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 five months ago i asked a few simple but vital questions for us how did a private sector deal announced in september two thousand and eight wind up as a major government bailout with the two taxpayers on the hook for twenty billion dollars second i asked whether the government forced bank america to go through with this deal finally i ask where the bank of america c e o 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 that he threatened to back out to gain leverage for a taxpayer bailout today as a result of our investigation i think the answer to those questions are much clear each senior bank of america executive who was involved in the deal has told the committed that the government did not force them to go through with it ken lewis is 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 kinloss call then treasury secretary hank paulson on december the seventeenth two thousand and eight 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 because in the merger agreement the so called max clause what we know now is that bank of america top lawyer tim palace told two top bank of america executives on december the first two thousand and eight that bank of america did not have a mac mr meyer apple is was suddenly fired nine days later without explanation and replaced by a senior insider who had not practice law in years our investigation has also uncovered documents showing that on december fifteenth two thousand and eight lawyers working for bank of america  knew that to win american it is not enough to show a short term earning the kind no matter how severe must show decline in value over a period of years not m nonetheless can lose call hank paulson on december seventeenth and said bank of america actually had a match again on december nineteenth lawyers working for bank of america gave its executives a memo that noted that delaware courts had never found that american curdle allowing the buyer to terminate a merger agreement is it nonetheless two days after receiving that memo mr lewis again called secretary paulson and threaten to back out of the deal finally the committee has obtained note sean that bank of america outside counsel believed on december eighteenth that they had at least an eighty percent chance of losing a mack claim perhaps the most telling of all documents is the one who are a lawyer of bank of america writes a quote threat of mack don't push too far turn it could turn against us the documents and testimony the committee has reviewed clarify that the bank of america was aware that the chances up with sailing on the mac were very slim merrily invoking the might could have led to significant adverse financial consequences for the company really based on the facts we have before us it sure looks like it was a bank all of america that was whole in the shotgun at this wedding today we w police the lawyer who was fired nine days after telling bank of america executives there was no match we'll also hear from brian monahan the person who replaced m and me and who determines sometime between december the fifteenth and seventeenth that bank of america could back out of the deal by invoking the max now to replace him mr modelers mr monaghan served as a general for about forty four days he stopped serving as a general counsel about six days after the bailout was a done deal he is now president of consumer and small business linen at bank of america and we will also hear them to bank of america directors who are on the board when this deal and the bailout went through and who now are helping choose the next bank of america c at this point i'm just a geisha has shared a great deal of light on a deal that was secretly made and at the cost of 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 the bank of america receive are paid back thank you very much on that note i yield to the ranking  decision to force bank of america and other banks to accept tarp funds and subsequently for bank of america to acquire merrill lynch unfortunately the bipartisan nature of the investigation appears  at today's hearing first mr chairman there's 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 a  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 twenty percent likely to attempt to negotiate a lower price using that twenty 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 the committee's time and resources have been redirected toward the political scapegoating 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  mackey had a good case for saying in an enron like fashion that in fact merrill lynch it overstated their profits by booking these as good when in fact after the fact they were known to be wrong that's no different than enron you can't call a profit a profit when it's clear that it ultimately was a risky investment likely to leave lead to your end in fact it had led to be led to billions of dollars in failure ken lewis was doing what most tough negotiators do found an opportunity to 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 then fed chairman of new york and secretary paulson forced the issue and used money both literal and figurative li as justification for why they must go through literally because they offered the money and secretary geithner offered it repeatedly verbal e during the transition team figured of lee 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 disclosure for this new bailout until the last last possible date the incoming obama administration support for the commitment of billions of additional taxpayer dollars was absolutely essential to ensure a bank of america cooperation in this purely verbal backdoor 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 geitner who could in fact verbal e and under oath give us the answers to our questions the fact is where is she live there where in fact is mary shapiro or even where is chris cox where is the government changes come mr chairman under the bush administration republicans or democrats were in charge of this committee we brought in administration officials the witnesses that we're going to hear from today are appropriate and they will speak to their view of what happened but we've already had can lewis here under oath testifying to his best explanation of what happened and it has not been refuted by any of the subsequent documentation or discovery or testimony mr chairman as a 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 feel the changes c the ranking member was like for me to pull out a calendar i'm happy to do so and remind him that this money and bailout occurred during the previous administration and if he had such strong feelings and concerns about it this bailout i wonder why he was not asking the bush administration the tough questions last year and i yield to the gentleman from ohio thank you very much 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 a natural them out of time or did top management know or should they have known about the changing situation much earlier did they fail to make necessary disclosure to their shareholders when we ask ken lewis bank of america c e o about this at our first airing he told us that he relied on the advice of counsel and that he relied on forecast from merrill lynch recently in response to our request bank of america produce 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 a basis to determine if there was something shareholders should know before they approve the merger our examination of this forecast and how  should sound alarms about how wall street really operates the forecast when it was created by merrill lynch on november twelfth revealed that in october the company had absorbed in just one 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 sub prime mortgage backed securities credit default swaps would perform in the next two months november december the forecasts assume those investments 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 have not shown us that they actually did any actual analysis to make up for marrow 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 in november december it was assumed that merrill lynch would almost breakeven for november thereby spreading october's bad results over two months then the attorneys at bank of america and walk to 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 assure holders 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 market that's when 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's a story of how bank of america's top executives allowed guesswork guesswork to me ask great as actually actual expert knowledge how numbers pulled out of the air without any actual analysis serves as the basis for corporate decisions made about other people's money shareholders money unfortunately for all of us i doubt bank of america's unique look around to see what the geniuses of wall street have wrought the house of cards they have built that have buried our constituents under debts they can't pay record rates foreclosure and joblessness if you think these bankers and finance years deserve the millions of dollars they're 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's wreckage all over america are you back thank you very much i know you appreciate no one went after the previous administration specifically secretary paulson harder than ranking member i said myself we just want the opportunity go after the same folks question the same folks who who are now in in in our current administration who were involved in this decision the chairman mentioned shot down being healthy i mean the only shot going to volves here was what what the government held to bank of america's head when they forced them to take part i mean think about that nine days after this they force bank of america one when bank of america had to sit down with eight other big institutions in this country forced them to take tarp money that they own and then in the deal itself that's why we need officials who were involved in this in this whole decision here as i suggested in our and some of our previous hearings i think mr paulson actually misled the congress when he when he came in front of the congress last year demanding that asking for the tarp money and then as i said nine days later changing course dramatically and saying we're not we're not going to purchase a these mortgage backed securities we're just going to give capital to the banks so the question to mr rice ask i think is is right on target the empress and moses seen from the government the president pressure we've seen from the government on this this institution i think requires us to get mr geithner mr cox miss bear mr perelman from 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 and with that i would yield some time to the ranking member people like it's not  i thank the gentleman i just want to set the record straight a little bit because i think it's important first of all we understand that we're not the financial services committee the f c c does not report to us and in fact the f c c has more jurisdiction over this port commercial portion than but we are the government oversight committee and i certainly 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 when we're setting the record straight we're setting the