[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/
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

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




                            C O N T E N T S

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

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

                              ----------                              


                       TUESDAY, NOVEMBER 17, 2009

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


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

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

               STATEMENT OF TIMOTHY J. MAYOPOLOUS

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

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

                  STATEMENT OF BRIAN MOYNIHAN

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

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

             STATEMENT OF CHARLES ``CHAD'' GIFFORD

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

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

                   STATEMENT OF THOMAS J. MAY

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

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

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    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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