[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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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