record straight that we didn't think the last administration should have these hundreds of billions of december thirty first in those twenty days that bush 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 parcel of mergers and acquisition and price setting and so today i think this committee needs to stand up to what we were doing last congress and continue to look at where government failed us and it doesn't matter whether it was republican or democratic governor government we need to continue to do that we certainly need to see that the remainder of the tarp not continue to be spent in a way that you  yourself chairman of called a shotgun wedding and i thank the gentleman for yielding i think mr chairman you back let me just say that for we will we move forward you know i think that to make that assessment before we hear from how witnesses i mean you don't know what they're going to say how much they want to say and based on the fact that what has been set up to this point you know by mr lewis who indicated that the government in no way acted in improper i mean this is what he said now the question is if you don't believe in terms of his comments so his statement then that's another issue but in the meantime we're going to move forward with the witnesses please stand you may be seated going from my left to right eye witnesses today are timothy mop alice was general counsel of bank of america for nearly five years from january two thousand and four until december the tenth two thousand and eight he is currently the executive vice president general counsel and secretary of fannie mae mr morna head was the general counsel of bank of america from december the tenth two thousand and eight to january twenty second two thousand and nine he currently serves as the president of consumer and small business lending at bank of america mr gifford and missed a may are currently on the bank of america board of directors and were on the boards last december when the bank we see its bailout they are both also on the committee that is selecting the replacement for mr lewis mr modeless please give your previous statement and you have five minutes in of course and the light starts out on green and it is to yellow and then of course it tears a red and when he gets a red we ask you stop which will allow the members an opportunity to be able to raise questions after all the witnesses  thank you chairman towns ranking member ice members of the committee thank you for the committee's invitation to appear before you today my name is tim i owe police bank of america recently waived its attorney client privilege with respect to the merrill lynch merger and has what i call the mike a little closer to you 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 tenth two thousand and eight i served as general counsel of bank of america for five 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 walked lipton rosen and 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 to thaw in a 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 walked all that and our in house legal staff to prepare the proxy statement properly and accurately the committee is 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 one two thousand and eight i advised joe price bank of america's chief financial officer and gre curl then bank of america as head of corporate strategy after 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 is 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 two thousand and eight the walk to 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 in the proxy statement did not contain any projections or estimates of merrill lynch is 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 multibillion dollar losses in the fourth quarter over the twelve month period beginning with the fourth quarter of two thousand and seven merrill lynch experienced after tax losses of approximately twenty two billion dollars for an average quarterly after tax loss of more than five billion dollars third the proxy statement and other disclosure documents clearly informed 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 ai g and the government's extraordinary actions to authorize the expenditure of seven hundred billion dollars 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 how obvious in hindsight that if either the five billion or the seven billion dollar loss estimates 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 fifteen billion dollars 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 tenth two thousand and eight 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 tenth i was never consulted about any of the matters i've 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 believe to be appropriate considered and in the best interests of bank of america and ensure holders i did my best to be a good careful and honest lawyer i would be pleased to answer any russian is that members may have thank you very much miss good morning and thank you mr chairman congressman ice subcommittee chairman to senate ranking member jordan and the rest of the committee my name is brian moynihan and i serve as the president global consumer small business card at bank of america prior to that  job i served many capacity including running the group at merrill lynch came into in january two thousand i also served as bank of america's general counsel and prior to that i served as deputy general counsel for a predecessor company and prior to that i was a law partner in private practice and i specialized in merchant acquisition financial institutions securities law and other matters relating in particular the financial sector i want to touch on two points today first one that will not the specific point but the backdrop this committee hearing i want to briefly discuss how our company bank of america continues help homeowners families and businesses whether the economic challenges we all face and second i want to talk about how our acquisition of merrill lynch help prevent a further financial collapse last winter the turn 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 presided 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 and ses economy bank of america is doing all we can to help them we understand the public expect of us especially as a financial institution that we see tax payer systems as we recently announced in our quarterly quarterly lending an investment report we've extended seven hundred fifty nine billion dollars in loans since our first report late last year that represents seventeen dollars for every dollar of financial assistance we proceed making home loans is a priority for our company in the first nine months of two thousand and nine we've made almost three hundred billion dollars  a million customers we've also made two hundred fifty five billion dollars of credit available to large and small businesses in addition to that we've made twenty six billion dollars in credit available to minister patti's and other nonprofits all these figures don't include the one point five trillion dollars that we committed invest in low and moderate income communities around our country and also don't include a two hundred million dollars in support we provide a terrible organizations on a yearly basis i now turn to my second point the point of the topic of today's hearing i think it's important to keep one thought in mind throughout our discussion today although the merrill lynch transaction in maryland itself as a company was severely impacted by the worst dislocation that the financial markets is seen since the great depression our acquisition merrill lynch is a success the acquisitions provide a great benefit to our customers a stable bank of america bank of america merrill lynch platform can simply provide more capital to more businesses in these tough times second the taxpayers are also benefit from a stronger financial system and more directly in the form of the financial return to receiving on their investment third closing the transaction in december two thousand and eight was in the best interest of the financial system the economy in a country as a committee has heard prior testimony the failure of merrill lynch in december two thousand and eight particularly on the failure of the lehman brothers and other financial firms would have exacerbated the economic havoc that our country faces and i'm proud that bank of america step forward bank of america has cooperated 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 in those document shows and i hope my testimony today will help further demonstrate that throughout the deliberations of merrill lynch around the acquisition bank of america acted in good faith and assault of a lot of premier law firms and country to address a very difficult issues business people can find a 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 in a face of sorry sume i don't need to go again mr chairman thank you i would only like to make two observations at this point first i believe the bank of america merrill lynch combination is already bearing f merrill lynch has been a creative to bank of america earnings for the year to date and the systemic benefits in vision when the board approve 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 in it to porton 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 two thousand aig was simply unprecedented in its depth and breadth and philosophy even in the midst of it predictions of predictions of how bad it would get consistently understated the scope the severity and its duration our government elected 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 forward admittedly slowly we have bank of america will always remind remain mindful of what was done to stabilize our system and of our important role in helping these decisions work for our customers senate yes it is and ranking member jordan my name is tom may i am chairman president and c e o of and star a massachusetts based public utility holding company and i have been a member of the bank of america board of directors since two thousand and four i also appreciate the opportunity to be here today to discuss bank of america's acquisition of merrill lynch i'd like to associate myself with the remarks of mr gifford and mr moore and a hand 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 two thousand and eight 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 t 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 thank you very much emma think all of you for your chairman i don't know why i was fired i don't know whether it had anything to do with the advice i gave of my give or whether it had to do with something else i don't know why i was fired i wasn't given an explanation did you at any point  have a conversation with kim lewis talking about your role after the merger of bank of america merrill lynch that in point they talked about what your role of the after that yes mr chairman on the evening that we negotiated the merrill lynch merger mr lo told me personally that i would be the general counsel of the combined company following the merger but it didn't happen now sorry didn't move forward do you missed him on a hand just to make sure i'm clear anyone in the government force bank of america to go through with this