly to CEO
    Ken Lewis, but your successor, Mr. Moynihan, did?
        Mr. Mayopolous. That is correct.
        Ms. Watson. OK. To whom did you report as general counsel?
        Mr. Mayopolous. Congresswoman, at the beginning I reported
    to the vice chairman and CFO, Mr. Hance; then I reported to the
    chief risk officer, Ms. Brinkley; and finally I reported to Mr.
    Moynihan.
        Ms. Watson. Well, do you think reporting directly to the
    CEO would affect the general counsel position?
        Mr. Mayopolous. I think that it can affect the general
    counsel position.
        Ms. Watson. Thank you.
        Chairman Towns. The gentlewoman's time has expired.
        I now yield 5 minutes to Mr. Chaffetz from Utah.
        Mr. Chaffetz. Thank you, Mr. Chairman.
        And thank you all for being here.
        Mr. Gifford, my questions are directed at you, if I could,
    please, sir. Did you at any time feel pressure from the Federal
    Government to complete this transaction? Yes or no?
        Mr. Gifford. It is hard to quibble with words, sir. I felt,
    again, getting it from the CEO, that the Government was very
    desirous of us completing the transaction.
        Mr. Chaffetz. But then you also said, I think, if I heard
    you earlier in your testimony, ``In a perfect world, it would
    have been better to walk away.'' Why? What was the pressure
    that was creating this imperfect world that led you to come to
    its conclusion?
        Mr. Gifford. Because we had a contract to buy Merrill
    Lynch.
        Mr. Chaffetz. But you could have stepped out of it, right?
        Mr. Gifford. With due respect, sir, a material adverse
    change clause is not straightforward. There have been few
    material adverse change clauses--I am not a lawyer, so I could
    be getting over my head--
        Mr. Chaffetz. Neither am I. I will take that to credit for
    both of us.
        Mr. Gifford. That is helpful to me.
        Mr. Chaffetz. Thank you.
        Mr. Gifford [continuing]. Have been successful in Delaware
    courts.
        Mr. Chaffetz. But the point I want to try to get to is was
    the Government applying pressure that affected your decision
    whether or not to move forward with this?
        Mr. Gifford. And what I have said--and I am under oath for
    sure--that, for me, the key decision was not the Government
    threatening Board seats. Because if that were the key, then I
    would not be doing my fiduciary duty. The key was the
    uncertainty of the MAC, to litigate a MAC, to walk away and say
    we are not going to close. The uncertainty of whether we would
    win was a lose-lose for the Bank of America shareholders. If we
    lost--
        Mr. Chaffetz. My time is short, and my apologies for
    cutting you off, but if we could pull up slide No. 7, if we
    could. Sir, this is, my understanding, an email of Wednesday,
    January 21st. I hope you are familiar with this. Can you just
    go through who this is to?
        Mr. Gifford. I can't see it.
        Mr. Chaffetz. And I would like to know who these people
    are, their relationship to you, and what they do
    professionally, starting with Ramsay Trussell.
        Mr. Gifford. Yes, sir. This is an email dated January 21st.
        Mr. Chaffetz. Yes.
        Mr. Gifford. It is addressed to my four children, Ramsay
    Trussell, Charlie Gifford, Rufus Gifford, Jessica Gifford, with
    a copy to my wife.
        Mr. Chaffetz. Could you, real quickly, tell me what your
    children do professionally, and do they do anything
    politically?
        Mr. Gifford. I can. Ramsay Trussell is a stay-at-home mom,
    hardest job of all. My son Charlie Gifford works in Boston in a
    private equity operation. My son Rufus Gifford works here in
    Washington as the Finance Director of the Democratic National
    Committee. My daughter Jessica works pro bono--not pro bono, in
    the pro bono area of a law firm in Boston. And my wife, Ann
    Gifford, takes care of me.
        Mr. Chaffetz. Now, in this email that you sent out, it
    said--I am going down to point No. 3, which is midway through
    the first page, if we can pull that up. Part of it is
    highlighted. You are talking about Merrill Lynch: ``This was a
    bad mistake.'' ``No,'' it says ``this was a bad mistake, and
    their assets became much worse than expected when presented in
    September. When the deal was announced, we were $31 to $32 a
    share and then, boom. This was a bad decision. And when
    realized same, the U.S. Government pressured us to stick with
    it. That is when they agreed to give us more capital and
    guarantee some of their bad assets.''
        That seems to be in direct contradiction to what you have
    said time and time again in this committee, that, ``well, it
    was important to them.'' But here you are clearly directly
    saying it was a bad decision and a bad mistake. Who are you
    lying to? Which is accurate and which is inaccurate?
        Mr. Gifford. What I have said, Congressman, is that I
    believe, and I voted for it in September, that is a fact, and I
    based it, notwithstanding words, that it was a good strategic
    decision. What happened since then, as we all know, the markets
    went phlooey, to the point where----
        Mr. Chaffetz. But you see the challenge----
        Mr. Gifford. If you are going to ask me the question, I
    have to continue, sir. I realize you have 5 minutes.
        It got so bad in December that we tried to figure out a way
    to exit the transaction. It was within that context that the
    fact that we eliminated our dividend, Merrill Lynch had lost
    $21 billion. In this period of time, when the day was the
    darkest, and I am expressing to my children what is going on
    with the security of Bank of America, that is what it was.
        Mr. Chaffetz. I am just confused by the inconsistency of
    the way you characterize the decision, but in what was at the
    time, I am sure, seemingly private, to your wife and your
    children, you are saying this was a bad decision, it was a bad
    mistake, essentially that we shouldn't have done it; and yet,
    publicly, you are putting a real good face on it.
        Let me go to the end of this email. ``What do I worry
    about? A serious 12 percent-plus unemployment number that is
    prolonged, or really stupid politicians or extended panic in
    markets. I don't think that will happen . . . There is some
    stuff I am not saying vis-a-vis some of our management
    decisions; will do that in person. In the meantime, I am
    sleeping fine and so should you.''
        What is it that you told them in person that you haven't
    disclosed here today about the management decisions that would
    be pertinent to this decision?
        Mr. Gifford. Congressman, I have no idea what I told them
    in person, absolutely no idea what I told them in person. And I
    was obviously wrong about stupid politicians.
        Mr. Chaffetz. Now, that is the one thing I can agree with
    you on. [Laughter.]
        That was the sense and credibility I saw in this document.
        Chairman Towns. The gentleman's time has expired.
        Mr. Chaffetz. Thank you, Mr. Chairman.
        Mr. Gifford. Thank goodness.
        Chairman Towns. I now yield to the gentleman from
    Massachusetts, Congressman Lynch, 5 minutes.
        Mr. Lynch. Thank you, Mr. Chairman.
        I want to thank the witnesses for coming before the
    committee and helping us with our work. As a matter of
    disclosure, Mr. May was formerly with NSTAR, active in my
    district back in Boston; Mr. Gifford was formerly with the Bank
    of Boston; and Mr. Moynihan, I have familiarity with him as
    well. Bank of Boston and NSTAR, just as a matter of full
    disclosure, were supporters of mine when I was back in the
    State Senate. So that much out of the way.
        Mr. Mayopolous, I want to ask you, I am a little confused
    on some dates here. My time line that I have--and it has been
    provided by the committee--indicates that you were fired on
    December 10, 2008. Is that right?
        Mr. Mayopolous. That is correct.