deal no sir no one in the government  we know much more now about the max and this entire deal than we did last summer if you believe there was something material about the merrill 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 disclose and it publicly mr chairman when i became a general counsel and we worked and looked at the eighteen billion dollar loss that we are facing at merrill lynch we believed we had a valid claim for mac the disclosure requirements would rise when we had a duty to disclose those which was later when we announced earnings in january fire someone who had been the top lawyer for the previous five years he specially right in the middle of one of the biggest deals in bank of america's history then you feel uncomfortable with that that the times that we're going through in december two thousand and eight was we're downsizing the company relatively dramatically and we were changing ten percent of our executives were terminated and which is terrible things and terrible times to go through but part of the economic stress and the change that were made as best i know were made us in the context of us changing the numbers of senior executives we had because the economic stress we are under it's a tough thing to go through but it's part of being about business and and i think it's it's clear that that's what drove pressured by the government to do something that was not the best answer for sara thank thank you thank you very much mr gifford the committee has obtained two e mails you said regarding the bank of america deal with merrill lynch and one of those emails you used the phrase screw the shareholders screw the shareholders and the other you expressed disagreement with the way bank of america approved mergers can you tell be sure the first reference to an e mail 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 and 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 on satisfactory and we knew would have a very negative impact effect on share price we also limited the dividend down to a penny what i was doing i'm up for my holdings in bank of america are very significant for me and my family and so the took it a little out of context company do you agree that buying merrill lynch was in the best interest at bank of america back in sept back in september when the board was first presented with this  opportunity after many probing questions i might add because these are 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 i also voted for the transaction and to this day still feel that it is a tremendous combination of the two what wonderful companies thank you mr chairman and thank you both you're doing your fiduciary duty i'm sure it was not easy as ten than eighteen billion dollars of unexpected losses piled up at a company in the middle of a merger i've 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 and 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 know it was going to come to an end and of course as you know the world as you know it never comes to an end in washington because we just print money we've had no layoffs monahan won't surprise you but government has grown five hundred thirty nine thousand new employees just since his administration took office we don't feel your pain let me go through a couple of of set the record straight if we can put up slide  one slide one when it gets up there it's hard to read but it says before formally call mack get government in geitner gone on vacation this is from eric roth b of a lawyer then slide to fire board if you do it to him g agrees larry summers and tim agree this is from joe price one of your c f o of the company slide three 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 of the words of ken lewis slide for ben says forty five billion tarp of vailable if necessary obama team informed and agrees tommy franks b of a board member slide five not here today of course flight five you have our commitment that this will be resolved you will get some additional investment eric roth b of a lawyer questions for you gentlemen none of these are in dispute here today none of the testimony that we've had up until now disputes the fact that in various ways then fed chairman 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 the case in this case a loan through preferred stock with interest do you believe that you would have likely pulled the mack and disputed going through with the deal at the current cost based on the eighteen billion in losses and mr gifford particularly i'd like i'd like you to answer that since your career has been in banking if you take eight hundred billion out of your balance sheet and then try not to have the as we learned the board originally on december nineteenth of rolling in signatory significant losses at merrill lynch management to present to the board the opportunity to exercise a privileges of  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 would be a systemic very dangerous systemically in very dangerous and not not positive at all for the bank and 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 and he did and he expressed the expressed the sentiment and there was a another session later in the month that the government would provide financing there was nothing in writing but it was from a very senior fish of the kind of of the government that one would believe would follow through the details were not  reviewed with the board i can tell you from as a member of the board director 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 sure one last question for the two of you very quickly as c e o s as business leaders who have had general counsels don't you normally require two things your general counsel give you an honest statement would 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 the general counsel is on board with our leadership decisions in other words would you would you keep general counsel who's constantly telling you not to do what you've already decided to do from a business standpoint i mean any member of the board has to make up their own mind you would like to be in a position to believe your general general general counsel is going to provide good counsel that i agree with  this as general counsel at bank of america you determine 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 ten billion dollar forecast quarterly loss congressm a historical experience at merrill lynch or the prior four quarters that had quarterly losses ranging from two billion to ten billion dollars certainly as you got to ten billion dollars or higher in after tax losses i think the case for disclosure became much more compelling you state in your testimony that you received a copy of a forecast dated november twelfth and that the information in it played a role in your legal deliberation about making additional disclosure about the financial situation merrill lynch let's look at the november twelfth forecasts you received staff has already provided the gentleman with a copy of what we're talking about here merrill lynch's most illiquid and volatile assets the collateralized debt obligations the credit default swaps and sub prime mortgage backed securities were tracked in the rose marked significant items total marks now if you follow that across the column entitled which stands for balance to go or the estimate of performance for the remainder of the quarter in that gray highlighted box there blank there are no numbers there is that correct i don't see any numbers there so ok so there's no projection for collateralized debt obligations and other illiquid assets that we're losing a lot of money at the time when my staff asked merrill lynch's c f o produce the spreadsheet why a forecast w contain no projections for these assets he told us that this document was not intended to be a valid forecast despite its title mr map was did you notice that omission and did 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 comment on the morning of november thirteenth they were intended to help fill in the omission noted above there's a line that says minus zero seven five all today from o c i to p n l ok i'm referring to the line that says neil got a question mark what was your understanding at the time could you see that yes sir i do ok so what was your understanding at the time was at a reference to new york caught he's got feeling i don't remember discussing that specifically i do recall being informed that there was a one billion dollar contingency in this five billion dollar forecast and that seems to correspond to the neil gut line well when my staff interviewed mr tata he said that the november twelfth 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 caddy had not delved deeply into the details of the forecast before a billion dollar gas no neils got was added to it no sir did the words kneels god create any concern any concern in your mind at all that it might be a number  pulled out of the air gut feeling i understood that this forecast was in part i guess that it wasn't ok so it wasn't part of yes my understanding is you did not transmit the november twelfth document to the attorneys at wokq lipton the record portrays you as the individual who relayed the relevant financial information to your outside counsel do you recall telling the walk tell attorneys on november twelfth and thirteen that the october losses were seven billion and that merrill lynch could break even in november allowing you to spread october's losses allowing you to spread october's losses over two months now sir i don't recall that but but if you look at if you look at the documents here you are  ed to members of the committee as saying that in a conversation with nicholas demo that you said that merrill lynch lost seven billion so far in october how do we get the number out and that also in the meeting notes of walk to lipton attorneys your comments are mentioned again relating to to the seven billion dollars number  now when you spoke with your attorneys it was a lift and did you recall telling them that the fourth quarter forecast received from merrill lynch omitted november december projections for c d o c d s and subprime mortgage backed securities which alone lost seven billion seven six point four billion in october now sir i recall telling that i had received a forecast from the finance department and i described for them what the bottom line numbers were mr may apple is do you happen to know what the quarterly loss for merrill lynch turned out to be for the fourth quarter of mine or stan was approximately fifteen point three billion dollars after taxes well in conclusion mr chairman in other words the actual losses acknowledged just two weeks after the shareholder vote were well above the threat threshold that would have led you to recommend additional disclosure in fact of bank of america chipley extrapolated october's losses into november 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 your you make a decision and circumstances such as you're 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 nine days after time passes the biggest financial institutions are brought to washington  they are told they need to accept tarp money they make the call the board members and sides to 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're losing more than than you thought you want to get a better deal than what two businesses do all the time the government said no to that in fact based on testimony we've heard even though mr moynihan in answering the chairman's question said differently and based on what we've 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 in the board would be gone if in fact they did not follow through on the merrill deal you sought assurances as mr i said point it out in his questioning from the incoming player likely players in an obama administration you actually saw them 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 with this so let me just ask a couple questions is that in fact the case that you you received assurances in some form o writing from the likely folks to be involved the obama administration at at the at the treasury department that if in fact things got worse they would be there with additional tarp dollars to to help bank of see that as we work through from mid december in the two weeks we had to work through it that that if we went forward that we could would receive some sort of assistance which we find a negotiated in actually close in january of two thousand and nine as to the statements of the income mr ation i think mr lewis has testified to that that he in his conversations with those people he was told that they had heard about the transaction i was not part of those discussions so  i just want to be clear was there a promise made from the from the incoming obama administration that they would be there to back you up if in fact that's what bank of america needed i don't know that because i was only told th that and he related that to you and he related that that the new members the new new administration were aware of the discussion not intimate would you agree with that we were being apprised pretty regularly of the progress that was being made from the ok well let me let me remain close to that to into the story here at least what we hope is the end kind of cut to the chase of where we are today how much money is bank of america received we've received of forty five billion and forty five billion dollars and what is your cash position today you've said to me all of you said this is a good deal to work out for the shareholders you know wonderful apple pie god bless america the whole thing so what's your cash position today cash positions in excess of one hundred fifty dollars two hundred billion dollars i have you  have you have you paid back the tarp money we have not paid it back yet been clear that our goal is to pay back as soon as possible and why haven't you paid it back mr moynihan last week they issued a series of the federal government issued a series of requirements to pay back and we're looking at those and have you asked the federal government to pay back yes or no it's not if you got permission i mean what's preventing you've got one hundred fifty billion dollars cash positive cash position and you owe the taxpayers of this country forty five billion dollars w paid back as you can look at the guidelines it takes a series of steps and a series of question answer if you could would you pay it back if we could yes we would pay back we've been clear their attention paid back and is there is there in your judgment  there a hindrance in hendrix's or obstacles that the obama administration is putting in place that are preventing you from paying it back i think the question that the government's looking at this is to make sure we can all stabilize the economy which is in tension and i think we've as i said earlier we've done a pretty good job of doing that as our colleagues at the see the money and i think in your professional judgment why while i mean why why why the hinges why can't you get that money back to that to the federal government pay back the taxpayer i think the we just have to be sure that if we do that and the economy is the kind of shape the need for a company like ours which supports america and around the world businesses that we can would you agree that in fact of october we had that we ran the highest deficit in a single month deficit american history last fiscal year when the highest single annual deficit in american history when you think that the new administration would want that money to get back into the treasury help with that with that situation i think you'd have to ask them that are intentionally you know this by and you know let me ask all of you to pull you might close we have some senior citizens  and i don't know who you think we are but i gotta tell you i find some of the things that you've said not to believable first of all the chairman all suddenly got into downsizing fever is that right is that basically what you're saying you were downsizing i said i wasn't personally involved in decision but it was in the context of what you replaced and then you yes i did and what were you told what did they tell you and i remind you that your note was the reason why he was fired can i ask you to take the job as general counsel and i said i would say i'm sorry say that again mr lewis asked me take the job as general counsel night i said i'd take the job you didn't answer my question and you know you're walking into a job and you didn't say well what happened to the last guy i mean that's a logical question that's absolutely logical question and what did and what did you did you find out that you asked a question first of all what did you know i didn't ask the question and i told you they wanted to fire their in house counsel and replace them with a senior business executive who while the credentials of an experienced attorney had not practice law in ten years and was not even licensed at the time  advise them to make that move 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 this very interesting now let me ask you this  had an opportunity to talk to our committee staff did you not yes i did sir and you believe that there was a mac a mac a mac was appropriate there was a case for mack is that right i believe we have a valid claim and i did time did you talk to the committee staff you produce no evidence with regard to why you had that opinion the have any evidence today represented the evidence is that in the fourth quarter of two thousand and eight merrill lynch lost twenty one billion dollars pretax and it was not clear that they be able to use tax benefits that was twice as much as they'd ever made as a company and completely depleted their capital by fifty percent and so therefore that was a material change in their circumstances they're now he's the earn money at the level they were supposed to was impaired by the capital that's going down now that was inconsistent with the law firm walk to all and what mr myopic in my apple is that said is that right was that inconsistent at you know otherwise so i'm trying to figure out how do you get there i've relied on luck to lipton who was of the same opinion we had a valid claim for mack informed us such i also lied on my experience in dealing back losses and having taken apart deals for of past the hundreds of deals i've done as a turning a business person and we were all of the same opinion that this was a twenty one billion dollars in losses this was a material change in the circumstance of merrill lynch that we had to do well let me get  apparently he had a different opinion is that what was to all had said mr morrow my apple as he says it that they were all in agreement is that right that's not what they told us that we didn't have any conversations i didn't have any conversations walked all about them to leverage change plus already tried very hard congressman cummings not to be talking publicly about individual the fact is the reason why i'm talking about it is this guy i'm trying to figure out is this a guy that we have got to face when when when we are trying to deal with bank of america when we've got forty five billion dollars invested in a company i'm just trying to figure out is this the face that we are going to be facing and i'm responding kind i'm not asking you for your decision i'm just asking if you know one of your top candidates adverse change there had to be an event that occurred that had a disproportionate impact on merrill lynch and 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 ha declined a most as much as merrill lynch is merrill bank of america had gone out raise substantial capital it cut its dividend its earnings have been reduced so basically both companies had suffered significant downturns in their prospects and the time since the merger had been announced was the information that you had did you not have the information that mr monaghan had with regards to the twenty one billion dollar loss at the time that you made your  price that's correct i did not have that information ok if you don't own it what would your advice been at that time but 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 avarice change cause would be a dangerous and risky prospect but i didn't have the information and i didn't study that question so what so what you're saying is you would go along with saying 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 average change clause well do you believe then that there's a reason that  the mac was eventually then used as a bargaining chip or was it uses a barging chip in your in your judgment to extract a better price from the government congressman i don't know what what it was used for i wasn't i was never is in disarray the regulars are serious about thinking about the pros and cons and using our judgment around the mac and what we would do as a company and i think what i always took that as a view of how that did not factor in our decision that they were extorting your decision to go along and accept merrill lynch's as a partner business partners what you're saying what i said was that we did not let that factor in our decision of what the best interest continue it was in 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 you 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 problems were due to the markdowns and securities and other things going on in december of two thousand and eight as the markets continue to rate their rectify because merrill lynch makes money but the context that is merrill lynch not being owned by bank of america with a stable capital base able to take the job that the c e o wanted him to take a number of board members within a couple minute time frame expressed regret because as i said earlier testimony this morning as one of the most talented executives of every work with  expressed regret to the chief executive officer at that point and a bunch of others that live in boston got on a plane went back to boston back to boston i at that point thought mister knew nothing about  all i knew was that brian was leaving the company when i returned to boston i got some time late afternoon an e mail as did all members of the board close to chief executive officer informing him that  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 you can catch he can pitch we've had a minimum almost every aspect of the business whether 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 and so  we don't usually use the word fired during mergers but positions are eliminated