        Mr. Lynch. OK. And it says 4 days later, December 14th,
    then Ken Lewis learned of a $12 billion loss at Merrill. And,
    yet, your testimony indicates that you advised on the fact that
    the $12 billion may or may not have been a material adverse
    change. My time line indicates that would be impossible because
    you were fired before the events giving rise to the MAC. And I
    am not questioning your veracity at all; I am just trying to
    get the facts straight here. Can you help me with that?
        Mr. Mayopolous. Sure. Congressman Lynch, on December 1st I
    advised Mr. Price and Mr. Curl that I didn't believe that there
    was a material adverse change based on the information that I
    knew as of that time. I was not informed at that time that
    there was a loss at Merrill Lynch of $12 billion.
        Mr. Lynch. OK.
        Mr. Mayopolous. At that time, I understood there was an
    after-tax projected loss of approximately $5 billion.
        Mr. Lynch. Right, right. And that is true, because the Bank
    of America shareholders were provided with information that
    there was a forecast, I believe at the time of the approval of
    the sale, of about $9 billion, and then later on there was an
    additional disclosure, apparently December 14th, when Ken Lewis
    learned of a $12 billion loss at Merrill. So your testimony is
    consistent with that. I was just curious. We have been looking
    at this undisclosed addition of $12 billion in losses as being
    the MAC and the subject of your letter, and that is not
    necessarily the case. OK.
        In Ken Lewis's testimony, his deposition, at page 84, he
    indicated that in his conversations with Secretary Paulson,
    that Secretary Paulson promised to ``fill the hole,'' he will
    fill the hole that the recent losses of $12 billion had caused
    after the losses were disclosed. Later on he said he went back
    to the Board. I think at least a couple of witnesses might have
    been on that Board at the time, I am not sure. And then,
    subsequently, Bank of America received $10 billion from the top
    in connection with its purchase of Merrill Lynch, on top of the
    $15 billion that it says it didn't ask for; and that is also
    supported by Eric Roth's testimony that was raised by the
    ranking member and Mr. Jordan that you will ``get additional
    investment.'' That was a statement that he recounted.
        Tell me about that. Mr. Gifford, Mr. May, were you in the
    Board room at that time, when Ken Lewis told the Board that
    Paulson said he was going to fill the hole with, apparently,
    taxpayer money?
        Mr. May. We were in the Board. We had just found out about
    the expanding losses, the accelerating losses. We did talk,
    first, about the MAC, and I was one that was very much in favor
    of pursuing that route because of the losses and because of the
    effects on capital that Mr. Moynihan mentioned earlier. And
    then we talked about the other issues, which were the
    Government's desire to have this go forward and the fact that
    financial help similar to the first traunch of TARP could be
    available to us that would plug that hole. So, yes, we were in
    those discussions and that continued for some time throughout
    the month of December and into January.
        Mr. Lynch. Thank you, Mr. May.
        Mr. Gifford, were you there?
        Mr. Gifford. Yes, sir, I was.
        Mr. Lynch. Is that pretty much----
        Mr. Gifford. It is indeed, Congressman Lynch.
        Mr. Lynch. OK. So you are being reassured. I am trying to
    repaint the picture here. You are being reassured by the U.S.
    Secretary of the Treasury that, if you go forward with this
    purchase of a private company, that the U.S. taxpayer is going
    to fill the hole, is going to protect your losses from that
    purchase. Is that basically how it went down?
        Mr. May. Ultimately, yes. There were two aspects, one
    which, again, was similar to a transaction that happened for JP
    Morgan, and that was a so-called fencing off of the bad assets.
    So there was an insurance policy, if you will, a wrap of the
    bad assets so that losses would not continue to escalate if we
    went forward with this transaction and cause further damage to
    the balance sheet. So those two elements were negotiated
    between the company and the Feds, and ultimately was the path
    we took instead of trying to pursue a MAC.
        Mr. Lynch. All right. Was there any discussion in that
    Board meeting or thereafter about the advisability of informing
    the shareholders about--I mean, here you have events that cause
    you to consider a material adverse change in this huge
    purchase, which is fairly momentous, and then, on the other
    side of the scale, no one is talking to the shareholders. And I
    understand that they had been advised that there were some
    losses at Merrill, but here you are talking about something on
    a different magnitude, and I am just wondering if there were
    discussions at the Board about whether the shareholders should
    be informed.
        Mr. May. I think we generally understood the rules of the
    SEC with respect to quality reporting and 8K or special events
    reporting, and we were not able to--if we disclosed something
    that didn't happen and wasn't closed, we could have misled them
    in the wrong way. So typically what you disclose is a
    transaction that you have, and we ultimately were able to get
    that term sheet signed around January 16th and that is when we
    disclosed it.
        Chairman Towns. The gentleman's time has long expired.
        Mr. Lynch. OK. I thank the gentleman. I yield back.
        Chairman Towns. Congressman Bilbray.
        Mr. Bilbray. Thank you.
        Mr. Moynihan, did the Bank of America pressure its special
    outside counsel, Wachtell Lipton, to make a case that the firm
    didn't believe in on the MAC?
        Mr. Moynihan. Wachtell Lipton, this is what they do in
    life, and we rely on them as outside counsel. I believe that
    they were given the facts of the losses that we found out
    about, as Congressman Lynch talked about, in mid-December that
    had moved to $14 billion or $18 billion pretax and ultimately
    $21 billion, and they came to the same judgment and advised us
    that they believed that we had a MAC clause, a valid right to
    claim under the MAC clause. I think the advice that people look
    at is these are difficult cases and they make it clear that, as
    you think about it, you have to balance the potential and
    success. But the reality was that they gave us the advice and
    they were consistent in their advice.
        Mr. Bilbray. So your outside counsel you hired specifically
    on this issue was not unduly pressured to come up with this
    answer.
        Mr. Moynihan. I had no knowledge of that or anywhere.
        Mr. Bilbray. To your knowledge, did anyone in this
    committee actually interview this outside counsel that was
    advising you on the MAC?
        Mr. Moynihan. I am aware that I think they talked to some
    of the staff of the committee, is what I was told today.
        Mr. Bilbray. You were told what?
        Mr. Moynihan. I think Wachtell Lipton has talked to
    committee staff, as far as I know. I am not positive, but I was
    told that. I think committee staff could probably----
        Mr. Bilbray. But, as far as we know, they haven't been
    interviewed specifically about their MAC advice?
        Mr. Moynihan. I think they--I would have to ask--I don't
    know, honestly, what was----
        Mr. Bilbray. OK. For the record, as far as I know, we
    haven't specifically--there has been a claim made that they
    have unduly influenced and they basically were being pressured
    by you or by the company to come up with a justification, when
    in fact, as far as I know, we haven't sat down and gotten that
    testimony directly or allowed them to come here and explain
    their position.
        Doesn't it seem a little interesting that here you had a
    special counsel directly advising that there is a question
    about what pressure was put on them, that they are not
    testifying before us today?
        Mr. Moynihan. I would leave that to you. I have no
    knowledge that they have been nothing but clear that we had a
    claim for a MAC.
        Mr. Bilbray. OK, I just think that--I appreciate all of you
    being here today. I just think when we leave out somebody as
    critical as the special counsel, that there is an issue here
    that we need to go in.
        Mr. Chairman, I would really like to raise the issue again
    that special counsel on something this important should be
    considered.