you have to treasuries you have to controllers you have to presidents and things were being eliminated and the management only dating drinking this all happened in the context of the moynihan had been in investment banking he was leading the bank of america investment bank the merger with merrill lynch eliminated has 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 he was he was a victim of a merger synergy how long did he hold this job of  would want to go to again that's the fragility of an organization that is going through a transition and there was fall out there were people that left merrill that were merrill former merrill executives that left the combined company and we bank of america now without the purchase marilyn's with the bank of america with the purchase merrill lynch with that you would be a stronger institution today i think serve customer standpoint there's no doubt we're stronger institution today with the product capabilities we have not only in the u s but around the world to serve customers whether they're an individual or a small business a large business across investor across the world the capabilities we haven't put these two companies together are better than the capabilities of one had before they came 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 lynch i mean the eggs are scramble at this point in terms of the decisions we've made so it's hard to separate it but just to give you a sense the legacy bank of america investment banking platform would have been you know maybe five six and some businesses and two or three in other parts of that business now we've been this week we see the second highest amount of investment banking fees every quarter this year second j p morgan and ahead of every other best banking firm you can name and so that shows you that the combination together is more than bank of america had in that business i could do that go through every one of the businesses what is the fifteen thousand financial advisors whether it's what we have in the sales trading investment bank building it's all that's true through it and it happens in every business we are better now today than we were just two separate companies now knowing that a company would what you face a loss of billions of dollars was the forty five billion dollars in tarp money but that one of the reasons why bank of america purchased merrill lynch i think you have to separate the tarp money that we received a lot about terms or irrespective of the of the transaction would have been twenty five and we had twenty in connection with the transaction to help handle the losses that merrill lynch had in december in the fourth quarter two thousand and eight in particular in the latter half of that so i think it's i think the investment helps stabilize the economy stabilize the financial system if merrill lynch would have failed i a complete surprise at that point would have wreaked damage on the whole system it would hurt our company just because of where participate in the markets and so i think the answer yes or no what was it factored in the forty five billion dollars in tarp money that the twenty billion relates to mail a transaction the other stuff doesn't relate to anything was done before merrill lynch transaction closed now did i hear correctly that you are one of the potential candidates to replace mr ken lewis pursuant to the question difficult for the visibility of bank of america to keep the selection process confidential for i think for obvious reasons it's very difficult for us when presume candidates appear in the press it makes it difficult for their current job now the question i am trying to say is i did as best i could to congressman cummings that we are not disclosing publicly those that we are considering a so based on what our personal for you are saying that mr kendall is not doing a very good job i hope i didn't imply that sir if he's not and if if he were to not do if he's if he's if he i'm sorry if he is doing a good job why would you want to and we determine you yes please thank you just following up on that the question earlier for mr jordan you have one hundred billion plus dollars 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 forty five billion and i'm going to carry out in a way mr jordan and if you could get it back tomorrow would you pay it back today in other words is is the only reason you're not paying it back that if you pay it back you can't come back out again and mr met moynihan i don't i don't think i meant to say that what i'm saying is no i just i want to try to get it straight you've got the money you pay the government you'd happily pay the government if you quote were later deemed to need it and it was a line of credit you'd pay it back the only reason you're 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 a stress test isn't that right mr i said  our goal is to pay this back and to turn the money to tackle i appreciate that mr jordan didn't get the answer from you that i that i've asked but the fact is you have the money in the ordinary course if it were just another creditor you would pay it back the the the re are regulatory questions the government is put up and there are questions about capital provisions but not withstanding that you are not putting that money to use today for mr cummings and others you're not loaning that money it's cash you would pay it back in the or if there were not hurdles to cross in the correct i think i think the you're talking about a cost of two point three trillion dollars balance sheet we have cash us through our cash balances was i told you the fact of matter is money is fungible so this capital provides our ability land  help support our balance so it is a 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 we don't see it publicly ranking member right so that we would like to pay back to our bargaining chip and we do not see it as a very likely scenario and do you know use as a bargaining chip to get more fragile assistance and are a lo pictures price low or purchase price congresswoman the macro was right under the agreement to terminate agreements have been material adverse change for the twenty one billion dollars loss in the fourth quarter constituted it gave us a valid claim from act what immediately became clear is we had a very very difficult situation in very difficult times that he creates will people try to figure out a solution that necessarily didn't result in litigation and in the aftermath of having a company that and that's how it came down i mean it's so the mac was it absolutely was a right we had the right to exercise but the context of where we ended up was a discussion around what is the best course for a company mr may before the issue of the macro rose had the bank of america any discussions with representatives of the federal government about receiving additional tarp funds do you know not that i'm aware of ok had they not attempted to invoke and do you think bank of america would have received the additional twenty billion dollars in tarp funds announced on january sixteenth i don't know ok mr gifford in your testimony you stated that you had a number of tough decisions and questions about the reaction in our transaction at the start could you please describe the problems you first saw with the merger yes congress and watson overwhelmingly my issues back in september this is in september had to do with timing  we were at a time when the next day lehman failed the day after that there was a bailout if you will and within two weeks after that i think will move failed and coby was taken over  by wells fargo so my point is at a time like that inevitably your guard is up and when we're looking at a transaction at a time like that admittedly in a short time period  i 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 believe and believe believe and believe it's a trick trick terrific strategic combination it was very difficult in december and january as the markets much worse than we are anybody had expected so that's my background ma'am what 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 the as a board member congress woman watson i felt had felt continuously and did 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 that we were holding back information that we should i can assure you that  a member of the board felt that way which again we did not we would have raised the issue do you think the shareholders were ultimately benefit from the merger i do indeed ma'am in fact so far year to date dist year which has started out 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 it's hard to quibble with words or i felt again getting it from the c e o that the government was very desirous of us completing the transaction but that and then you also said i think if i heard you earlier in your testimony quote in a perfect world it would have been better to walk away and quote why if what what was the pressure that was creating this imperfect world that led you to come to conclude a contract to buy merrill lynch but you could have could have stepped out of a material adverse change clause is not straightforward there have been few material adverse change clause i'm not a lawyer so i could be getting over my head neither of my own take that's a credit for both of us  you have have been successful in delaware court but the point i want to try to get to is was the government get applying pressure that affected your decision whether or not to move forward with what i have said and i'm under 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 producer duty the key was the uncertainty of the mac to litigate a mack to walk away and say we're not going to  close the uncertainty of whether we'd win was a lose lose those for the bank of america shareholders a lot of time short i my apologies for cutting cutting you off but if we could pull up the slide number seven if we could sir this is a my understanding an e mail of wednesday to january twenty first i hope you're familiar with this can you just go through who this is to you and i'd like to know who these people are their relationship to you and what they do professionally starting with ramsey tr do professionally and do they do anything politically i can ramsey trussell is a stay at home mom hardest job of all my son charlie gifford works in boston or private equity gratian my son rufus gifford works here in washington as the finance director of the democratic national committee my daughter just works pro bono no problem in the pro bono area of a law firm in boston and my wife and give her take care of me and now in this e mail that you sent out it said i'm going down to point number three which is midway through the first page if we can pull that up it's really part of it's highlighted you're talking about merrill lynch this was a bad mistake and now 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 twenty to thirty one to thirty two dollars a share and then boom this was a bad decision and when we realized same the u s government pressured us to stick with it that's 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 said time and time again in this committee that they were well they were you know it was important to  but here you're clearly directly saying it was a bad decision