        Mr. Gifford, I understand your concerns as to this process.
    I will tell you, the testimony we heard from Paulson here in
    this committee was there wasn't specifically a ``you either do
    this or we will fire,'' but there was a statement here that
    said ``if you don't do this and it doesn't work out, there will
    be hell to be paid.'' And I think, in the jargon of grown
    individuals, that pretty well indicates that this was expected,
    the MAC was a very important issue to the Government and they
    did not want you to execute that MAC. Is that a fair
    observation? Is that testimony consistent with what you
    observed?
        Mr. Gifford. It is, sir.
        Mr. Bilbray. OK.
        Mr. Chairman, I just think that a lot of times nuance and
    words do matter, and all I have to say is if someone told me,
    ``look, Congressman, if you don't do this and you get in
    trouble, there is going to be hell to be paid,'' I would take
    that very personal as being a fact that there was going to be
    action taken against me one way or the other, and I would
    expect any staffer who was given that direction by me would
    take that as a direct persuasive statement, if not a downright
    threat.
        At this time, I would yield to the ranking member, Mr.
    Chairman.
        Mr. Issa. I thank the gentleman.
        Mr. Gifford, in light of your email, your family personal
    email that has now come to light, if we asked a question that
    is a little different--and we danced here for quite a while
    with Mr. Lewis--the Government clearly asserted or intended to
    assert pressure. You were being pressured by the Government is
    what that says. So when we ask you did you feel pressured, that
    is always the ambiguous word. But was the Government clearly
    pressuring you, your own email says that, isn't that true?
        Mr. Gifford. The pressure----
        Mr. Issa. No, no, no. This is one of those times in which
    you only get a yes or a no for a reason. You have said here,
    you have said they were pressuring.
        Mr. Gifford. Yeah.
        Mr. Issa. You stand by your email as truthful?
        Mr. Gifford. I believe the Government--I am sorry, sir, I
    have to use words that I am comfortable--I am telling----
        Mr. Issa. Were you telling--do you stand by your email as
    truthful, sir?
        Mr. Gifford. I wrote an email to my children trying to
    explain a certain circumstance in the largest financial holding
    we have, and words in a private email to your children are
    probably--I didn't even proofread it, Congressman Issa, to be
    honest.
        Mr. Issa. I am giving you an opportunity--you weren't under
    oath. I am giving, this committee is giving you an opportunity
    to say that, upon reflection, you don't agree with the email
    you sent or you stand by it as truthful and, in fact, the
    Government was pressuring, that the words speak for themselves.
        Mr. Gifford. I think it is fair to say, as I reflect, that
    the Government pushed us hard to do this deal. If that is
    interpreted as pressure, sir, then I would interpret that as
    pressure.
        Mr. Kucinich [presiding]. The gentleman's time has expired.
        Mr. Issa. Thank you, Mr. Chairman.
        Mr. Kucinich. The Chair recognizes Ms. Norton from the
    District of Columbia.
        Ms. Norton. Thank you, Mr. Chairman.
        Mr. Gifford, you used what for me, in all of these
    proceedings, is the seldom invoked word, fiduciary. Therefore,
    I am much more interested in the role of the boards here. And
    yet, generally, in newspapers and general discussion, the role
    of boards, it seems to me, has been given too little attention.
    Would you agree that in our system of corporate governance, the
    board is where the buck stops?
        Mr. Gifford. I think the board is the ultimate decider of a
    corporation.
        Ms. Norton. Wouldn't you agree, Mr. May, to that as well?
        Mr. May. I believe I would.
        Ms. Norton. I am fascinated by the role of the Board. I
    served on the board of three Fortune 500 companies before
    coming to Congress. I am trying to put myself in your position
    given the crisis context in which you were operating. Could I
    ask each of you how long were you on the Board here?
        Mr. Gifford. I joined the Bank of America Board,
    Congresswoman Norton, in 2004.
        Mr. May. I did also, at the same time.
        Ms. Norton. So you understood the business, you were
    experienced Board members. Could I ask you, prior to Mr.
    Mayopolous's termination, what was your opinion of the job he
    had done as general counsel?
        Mr. May. I thought he did a fine job as general counsel.
        Mr. Gifford. I would concur.
        Ms. Norton. How did you learn of his termination?
        Mr. Gifford. As we testified earlier, Congresswoman, in an
    email from the chief executive officer on the afternoon of
    December----
        Ms. Norton. So there was no discussion about terminating
    the general counsel, whose reputation with you was solid, no
    discussion with the Board about his termination, but an email
    informing you of his termination?
        Mr. May. That is correct.
        Ms. Norton. In light of the fact that you had seen no issue
    or problem with his work, would you ask for an explanation, as
    Board members, given the context of a deal going forward at
    that time?
        Mr. May. I believe, as I said earlier, we had a context. We
    had shifting sands, as they say, at the time because of the
    Merrill merger and there was dislocation of many executives.
    This was not an issue about performance.
        Ms. Norton. Mr. May, I heard that explanation, and I can
    understand that if there is a merger, you don't need two of
    everything. The context in which my question is addressed is
    that in the middle of December there is a deal influx, in the
    middle of a crisis in the United States and a crisis in your
    company. Don't you think you could have made that change in the
    usual order of business rather than in the middle of--I mean,
    were you making other such changes in the middle of a deal that
    wasn't even consummated yet?
        Mr. May. It was a chief executive officer making a decision
    on who he wanted on his team, and he was concerned about losing
    Mr. Moynihan at the time, as we said earlier. And that is the
    time he made and we supported it.
        Ms. Norton. Losing Mr. Moynihan, who wasn't even in the
    position, but had a position in the company.
        Mr. May. He was in a higher position in the company, one of
    the key four or five executives.
        Ms. Norton. Had he threatened to leave?
        Mr. May. We had been notified that afternoon that he was
    leaving the company, yes.
        Ms. Norton. So you believed it was important to change
    general counsel while you were in the midst of--as Board
    members, now--while you were in the midst of this deal because
    you might otherwise lose Mr. Moynihan, whom you didn't keep for
    very long.
        Mr. May. This was Mr. Lewis's decision.
        Ms. Norton. I am asking whether or not, as Board members
    with a fiduciary responsibility to the shareholders, as Board
    members, where you yourselves have said the buck stops here,
    whether or not you inquired in detail as to this huge change in
    the middle of the deal or whether you simply accepted, as you
    said, Mr. May, it as somebody else's decision.
        Mr. May. I supported the decision. I under----
        Ms. Norton. Based on what facts?
        Mr. May. On the facts that Mr. Lewis was choosing a team,
    putting a team together, and he felt that the best qualified
    people for his management team included Brian.
        Ms. Norton. On reflection, if you were doing such a
    complicated deal in the middle of an economic crisis in our
    country--not only the deal within your company, would it not
    have been prudent to await the completion of the deal one way
    or the other before shifting chairs on top of the Titanic?
        Mr. Kucinich. The gentlelady's time has expired.
        Ms. Norton. Were you shifting other chairs?
        Mr. Kucinich. The gentlelady's time has expired----
        Ms. Norton. Were you shifting other chairs as well?
        Mr. Kucinich [continuing]. But the gentleman may answer the
    question.
        Mr. May. Again, the actual transaction involved literally
    dozens of our executives, and Mr. Moynihan was more involved in
    the transaction of Merrill and putting it together, and all of
    the risks associated with that business platform, than Mr.