and a bad steak why who are you why and which which is which is accurate which is inaccurate what i've said congressman is that i believe and i voted for it in  realize you have five minutes is is that it got so bad in december that we tried to figure out a way that to two exits transaction it was within that context that the fact that day or dividend merrill lynch's lost twenty one billion dollars in this period of time when the day was the darkest and i'm expressing to my children what's going on with the security of bank of america that's what it was i'm just confused by your the inconsistency of your the way you characterize the decision because in in what was at the time i'm sure seemingly private to your wife and your children you're saying it's a bad decision it was a bad mistake essentially that we shouldn't have done it and yet publicly you you're putting a real good face on it let me go to the end of this paragraph this end of this email what do i worry about a serious point a twelve percent plus unemployment number that is prolonged or really stupid politicians or extended panic in markets i don't think that will happen dot dot dot there is some stuff i'm not saying these of the some of our management decisions will do that in person in the meantime i'm sleeping fine and so should you what is it that you told them in person that you're not that you haven't disclosed here today about the management decisions that would be part and to this to this decision star this is a matter of full disclosure with supporters of mine when i was back in the state senate so that much of the way mr mayor i want to ask you i'm a little confused on some dates here  my timeline that i have been provided by the committee indicates that you were fired on december tenth two thousand and eight that right that's correct and it says four days later fourteenth then can lewis learned of a twelve billion dollars merrill and yet your testimony indicates that you advised on the fact that the twelve billion dollars may not have been a material adverse change my timeline indicates that that would be impossible because you were fired before the  events giving rise to the mack and i'm just i'm not questioning your test at all i'm just trying to get the facts straight here can you help me with that share common december the first i advise mr price mr curl that i don'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 twelve billion dollars that time i understood there was an after tax projected loss of five billion dollars right right and that's true because the bank of america shareholders were provided with information that there was a forecast of i believe  time of the approval of the sale about nine billion and then later on there was an additional disclosure apparently december fourteenth when ken lewis learned of a twelve billion dollars at merrill and so you your subject of your of your letter and that's that's not necessarily the case ok and ken lewis is testimony is deposition at page eighty four he indicated that in his conversations with the secretary paulson that secretary paulson promised to fill the hole that's a quote he'll fill the hole that the recent losses of twelve billion dollars 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'm not sure and then subsequently bank of america received ten billion from the top in connection with its purchase of merrill lynch on top of the fifteen billion that it says it didn't ask for and that's also supported by eric roberts testimony that was raised by the ranking member  mr jordan that you will quote get get additional investment that was a statement that that he recounted tell me about that mr geffen estimate in the boardroom at that time when the expanding losses accelerating losses we did talk about 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 tranche of tarp could be available to us that would so you're being reassured if i'm trying to repay the picture here you're being reassured by the united states secretary of the treasury that if you go forward with this purchase a private company that united states mentally yes there were there were two aspects one which again it was similar to a transaction that happened for for a j p morgan and that was a so called fencing off of the bad assets and 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 and so those two elements were negotiated between the company and and the fed and ultimately was the was the path we took instead of trying to pursue an m o u i was right was there any discussion in the board meeting are there after about the advisability of informing the cellos about i mean here you've got 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 but here you're talking about something on a different magnitude and i'm just wondering if there were discussions at the board about whether the shareholders should be informed i think we generally understood the rules of the f c c with respect to quietly reporting and eight k or special events reporting and we were not able to it's if we disclose something that didn't happen and wasn't close we could have misled them in the wrong way and so typically what you disclose is a transaction that you have and we ultimately were able to get that term sheet signed around january sixteenth and that's when we disclosed that rely on them outside counsel i believe that they were given the facts of the losses that we found out about us as congressman which talked about in mid december that were had moved to fourteen billion dollars is these are difficult cases and they and they make it clear that you've got to be that if you think about it you've got to balance the potential and success but the reality was they gave us advice and they were consistent so your outside counsel you hired specifically on this issue  not on duly pressured to come up with this answer not i had no knowledge of that or anyone to your knowledge did anyone in this committee actually interview this outside counsel that was advis by the 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 allow them to come here and explain their position it seems doesn't it seem a little interesting that here you had a special counsel directly advising that there is a question about where you know what pressure was put on them that they're not testifying before us today i'd leave that to you i have no knowledge that they've been the same but clear that we had a claim from a i just think that i think i appreciate all of you being here today i just think when we leave out somebody as critical of special counsel that there is an issue here that we need to go and i missed chairman i'd really like to raise the issue again that special counsel on something that's important should be considered and mr giver i understand your concerns as this that process i'll tell you the testimony we heard from paulson here in this committee was there wasn't specifically you either do this or will fire but there was a statements here that said if you don't do this and it doesn't work out they'll be held to be paid and i think in the jargon of  of grown individuals that pretty well indicates that this was expected that the map was a a very important issue to the government and they did not want you to execute that mac is that  are observation is that consistent that testimony consistent with what you observed it is ok and mr chairman i just think that a lot of times nuance and words do matter and i say as someone told me  look congressman if you don't do this and you get in trouble where you know there's going 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 mail your family personal e mail that is now come to light if 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 that says so when we ask you did you feel pressured that's always the ambiguous word but was the government clearly pressuring you your own e mail says that isn't that true pressure no no no no this is one of those times in which you only get a yes or no for a reason you've said here you've said they were pressuring you stand by your e mail was truthful i believe the government i'm sorry sir i've got to use probably i don't even proofread it congressman has to be honest i'm giving you what i want to know you weren't under oath where i'm giving this committee's giving you an opportunity to say that that upon reflection you don't agree with the e mail you sent or you stand by it  truthful and and in fact the government was pressuring that the words speak for themselves i think it is fair to say as i reflect that the government pushed us hard to do this deal if that is if that is interpreted as pressure sir then it and i would interpret that as pressure generous time's expired thanks jim the chair recognizes mr norton from the district of columbia thank you i'm much more interested in the role of the boards here and yet generally newspapers general discussion the role of boards 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 i think the board is the ultra ultimate decider of a corporation would you agree mr made that as well i believe i would  i'm fascinated by the role of the board i served on the board of three fortune five hundred companies before coming to congress i'm trying to put myself in your position given the crisis context in which you were operating can i ask each of you how long were you on board the board here i joined the bank of america board congressman norton two thousand and four i did also at the same pharma nation what was your opinion of the job he had done as general counsel i thought he did a fine job as general counsel i how did you learn of his terminations as we testified earlier congressman in an e mail from the chief executive officer on the afternoon of december so there was no discussion about terminating general counsel reputation with you was solid no discussion with the board about his termination but an email informing you of his terminations that's correct in light of the fact that you would see no issue or problem with his work  ask for an explanation as board members given the context of a deal going forward at that time 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 yes it was not an issue by may i heard that explanation i heard that explanation and i can understand it if there's a merger you don't need to have everything the context of which my question is that there is a middle of the sembler that's a deal in flux in the middle of a crisis in the united states in 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 the deal was consummated yes it was a it was a chief executive officer making 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's the decision he made  yes so you believed it was important to change the 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 moore hand whom you didn't queue for very long this was mr lewis's decision i'm asking whether or not as board members with a fide do share a responsibility to the shareholders as board members where you yourself yourself has said the buck stops here whether or not you inquired in detail as to this huge change in the middle of a deal or whether you simply accepted as you said to me it's somebody else's decision i supported the decision understand what facts 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 includ if you were doing such a complicated deal in the middle of a 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 ships on top of the shifting chairs on top of the titanic we're generating moynihan was more involved in the transaction of merrill and putting it together and all of risks associated with that business platform that mr may aapl us was at the time he was a more critical member of our management team at the time the chair rationale for consummating the deal with merrill lynch did this rationale change when bank of america learned of the financial losses at merrill lynch and if that transaction continued to be beneficial why did bank of america consider pulling out of the deal was about leveraging the merrill lynch losses to renegotiate the purchase price i think you have to separate from an operating perspective the logic that i think led us to acquire merrill lynch in september to agree to acquire merrill lynch was about the brokerage firm capabilities it gave us meaning the fifteen thousand financial advisors was about the capability gave us investment banking and the capability gave and sales trading those facts are the same facts that bear today that we are number one in those businesses  in the in the country and and number two and some around the world those facts when operating base roll through what we faced in the late in two thousand and eight was from a earnings perspective capital perspective the situation changed mac well again let me go back to fact that you focus on so much on bank of america is responsiveness to consumer needs however the real focus of this hearing is about the circumstances in which your bank receives an additional twenty billion dollars in hard earned taxpayers dollars can you give specifics on how this additional twenty billion dollars has been disseminated and you utilized is any of this money going to this year's executive  bonuses the money that was received part of the merrill lynch transaction which is the harder in taxpayer money was meant to provide the capital that merrill lynch lost in the fourth quarter and to stabilize that platform so it could be acquired it's it's it's it's there today as capital not company 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 is put to good use to  provide a commitment to business and governments in these tough economic times it's not not used to pay bonuses well it's going in any time in the future to report executive bonuses i think mr lewis would have told you i think when he was here if i remember right or we'd all agree that the idea is we will pay the start money back as soon as we can it will not be used to pay bonds it's 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 c e o mr dykes gave you this position and also why were you asked to report to him directly when the council's before and after you were not required to report directly to the c e o i have been reporting to mr lewis continuously since i came in the company so i think the reporting relationship remains that i had it wasn't a change it was a change of general counsel position but it was not a change from my reporting relationship mr lewis asked me to be general counsel  then mr mayor talked a bit about this in terms of how we are changing the company's organizational structure and management in the context of the merrill lynch merger and in the context which changes being made except a position because of what the company me to do  mr gifford today we discuss your concerns about the merger with the merrill lynch we know you you raise these concerns privately but did you raise any objections about this with your colleagues on the board yes i did  i might add that congress won't woman it really was asking questions of the board and other directors also raise questions about certain events and timing and so forth  important question to me is for the future what quality of banker and banking system america should receive door to regain prudence and confidence in our marketplace again in the banking system is sound and if i was do you gentlemen testify that the thought that keeps running through my mind what about the future the total tarp money that went into bank of america is over forty five billion dollars as best as i can tell and mr gifford you're one of the largest shareholders in big america is that true i wish i were i am for me i've been for my family i'm a large shareholder but it's probably one of the largest the largest shareholder in bank of america i story that's rather critical mr gifford's 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's gone now i guess  it states in the article that just for your airplane flights the bank of america spent one hundred forty seven thousand six hundred eighty two dollars on those flights on private jets and another two hundred eighty one thousand three hundred seven dollars to help you pa accompanying taxes on those the story then goes on to state that that is does not include the bank paying you more than two hundred twenty five thousand dollars an 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 statements they make me article here that you are by far the most highly compensated member of the  i meant 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  you know i looked at a poll yesterday as talking about what the american people think of the country and the direction we're headed and they look at all the bills that have passed congress and they're very angry because they feel that the stimulus that the bills that have been passed up here such as the tarp have benefited two thirds of the american people think they've benefited the big banks and their executives and so forth and they don't feel anything we've done appears really help them ten percent of the people think anything we've done to date has really helped them you know and i just say to you you're a value setter in your industry you have one of the largest institutions in the country and what people think is pretty important in terms of the 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 set to reshape the value set that is operating inside these institutions because something is fundamentally wrong and nobody is against somebody making money but when most of the public incomes are going down in people are making extraordinary salaries in particular benefits apple at the time of your term a nation was very very curious and could i ask you a question in the way your institution used to he used to work for functions why would the chief risk officer who's a name i guess is amy brinkley or was that the laws had increased to nine million dollars to sorry nine billion dollars nine billion dollars and was that information revealed to shareholders not i don't believe it that  information needed to be disclosed to shareholders i also learned at the back of director a board meeting on december ninth that the projected loss to nine billion dollars and i sought to talk to mr price the o after that meeting he wasn't available and i thought i decided i would talk within the next day and got fired you first learned that the last was about nine billion dollars same time mr gifford did yes  when did you first have a conversation with mr lewis or other senior officers of the corporation about possibly invoking the matter the only conversation i ever had with senior executives of the company about invoking the macro or whether it should be invoked was  days later 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 and how it would be interpreted and we discussed whether in retrospect mr may aapl as would a reasonable person perhaps deduct that the reason he initiated that conversation on or about december one was as a matter of fact he was a possession of the extent of merrill lynch's material losses long before december ninth i don't know i don't know what mr price knew at that time do you know what when mr lewis had conversations with mr paulson then the secretary of treasury treasurer in the bush administration about invoking the mack no i don't are you aware 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 this treadmill now congressman i'm not aware that do you when you were asked about the mac what was your legal opinion about the validity of invoking the mac by b o a my opinion and my advice at the time was that based on what i knew i did not see a basis to invoke the matter and the nickel's worth why not because the had not been a disproportionate impact on merrill lynch that was outsized to the impact on bank of america another company mr moynihan you know i'm going to ask you to move that microphone close to your mouth yes i cannot hear you thank you why did you have a differing legal opinion about that i think there's some confusion about the timing from one ten to him with general counsel two when i became general counsel in the sense that when i came into general counsel on december fourteenth or fifteenth we became aware the losses  now reached eighteen billion dollars pretax it was a different set of facts and circumstances than tim testified to here today faced with that eighteen billion dollars pretax which went to twenty one billion dollars pretax basically half the capital of merrill lynch twice the amount ever earned its best year that's when the question the mack that i had to dress was at eighteen billion dollars that move the twenty one billion dollars last and that was in that week that began december fifteenth so excited took us through that so i understand your testimony you're saying the difference between you and your predecessor as general counsel was the extent of the loss the losses have gotten much more dramatically different and that's been the testimony that you've heard during the course after the in mid to late december losses kept getting worse and worse and worse well and your opinion wouldn't a nine billion dollar loss qualify for invoking the back that's pretty significant loss when i came in the face the fact the loss was eighteen billion dollars pretax that gave rise for about climate method to stan but you were certainly reviewing the opinion of your predecessor were you not did you disagree with his judgment the facts were different i was looking i have got honest i'm going to hand i'm asking you a different question did you in fact disagree with your predecessor in his judgment about the extent of the loss and whether qualified for the mac at the time of his opinion to senior management i did not reflect on his opinion i think you had no reflection whatsoever  opinion why do you think you were fired i have speculated about a lot of things but in the end i don't know why wasn't i wasn't the decision maker i don't know what considerations went into it and i don't know do you think it was because you ha you offered the opinion that the mac could not be exercised effectively i don't know i wasn't given an explanation mr morning you evidently indicate that you were about to leave the company based on testimony we heard from mr may companies together is a business which is very good for our customers and to do many things that your company and you made money in the first quarter is that true we've made money a bank of america first quarter after and the second quarter and in the third quarter we did not make money ok so  