    Mayopolous was at the time. He was a more critical member of
    our management team at the time.
        Mr. Kucinich. The Chair recognizes the gentlelady from
    California, Ms. Chu. You may proceed.
        Ms. Chu. Mr. Moynihan, you highlight the success of the
    merger, but can you tell us about Bank of America's initial
    rationale for consummating the deal with Merrill Lynch? Did
    this rationale change when Bank of America learned of the
    financial loss at Merrill Lynch? And if the transaction
    continued to be beneficial, why did Bank of America consider
    pulling out of the deal? Was this about leveraging the Merrill
    Lynch losses to renegotiate the purchase price?
        Mr. Moynihan. I think you have to separate. From an
    operating perspective, the logic that I think that led us to
    acquire Merrill Lynch in September, agree to acquire Merrill
    Lynch was about the brokerage firm capabilities it gave us,
    meaning the 15,000 financial advisors, was about the
    capabilities it gave us in investment banking, and the
    capabilities it gave us in sales trading. Those facts are the
    same facts that bear today that we are No. 1 in those
    businesses in the country and No. 2 in some around the world.
    Those facts, from an operating basis, were all true.
        What we faced in late 2008 was from an earnings
    perspective, capital perspective, the situation changed
    dramatically in the markets in effects. In mid-December and
    out, when their losses came clear, the amount they were losing,
    there was a different set of decisions, even with the value of
    that business as an operating basis, we had to make to protect
    our shareholders, and that gave rise to the assertion of the
    claim for the MAC.
        Ms. Chu. Well, again, let me go back to the fact that you
    focused so much on Bank of America's responsiveness to consumer
    needs. However, the real focus of this hearing is about the
    circumstances in which your bank received an additional $20
    billion in hard-earned taxpayers' dollars. Can you give
    specifics on how this additional $20 billion has been
    disseminated and utilized? Is any of this money going to this
    year's executive bonuses?
        Mr. Moynihan. The money that was received as part of the
    Merrill Lynch transaction, which is the hard-earned taxpayer
    money, was meant to provide the capital that Merrill Lynch had
    lost in the fourth quarter and to stabilize that platform so it
    could be acquired. It sits there today as capital in our
    company; it allows us to provide business and consumer loans,
    as I stated earlier, so it is put to good use. It is put to
    good use to make loans, it is put to good use to provide
    commitments to business and governments in these tough economic
    times; it is not used to pay bonuses.
        Ms. Chu. Will it go in any time in the future for executive
    bonuses?
        Mr. Moynihan. I think Mr. Lewis would have told you, I
    think when he was here, if I remember right, or we all agreed
    that the idea is that we will pay this TARP money back as soon
    as we can, and it will not be used to pay bonuses.
        Ms. Chu. It is my understanding that when you were offered
    the general counsel position by Ken Lewis, you had not
    practiced law in over a decade. Why do you think the CEO, Mr.
    Lewis, gave you this position? And, also, why were you asked to
    report to him directly when the counsels before and after you
    were not required to report directly to the CEO?
        Mr. Moynihan. I had been reporting to Mr. Lewis
    continuously since I came in the company, so I think the
    reporting relationship remained that I had, it wasn't a change.
    It was a change to the general counsel position, but it was not
    a change for my reporting relationship.
        Mr. Lewis asked me to be general counsel--and Mr. May
    talked a little bit about this, in terms of how we were
    changing the company's organizational structure in management
    in the context of the Merrill Lynch merger and in the context
    of changes being made. I accepted the position because it was
    what the company needed me to do.
        Ms. Chu. Mr. Gifford, today we discussed your concerns
    about the merger with Merrill Lynch. We know you raised these
    concerns privately, but did you raise any objections about this
    with your colleagues on the Board?
        Mr. Gifford. Yes, I did. And I might add, Congresswoman, it
    really was asking questions at the Board, and other Directors
    also raised questions about certain events and timing and so
    forth.
        Ms. Chu. Thank you.
        I yield back.
        Mr. Kucinich. The Chair recognizes the gentlelady from
    Ohio, Ms. Kaptur. You may proceed for 5 minutes.
        Ms. Kaptur. Thank you, Mr. Chairman.
        Let me just state that as a citizen of our country and a
    representative from Ohio, the important question to me is, for
    the future, what quality of banker and banking system America
    should restore to regain prudence and confidence in our
    marketplace again in a banking system that is sound. And as I
    listen to you gentlemen testify, that is the thought that keeps
    running through my mind, what about the future.
        The total TARP money that went into Bank of America was
    over $45 billion, as best as I can tell, and, Mr. Gifford, you
    are one of the largest shareholders in Bank of America, is that
    true?
        Mr. Gifford. I wish I were. I am for me. From my family I
    am a large shareholder, but it is hardly one of the largest.
        Ms. Kaptur. Who is the largest shareholder in Bank of
    America?
        Mr. Gifford. I think it is----
        Mr. Moynihan. It would be a series of institutional
    shareholders.
        Ms. Kaptur. Institutional shareholders.
        Mr. Moynihan. Like a Barclays Global Investors.
        Ms. Kaptur. Who is the first one?
        Mr. Moynihan. Barclays Global Investors.
        Ms. Kaptur. I couldn't hear you.
        Mr. Moynihan. It would be a series of institutional
    shareholders like Fidelity, Barclays Global Investors,
    Wellington, John Paulson Hedge Fund; it is a whole series of
    people like that.
        Ms. Kaptur. Can you provide that for the record, the top
    10, please?
        Mr. Moynihan. If we are allowed to do it under the law, we
    would be happy to.
        Ms. Kaptur. All right, thank you.
        Mr. Kucinich. Without objection.
        Ms. Kaptur. Mr. Gifford, how did you become a Board member
    for the Bank of America?
        Mr. Gifford. I became a Board member, Congresswoman, when
    FleetBoston Financial, of which I was chairman and CEO, was
    purchased by Bank of America. At that time, for a short period
    of time, a year, I became chairman of Bank of America and since
    have stayed on the Board.
        Ms. Kaptur. All right. Was that a normal bank or was that a
    private equity fund? What kind of institution was that in
    Boston?
        Mr. Gifford. I would like to think it was a normal and good
    bank.
        Ms. Kaptur. It was a normal, good bank. Did you do subprime
    loans out of that bank?
        Mr. Gifford. Did we do what?
        Ms. Kaptur. Did you do subprime loans?
        Mr. Gifford. Not to the best of my knowledge.
        Ms. Kaptur. You didn't enter into that market. All right.
    According to the Charlotte Observer this month, there is a
    story that is rather critical, Mr. Gifford, of your presence on
    the Board, stating that you may well be the highest paid
    executive associated with the Board, other than Mr. Lewis,
    though he is gone now, I guess.
        It states in the article that just for your airplane
    flights the Bank of America spent $947,682 on those flights on
    private jets, and another $281,307 to help you pay the
    accompanying taxes on those. The story then goes on to state
    that does not include the Bank paying you more than $225,000 in
    office and administrative support. And then it doesn't go into
    your restricted stock and other benefits that accrue to your
    present position.
        Would you agree with the statement that they make in the
    article here that you are by far the most highly compensated
    member of the Board?