billion twenty billion dollars all right and then the taxpayers of this country have now given bank of america about forty five billion dollars correct that's correct so we've almost paid for merrill two times taxpayers of this country we have received forty merrill was purchased for about twenty billion and two of the last three quarters you have actually seen profits yes that's right now the taxpayers have seen the interest rate on their credit cards jumped to twenty nine percent in many cases many of your clients now are paying twenty nine percent interest on credit cards you were in charge of a credit card division so you're pretty familiar with that correct we  continue to look at the credit card is not a majority of our clients it's clients who have the risk characteristics and we pulled back on the pricing and stopped all repricing for risk in advance of the card act which none of our companies have done so you've actually holder risk in other things it could be paying that much just now they're paying thirty five percent i don't know what the cap is i'd have to get back to you when you were at the head of the credit card division how much were they paid and not the head of the credit card business run by one of my teammates that works for me but i'd be happy to get back to you with all the information about that and give you the details about that argument my only point in pursuing this line of questioning is that there's got to be something in it for the taxpayers and right now the taxpayer still pretty bare and you've heard that from a number of members who have who have testified i don't want to focus on exact copy i want to focus on what we do to the 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 have tarp funding and federal support and taxpayer support that you should reduce the interest rate you're charging the taxpayers of this country to something close to as both mr may mr martin and i have testified we believe this is a good transaction for shareholders there was a time in december in january when it when it looked very very dicey but as i said earlier it's a creative to date so i think the shareholders we have we are building an incredible platform for our customers as it relates to the taxpayers of this company sorry of this country as i said earlier in response to a question  from the ranking member of the board of this bank is determined to pay back the taxpayers in full with very significant dividend payments which the timing is inexact but we are very december when the losses were piling up we were concerned about its ability to to to execute on the mission that it had and that by that i mean merrill with the addition of the tarp capital that that  and this year there has been no decision the year is not ben ben not completed yet and that'll be based on the performance of the company in january or february when it's being looked at looking forward what is the projected timeline for the bank bank of america to return federal bailout money sir the board continues to review the issue we're discussing it with the government those discussions are very sensitive but we hope it's sooner than later and that's all i can say at this time sir are you familiar with the  process of liquidating the combined toxic assets of bank of america and merrill lynch could you give me some kind of sketch of how that will circumstances surrounding the departure of a congressman i was not involved in the decision but what i talked about earlier was the context of where we were as a company in the context of downsizing legacy bank of america management and bringing the company together these are very difficult times and continue the difficult times in economy and we've been shaping our associates the headcount down and it was in the context of changes in senior management that went on at the time rare window into the management of the largest bank in the country what we've seen is a story of how bank of america's top executives allowed guesswork to wrong wrong guess for chair holders involve the taxpayers of the united states and created great consequences for 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 subprime mortgage fiasco has ended up burying our constituen under debts they can't pay record rates of foreclosure joblessness and yet frankly it would be wrong to put on the bank of america 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 and this investigation has also raised questions about government oversight about the that are charged with protecting shareholders and protecting taxpayers  i appreciate that mr morning and in his opening remarks talked about where we are in terms of the economy and we need to start looking forward where we're really at the end of this discussion about who did what but we really need to look forward with fifteen million americans unemployed with another ten million homes are at risk with businesses failing all over the country report yesterday forty seven 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 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 president to have an economic summit in december about that  we really have to find a way of looking forward and i'm hopeful mr chairman that as his committee continues to do its work you know we understand the responsibility for the collapse is spread pretty much across the board where do we go from here what do we do to people are worried about getting a job they don't really care was going to provide the job they sure want a job and that's where we have to find a way to work together to create that because otherwise you know a year from now when we're 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 taxpayer the question is going to be what did you do to help protect not just protect to help enhance the economic position of of that average american the person who's struggling to hold on to their homes their jobs their retirement security their investments their health care what did you do and that's going to be that question and our response to it both in government and 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 one nine hundred thirty s i'm hopeful that an issue out of the table on that side ohio thank you mr chairman i want to thank our witnesses as well for being here i know it's not easy to come here and take the abuse and questions you get from members of congress we appreciate it this whole escapade just highlights why we should have never traveled down this road this this unbelievable path we put the country on with this unprecedented government interference in the private sector is just this just shows why it's bad i mean but for the merrill merger which was done at the prompting of the government based on what we got here from mr moore and basically prohibit you from giving the money back now that you're 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 pays our telling private american citizens how much money they can make in the united states of america i mean think about where we're at because we started down this trail that's what troubles me as we go forward m is right as we move for we need to make the right kind of policy decisions across the aisle but but they need to be decisions where we scale back this 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 have been out of a long time ago that's all we've been doing for the last year and a half it is wrong and it needs to stop and this example in these hearings and i appreciate the chairman having these hearings these hearings highlight what's wrong with the path we chose to the ranking member i said i didn't support the tarp we thought it was a terrible idea but this is the move the bush administration obama mister taking us down it is wrong and all you gotta do is look at this example and the american people i think more importantly see where this is taken us and see 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 a six point two billion dollars that merrill lynch got most of which you would not have gotten if we hadn't bailed out a one hundred cents on the dollar and the point eight or eight hundred million dollars you know it's really by washington standards that b of a god directly these for  the credit default sensually the guarantees seven billion is what you got that you should have gotten because they should not have been bailed out at one hundred cents on the dollar you should have taken your haircut there and i'm sure you would have in the ordinary course of 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 he would have done it for a lower price we've had a series of of hearings starting with stan o'neal being brought up here try to explain why he got tens of millions of dollars while bankrupting mero lynch well the company was going the wrong way for a very long time at the time i wasn't sure that those those hearings were 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 is 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 forty five billion that is currently 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 as investment the stock holders of america would get a higher yield then we ordinarily get on money that goes out from from the government far higher than the rate that t bills pay on our debt so to use the 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're eventually allowed to pay back the forty five billion dollars we will continue to have people in egypt and other countries where we've been telling the privatized 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'll 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 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 one hundred 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 gentleman for their time and for giving us a very effective half a hearing today and yield back mr chairman thank you very much i'd also like to thank the witnesses would like to thank all the members for the participation of course and the staff for the work as well before i begin my final comments i want to make an observation with regards to miss tomatoes who was abruptly fired in the middle of this transfer action if he does not know why he was fired his boss mr monaghan 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 and being on from brooklyn i'm leaning towards that last one it looks to me me like ken lewis and others at the company were on about to tolerate someone who might get in way of what they had planned to do at this shotgun wedding the central question of our investigation was how did bank of america acquisition our merrill lynch which started out as a deal between two private sector companies become a twenty billion dollars b as in boy federal bailout bailout after four 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 bales of dollars in taxpayer money to help it go through with the deal that it intended to do in the event in a way it was quite a feat bank of america will probably end up being held in the business schools across this country as a result of their innovated innovative approach while the financial world was crumbling around them they saw an opportunity to snap up maryland each 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 objections i ended this by and into the committee record and without objection the committee stands adjour