        Mr. Gifford. I think--I believe I am as a result of my
    retirement agreement from Fleet 5 years ago. That was a
    contract, Congresswoman, that was agreed to 5 years ago as part
    of my retirement for the corporation, retiring early and so
    forth. It is not part, if you will, directly of my compensation
    as a Board member. My compensation as a Board member, excluding
    my retirement agreement, is the same as every other Board
    member.
        Ms. Kaptur. I looked at a poll yesterday and it was talking
    about what the American people think of the country and the
    direction we are headed, and they look at all these bills that
    have passed Congress and they are very angry because they feel
    that the bills that have been passed up here, such as the TARP,
    have benefited--two-thirds of the American people think they
    have benefited the big banks and their executives and so forth,
    and they don't feel anything we have done up here has really
    helped them. Ten percent of the people think anything we have
    done to date has really helped them.
        And I just say you are a value setter in your industry; you
    have one of the largest institutions in the country. What
    people think is pretty important in terms of confidence in our
    financial system, and the people are very angry, and I would
    just urge you to think about what you can do institutionally to
    reshape the value set that is operating inside these
    institutions, because something is fundamentally wrong. Nobody
    is against somebody making money, but when most of the public's
    incomes are going down and people are making extraordinary
    salaries and benefits, particularly when the public is
    supporting these institutions on life support, we have to
    behave differently.
        Mr. Gifford. Congresswoman, I can appreciate the difficulty
    of that.
        Ms. Kaptur. Thank you. Thank you.
        I want to say, Mr. Mayopolous, the timing of your
    termination was very, very curious. Could I ask you a question
    in the way the institution you used to work for functions? Why
    would the chief risk officer, whose name, I guess, is Amy
    Brinkley or was Amy Brinkley, be the person tasked to terminate
    you? What kind of organization--you were the general counsel.
    Were you the top lawyer?
        Mr. Mayopolous. I was the top lawyer.
        Chairman Towns [presiding]. The gentlewoman's time has
    expired, but we will allow him to answer. We will allow the
    witness to answer, yes. Go ahead.
        Ms. Kaptur. I was just curious. What kind of an
    organization--you are the top lawyer. I would want my lawyer
    right there. Why would you go to a Risk Officer, and is she
    still with the company?
        Mr. Mayopolous. As I understand it, she is no longer with
    the company, and I don't know why she was sent to fire me.
        Ms. Kaptur. And who did she report to?
        Mr. Mayopolous. She reported to Mr. Lewis.
        Chairman Towns. The gentlewoman's time has definitely
    expired.
        Ms. Kaptur. Thank you, Mr. Chairman.
        Chairman Towns. The gentleman from Virginia, Mr. Connolly.
        Mr. Connolly. Thank you, Mr. Chairman.
        Thank you all for being here today.
        Mr. Gifford, when did you first learn, when did the Board
    first learn that there was a significant hole at Merrill Lynch?
        Mr. Gifford. Congressman Connolly, we first learned at the
    December 9th Board meeting that the loss had increased to $9
    million--sorry, to $9 billion.
        Mr. Connolly. $9 billion.
        Mr. Gifford. Billion dollars.
        Mr. Connolly. And was that information revealed to
    shareholders?
        Mr. Gifford. Not, I don't believe, at that time.
        Mr. Connolly. Is there a reason for that, Mr. Gifford?
        Mr. Gifford. In circumstances like that, Congressman, we on
    the board rely on management dealing with lawyers--as you can
    appreciate, it is pretty complex with SEC laws and so forth--as
    to what should and shouldn't be sent out to our shareholders.
    So----
        Mr. Connolly. OK.
        Mr. May----
        Mr. Gifford. Sorry.
        Mr. Connolly. I am sorry, Mr. Gifford. I wanted to go to
    the lawyer.
        Mr. Mayopolous, did you advise Mr. Lewis or anybody in
    senior management that maybe that piece of information needed
    to be disclosed to shareholders?
        Mr. Mayopolous. I also learned at the Bank of Directors
    Board meeting on December 9th that the projected loss had grown
    to $9 billion. I sought to talk to Mr. Price, the CFO, after
    that meeting; he wasn't available and I decided I would talk
    with him the next day, and that day I got fired.
        Mr. Connolly. You first learned that the loss was about $9
    billion the same time Mr. Gifford did?
        Mr. Mayopolous. Yes, sir.
        Mr. Connolly. When did you first have a conversation with
    Mr. Lewis or other senior officers of the corporation about
    possibly invoking the MAC?
        Mr. Mayopolous. The only conversation I ever had with
    senior executives at the company about invoking the MAC or
    whether it should be invoked or could be invoked was on
    December 1st.
        Mr. Connolly. I can't hear you, sir, December what?
        Mr. Mayopolous. On December 1st.
        Mr. Connolly. December 1st. Why would they be talking about
    invoking the MAC on December 1st if the information about the
    extent of the losses at Merrill Lynch was available only 8 days
    later?
        Mr. Mayopolous. Mr. Price did not tell me why he was
    asking, he just asked me to review with him the terms of the
    material average change clause, how it would be interpreted,
    and we discussed whether----
        Mr. Connolly. In retrospect, Mr. Mayopolous, would a
    reasonable person perhaps deduct that the reason he initiated
    that conversation on or about December 1st was that, as a
    matter of fact, he was in possession of the extent of Merrill
    Lynch's material losses long before December 9th?
        Mr. Mayopolous. I don't know what Mr. Price knew at that
    time.
        Mr. Connolly. Do you know when Mr. Lewis had conversations
    with Mr. Paulson, then the Secretary of Treasury in the Bush
    administration, about invoking the MAC?
        Mr. Mayopolous. No, I don't.
        Mr. Connolly. Are you aware of the fact that documents have
    been provided to this committee that there were several
    conversations, one of which took place while Mr. Paulson was on
    his treadmill?
        Mr. Mayopolous. No, Congressman, I am not aware of that.
        Mr. Connolly. When you were asked about the MAC, what was
    your legal opinion about the validity of invoking the MAC by
    BOA?
        Mr. Mayopolous. My opinion and my advice at the time was
    that, based on what I knew, I did not see a basis to invoke the
    MAC.
        Mr. Connolly. And the nickel's worth, why not?
        Mr. Mayopolous. Because there had not been a
    disproportionate impact on Merrill Lynch that was outsized to
    the impact on Bank of America and other companies.
        Mr. Connolly. Mr. Moynihan, I am going to ask you to move
    that microphone close to your mouth, because I cannot hear you.
    Thank you. Why did you have a differing legal opinion about
    that?
        Mr. Moynihan. I think there is some confusion about the
    timing from when Tim was general counsel to when I became
    general counsel, in the sense that when I became general
    counsel on December 14th or 15th, we became aware that the
    losses had now reached $18 billion pretax. It was a different
    set of facts and circumstances than Tim has testified to here
    today. Faced with that $18 billion pretax, which went to $21
    billion pretax, or basically half the capital of Merrill Lynch,
    twice the amount it had ever earned in its best year, that is
    when the question of the MAC that I had to address, was at $18
    billion that moved to $21 billion loss; and that was in the
    week that began December 15th and took us through that.
        Mr. Connolly. So if I understand your testimony, you are
    saying the difference between you and your predecessor as
    general counsel was the extent of the loss.
        Mr. Moynihan. The losses had gotten much more dramatically
    different, and that has been the testimony that you have heard,
    during the course. In mid-to-late December, the losses kept
    getting worse and worse and worse.
        Mr. Connolly. Well, in your opinion, wouldn't a $9 billion
    loss qualify for invoking the MAC? That is a pretty significant
    loss.
        Mr. Moynihan. Sir, when I came in the face of the facts,
    the loss was $18 billion pretax. That gave rise for a valid
    claim of a MAC.
        Mr. Connolly. Yes, I understand, but you were certainly
    reviewing the opinion of your predecessor, were you not? Did
    you disagree with his judgment?
        Mr. Moynihan. The facts were different; I was looking at
    $18 billion.
        Mr. Connolly. I understand that, Mr. Moynihan. I am asking
    you a different question. Did you in fact disagree with your
    predecessor in his judgment about the extent of the loss and
    whether it qualified for the MAC at the time of his opinion to
    senior management?
        Mr. Moynihan. I did not reflect on his opinion; I faced the
    facts----
        Mr. Connolly. You had no reflection whatsoever?
        Mr. Moynihan. I had no reflection on his opinion.
        Mr. Connolly. You only looked at the losses you started
    with when you became the general counsel?
        Mr. Moynihan. That was the situation we faced, was the $18
    billion of pretax losses that were disclosed.
        Mr. Connolly. I find that extraordinary, Mr. Chairman. My
    time is up.
        Chairman Towns. The gentleman's time has expired.
        I yield 5 minutes to the gentlewoman from California,
    Congresswoman Speier.
        Ms. Speier. Thank you, Mr. Chairman.
        Mr. Mayopolous, why do you think you were fired?
        Mr. Mayopolous. Congresswoman, I don't know why I was
    fired.
        Ms. Speier. Well, you must have an opinion. Why do you
    think you were fired?
        Mr. Mayopolous. I have speculated about lots of things,
    but, in the end, I don't know why. I wasn't the decisionmaker.
    I don't know what considerations went into it and I don't know.
        Ms. Speier. Do you think it was because you offered the
    opinion that the MAC could not be exercised effectively?
        Mr. Mayopolous. I don't know; I wasn't given an
    explanation. I don't know.
        Ms. Speier. All right.
        Mr. Moynihan, you evidently indicated that you were about
    to leave the company, based on testimony we heard from Mr. May.
    So what was your conversation with Mr. Lewis?
        Mr. Moynihan. About what, ma'am, about leaving the company
    or about----
        Ms. Speier. About leaving the company.
        Mr. Moynihan. Mr. Lewis had asked me to take a job to run
    the credit card business, which would have required a change in
    location. And having gone through this with our company and
    predecessor companies, I personally couldn't do it and it was
    decision that, because I personally couldn't do it, I made a
    decision about my potential future with the company. And I know
    that may sound different to people outside of a large business
    like ours, but when we make a decision you know the
    ramifications of that decision.
        Ms. Speier. So at that point he said, ``well, wait a
    minute, we will make you general counsel?'' What did he say to
    you?
        Mr. Moynihan. No. That was in the days prior to this, and
    his statement was I understand your decision, and that was
    basically the discussion.
        Ms. Speier. All right. You would, in hindsight now, reflect
    on the decision to buy Merrill and probably suggest that it was
    a good decision, is that true?
        Mr. Moynihan. As I said, the operating business that we
    have between Merrill Lynch and Bank of America, by putting
    these two companies together, is a business which is very good
    for our customers and can do many things that neither company
    could do prior.
        Ms. Speier. So you made money in the first quarter, is that
    true?
        Mr. Moynihan. We made money at Bank of America in the first
    quarter after----
        Ms. Speier. And the second quarter?
        Mr. Moynihan. Yes.
        Ms. Speier. And in the third quarter?
        Mr. Moynihan. We did not make money in the third quarter.
        Ms. Speier. OK, so two out of the last three quarters you
    have made money. You paid how much for Merrill Lynch?
        Mr. Moynihan. We issued about 25 to 30 percent of our
    stock. The value, I think, was in the $20 billion range at the
    time.
        Ms. Speier. About $20 million.
        Mr. Moynihan. $20 billion, I think.
        Ms. Speier. $20 billion. Excuse me, $20 billion. All right.
    And then the taxpayers of this country have now given Bank of
    America about $45 billion, correct?
        Mr. Moynihan. That is correct.
        Ms. Speier. So we have almost paid for Merrill two times
    over.
        Mr. Moynihan. The TARP investments in Bank of America had
    three different pieces; the first piece was done back in
    October.
        Ms. Speier. I understand. I am just talking in total. So,
    in total, you have received $45 billion from the taxpayers of
    this country.
        Mr. Moynihan. We have received $45 billion.
        Ms. Speier. Merrill was purchased for about $20 billion,
    and two of the last three quarters you have actually seen
    profits.
        Mr. Moynihan. Yes, that is right.
        Ms. Speier. All right. Now, the taxpayers have seen the
    interest rate on their credit cards jump to 29 percent, in many
    cases. Many of your clients now are paying 29 percent interest
    on credit cards. You were in charge of the credit card
    division, so you are pretty familiar with that, correct?
        Mr. Moynihan. We continue to look at--the credit card is
    not a majority of our clients; it is clients that have the risk
    characteristics. And we have pulled back on the pricing and
    stopped all repricing for risk in advance of the Card Act,
    which none of our peer companies have done.
        Ms. Speier. So you have actually reduced the actual
    interest rate you are charging?
        Mr. Moynihan. The pricing that you are talking about is
    pricing when people have delinquencies or repricing cars based
    on risk in the portfolio, and we have not done that, as the
    Card Act comes in, shortly here, would not allow you to do it.
    We actually stopped that early this fall.
        Ms. Speier. So what is the interest rate that most credit
    card holders are paying, the range?
        Mr. Moynihan. I would have to get back to you. I could give
    you that. I don't know it off the top----
        Ms. Speier. Are they paying as much as 29 percent?
        Mr. Moynihan. There could be a cardholder who has had
    significant risk and other things that can be paying that much,
    yes.
        Ms. Speier. Are they paying 35 percent?
        Mr. Moynihan. I don't know what the cap is; I would have to
    get back to you on that.
        Ms. Speier. Well, when you were at the head of the credit
    card division, how much were they paying?
        Mr. Moynihan. I am not the head of the credit card
    division; it is run by one of my teammates that works for me.
    But I would be happy to get back to you with all the
    information about that and give you the details about that.
        Ms. Speier. OK, my only point in pursuing this line of
    questioning is that there has to be something in it for the
    taxpayers, and right now the taxpayers feel pretty burned. You
    have heard that from a number of Members who have testified. I
    don't want to focus on ex comp, I want to focus on what can we
    do to the taxpayers in this country.
        So I guess my suggestion to you and to any bank that has
    received TARP funds is that, during the time in which you will
    have TARP funding and Federal support and taxpayer support,
    that you should reduce the interest rate you are charging the
    taxpayers of this country to something close to 12, 14, 16
    percent. But show some good will to the people that are picking
    up the tab.
        My time has expired.
        Chairman Towns. Yes, the gentlewoman's time has expired.
        Let me call from the gentleman from Illinois--I am sorry,
    from Missouri, Mr. Clay.
        Mr. Clay. Thank you, Mr. Chairman.
        My questions are for Mr. May and Mr. Gifford. In your
    testimony you state that this acquisition is already bearing
    fruit. However, it seems that these results have come at the
    expense of the taxpayers and shareholders who were not fully
    aware of Merrill's losses. Do you feel that this deal was fair
    to both shareholders and American taxpayers? In other words, do
    you believe that the ends justify the means? Mr. Gifford, you
    start.
        Mr. Gifford. Congressman Clay, the answer is yes, I do. In
    terms of the Bank of America shareholders, as both Mr. May, Mr.
    Moynihan and I have testified, we believe this is a good
    transaction for shareholders. There was a time in December and
    January when it looked very, very dicey, but, as I said
    earlier, it is accretive to date. So I think we are building an
    incredible platform for our customers.
        As it relates to the taxpayers of this country, as I said
    earlier in response to a question from the ranking member, the
    Board of this Bank is determined to pay back the taxpayers in
    full with very significant dividend payments. The timing isn't
    exact, but we are very determined to do that. And by putting
    these two companies together, you made for a much stronger
    company who has the ability to repay the taxpayers in full,
    which we are determined to do.
        Mr. Clay. Mr. May, was it a seamless merger?
        Mr. May. No, it wasn't. As the analogy has been discussed
    earlier, this marriage has had its ups and downs. We thought,
    in September, that it had great potential. In December, when
    the losses were piling up, we were concerned about its ability
    to execute on the mission that it had, and by that I mean
    Merrill. With the addition of that TARP capital, things have
    improved and, as a result, I do feel very good about the
    future.
        Mr. Clay. And I am not sure if this question has been asked
    yet, but how much does Bank of America plan to pay out in
    bonuses and similar awards this year?
        Mr. May. There has been no decision. The year has not been
    completed yet, and that will be based on the performance of the
    company in January or February, when it is being looked at.
        Mr. Clay. Looking forward, what is the projected time line
    for Bank of America to return Federal bailout moneys?
        Mr. Gifford. Sir, the Board continues to review the issue.
    We are discussing it with the Government. Those discussions are
    very sensitive, but we hope it is sooner than later, and that
    is all I can say at this time, sir.
        Mr. Clay. OK. Are you familiar with the process of
    liquidating the combined toxic assets of both Bank of America
    and Merrill Lynch? And, if so, can you give me some kind of
    sketch of how that will work?
        Mr. Gifford. I think Mr. Moynihan is ideally capable.
        Mr. Clay. Mr. Moynihan, go ahead.
        Mr. Moynihan. We have continued to work down the assets
    that you would refer to as toxic assets; they continue to be
    worked off the balance sheet over time. The team that works on
    that works every day to bring those balances down, and they are
    lower now than they were last week, and they will be lower next
    week than they were this week.
        Mr. Clay. Mr. Moynihan, were you familiar with the
    circumstances surrounding the departure of Mr. Mayopolous?
        Mr. Moynihan. Congressman, I was not involved in the
    decision, but what I talked about earlier was the context of
    where we were as a company and the context of downsizing both
    legacy Bank of America management and bringing the company
    together. These were very difficult times and continue to be
    difficult times in the economy, and we have been shaping our
    associates headcount down, and it was in the context of changes
    in senior management that went on at the time that affected not
    only Mr. Mayopolous, but about 10 percent of our senior
    executives.
        Mr. Clay. All right. I thank the panel for their responses.
        Mr. Chairman, I yield back.
        Chairman Towns. Thank you very much. I thank the gentleman
    from Missouri.
        We now will have closing statements, so I will yield 5
    minutes to the gentleman from Ohio, Mr. Kucinich, the chairman
    of the subcommittee that has jurisdiction.
        Mr. Kucinich. First of all, Mr. Chairman, I want to thank
    you for holding these hearings. It has given us a rare window
    into the management suite of the largest bank in the country.
    What we have seen is a story of how Bank of America's top
    executives allowed guesswork to masquerade as expert knowledge;
    how numbers were pulled out of thin air. They guessed at
    numbers; they guessed wrong. Their wrong guess hurt
    shareholders, involved the taxpayers of the United States, and
    created great consequences for markets not only in this
    country, but around the world.
        And I don't think that the Bank of America scenario is
    unique. But the house of cards that was built--through
    collateralized debt obligations, credit default swaps, the
    subprime mortgage fiasco--has ended up burying our constituents
    under debts they can't pay, record rates of foreclosure and
    joblessness. And yet, frankly, it would be wrong to put this
    all on the Bank of America or to put it all on Wall Street,
    because in our economic system, if we have a true system of
    checks and balances, we would see some measure of discipline
    exacted on behalf of the people of the United States.
        This investigation has also raised questions about
    Government oversight, about the agencies that are charged with
    protecting shareholders and protecting taxpayers. From what we
    have seen, it is not clear there has been any criminal conduct.
    But it is clear that there has been a lack of fidelity to
    shareholders and to taxpayers.
        I appreciate that Mr. Moynihan, in his opening remarks,
    talked about where we are in terms of the economy. We need to
    start looking forward here. We are really at the end of this
    discussion about who did what to whom. But we really need to
    look forward with 15 million Americans unemployed, with another
    10 million whose homes are at risk, with businesses failing all
    over the country. A report yesterday, 47 million Americans
    hungry.
        We really have to start looking forward, and this is,
    within the context of our economic system, really going to be a
    matter of finding a way for business to do its part in creating
    more liquidity; for the banks to do your part to create more
    liquidity so businesses can survive; for the Government to do
    its part; where the private sector is failing to create the
    jobs, for the Government to create the jobs. The President is
    having an economic summit in December about that. We really
    have to find a way of looking forward.
        And I am hopeful, Mr. Chairman, that as this committee
    continues to do its work, we understand the responsibility for
    the collapse that spread pretty much across the boards. Where
    do we go from here? What do we do for the people who are
    worried about getting a job? They don't really care who is
    going to provide the job; they sure want a job. And that is
    where we have to find a way to work together to create that,
    because otherwise, a year from now, when we are being judged on
    our performances, people are going to ask not whose side were
    you on, not whether you were on the side of Wall Street or on
    the side of the administration or on the side of the taxpayers.
        The question is going to be what did you do to help
    protect--not just protect, to help enhance the economic
    position of that average American, the person who is struggling
    to hold on to their homes, their jobs, their retirement
    security, their investments, their health care. What did you
    do? And that question and our response, both in Government and
    in the private sector, is going to determine whether or not
    people can have confidence in our system anymore, not unlike
    the questions, Mr. Chairman, that were posed in the 1930's.
        I am hopeful that, on this side of the table and on that
    side, that we are going to have the right answers, because if
    we don't, this system is threatened at its core.
        I yield back.
        Chairman Towns. I thank the gentleman from Ohio for his
    comments.
        I now yield 5 minutes to Mr. Jordan, the ranking member of
    the subcommittee, also from Ohio.
        Mr. Jordan. Thank you, Mr. Chairman. I want to thank our
    witnesses as well for being here. I know it is not easy to come
    here and take the abuse and questions you get from Members of
    Congress, but we appreciate it.
        This whole escapade just highlights why we should have
    never traveled down this role. This unbelievable path we have
    put the country on with this unprecedented Government
    interference in the private sector, this just shows why it is
    bad.
        But for the Merrill merger, which was done at the prompting
    of the phone call from Hank Paulson to John Thane, who said you
    need--but for that, Bank of America would have never needed
    TARP funds. Under any conventional analysis you wouldn't have,
    but the Government says you are going to take the TARP money.
    Then the Government says you have to complete the deal with
    Merrill Lynch. Then the Government, based on what we have here
    from Mr. Moynihan, basically prohibits you from giving the
    money back, now that you are in a position to return it to the
    taxpayers.
        And now we have the amazing thing to me, particularly when
    you think about this institution, Mr. Chairman. We have a
    Federal Government pay czar telling private American citizens
    how much money they can make in the United States of America. I
    mean, think about where we are at because we started down this
    trail. That is what troubles me as we go forward.
        Mr. Kucinich is right, as we move forward, we need to make
    the right kind of policy decisions across the aisle. But they
    need to be decisions where we scale back this unbelievable move
    by the Federal Government to get involved in the private
    sector. It is making matters worse. Heck, if big government
    spending and big government regulation was going to get us out
    of this mess, we would have been out of it a long time ago.
        That is all we have been doing for the last year and a
    half. It is wrong and it needs to stop, and this example and
    these hearings--and I appreciate the chairman having these
    hearings--these hearings highlight what is wrong with the path
    we chose to take.
        Ranking Member Issa and I didn't support the TARP; we
    thought it was a terrible idea. But this is the move the Bush
    administration and the Obama administration have taken us down.
    It is wrong, and all you have to do is look at this example.
    And the American people, I think, more importantly, see where
    this has taken us and see that it is wrong, and they want us to
    turn and go the other direction.
        With that, I would yield back, Mr. Chairman.
        Chairman Towns. Thank you very much.
        I now yield to the ranking member of the full committee
    from California, Congressman Issa, for 5 minutes.
        Mr. Issa. Thank you, Mr. Chairman. In closing, I want to
    ask unanimous consent that a page from the SIGTARP's report be
    included in the record.
        Chairman Towns. Reserving the right to object.
        Mr. Issa. OK. No, that is only fair.
        I want to thank you all for being here today. I want to
    thank the chairman for considering a document which shows that
    the only money that was given to Bank of America was the $6.2
    billion that Merrill Lynch got, most of which you would not
    have gotten if we hadn't bailed out AIG at 100 cents on the
    dollar, and the 0.8 or $800 million--peanuts, really, by
    Washington standards--that BofA got directly. These were for
    the credit defaults, essentially the guarantees. Seven billion
    is what you got that you shouldn't have gotten, because AIG
    should not have been bailed out at 100 cents on the dollar. You
    should have taken your haircut there, and I am sure you would
    have in the ordinary course if the Government hadn't
    intervened.
        Our hearings today have made it very clear that, one,
    Merrill Lynch was not worth what you paid for it. Had you been
    able to negotiate in December, instead of in September, you
    would have been able to negotiate a much lower price. I think
    Mr. Gifford made that very clear, that had you been able to do
    the deal with what you knew in December, you would have done it
    for a lower price.
        We have had a series of hearings, starting with Stan O'Neal
    being brought up here to try to explain why he got tens of
    millions of dollars while bankrupting Merrill Lynch while the
    company was going the wrong way for a very long time. At the
    time, I wasn't sure that those hearings were really worthwhile.
    After all, we were looking at public companies who paid large
    bonuses to their executives when in fact their stock was going
    down. Those executives explained to us that those were accruals
    from an earlier time.
        Now, it seems interesting that we had the very man who set
    up the company for failure at Merrill Lynch in front of us and
    we never asked him what about the brokers, what about Merrill
    Lynch's future, what about the risks that are being taken in
    order to have any profits at all in the company, at least on
    paper? I wish we had an opportunity to know then what we know
    now.
        But with what we know now, we know that you gentlemen were
    pressured by the Government. And depending upon how we define
    pressure, we can put it a lot of different ways, but it was
    very clear that Ken Lewis and Attorney General Cuomo made the
    record reasonably clear that, in fact, pressure was being
    applied.
        We also know that, in the ordinary course of banking as we
    knew it before the meltdown, the $45 billion that is currently
    owed would be repaid; that, in fact, our position of interest-
    bearing preferred stock would be repaid, America would have
    been made completely whole by Bank of America's investment, the
    stockholders of America would get a higher yield than we
    ordinarily get on money that goes out from the Government, far
    higher than the rate that T-bills pay on our debt. So to use a
    term out of the financial services industry, the arbitrage is
    positive; Bank of America will pay back all of the money that
    it borrowed during the bailout.
        Having said that, the legacy of Government intervention--
    and, as Mr. Jordan said, one which he and I did not vote for--
    continues. Long after you are eventually allowed to pay back
    the $45 billion, we will continue to have people in Egypt and
    other countries where we have been telling them to privatize
    their banks for generations and telling them about how
    government does not create meaningful jobs, and that they need
    to have a vibrant private sector, we will continue to have
    those countries ask us ``did you really mean it when you said
    it, and what has changed?''
        So, Mr. Chairman, I look forward to us continuing to look
    at the AIG bailout, one in which Secretary Geithner, then the
    head of the New York Fed, appears to have made a decision to
    pay far more in these guarantees than the current market value.
    And, in fact, the paper which was floating in some cases in the
    market at far less than 100 cents on the dollar went
    immediately to gains for those who held the paper. And, Mr.
    Chairman, I hope that and the administration that we would like
    to have in to complete this hearing will come in due course.
        I thank the gentlemen for their time and for giving us a
    very effective half a hearing today.
        I yield back, Mr. Chairman.
        Chairman Towns. Thank you very much.
        I also would like to thank the witnesses, would like to
    thank all the Members for their participation, of course, and
    the staff for their work as well.
        Before I begin my final comments, I want to make an
    observation with regards to Mr. Mayopolous, who was abruptly
    fired in the middle of this transaction. He does not know why
    he was fired. His boss, Mr. Moynihan, says he does not know why
    he was fired. The Board members present don't know why he was
    fired. Either it was divine intervention or someone didn't like
    his legal advice. Being I am from Brooklyn, I am leaning toward
    that last one. It looks to me like Ken Lewis and others at the
    company weren't about to tolerate someone who might get in the
    way of what they had planned to do at this shotgun wedding.
        The central question of our investigation was how did Bank
    of America's acquisition of Merrill Lynch, which started out as
    a deal between two private sector companies, become a $20
    billion--``B'' as in boy--Federal bailout. After 4 days of
    hearings, hours of testimony, and a review of half a million
    documents, it looks like the answer is pretty clear. The facts
    show that Bank of America, one of the largest banks in the
    United States, was able to manipulate Federal regulators to
    obtain billions of dollars in taxpayer money to help it go
    through with the deal that it intended to do in any event.
        In a way, it was quite a feat. Bank of America will
    probably end up being heralded in the business schools across
    this country as a result of their innovative approach. While
    the financial world was crumbling around them, they saw an
    opportunity to snap up Merrill Lynch, a leading company in the
    field, and get the taxpayers to bear the risk. This has
    important implications for public policy and how we approach
    problems like this in the future.
        Billions in taxpayers' money were committed in secret. No
    one outside a privileged few knew anything about it until weeks
    after it was over. That should never, never happen again. As
    Congress considers regulatory reform, I think we need to focus
    on the need to protect consumers and shareholders.
        Thank you again for being here today. Without objection,
    the committee stands adjourned.
        [The closing statement of Hon. Edolphus Towns follows:]

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        [Whereupon, at 12:41 p.m., the committee and subcommittee
    were adjourned.]
        [The prepared statements of Hon. Elijah E. Cummings and
    Hon. Gerald E. Connolly follow:]

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