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BANK OF AMERICA AND MERRILL LYNCH: HOW

DID A PRIVATE DEAL TURN INTO A FEDERAL

BAILOUT? PART IV

JOINT HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

AND THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

NOVEMBER 17, 2009

Serial No. 111–47

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

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on November 17, 2009 ...................................................................... 1

Statement of:

Mayopolous, Timothy J., former general counsel, Bank of America; Brian

Moynihan, president of consumer and small business banking, Bank

of America Corp.; Charles ‘‘Chad’’ Gifford, member of the Board of

Directors, Bank of America; and Thomas J. May, member of the Board

of Directors, Bank of America ...................................................................... 20

Gifford, Charles ‘‘Chad’’ ............................................................................ 43

May, Thomas J. ......................................................................................... 46

Mayopolous, Timothy J. ............................................................................ 20

Moynihan, Brian ........................................................................................ 36

Letters, statements, etc., submitted for the record by:

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 102

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 98

Gifford, Charles ‘‘Chad’’, member of the Board of Directors, Bank of

America, prepared statement of .................................................................. 44

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, prepared statement of ................................................................ 10

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Exhibits ...................................................................................................... 52

Prepared statement of ............................................................................... 14

May, Thomas J., member of the Board of Directors, Bank of America,

prepared statement of ................................................................................... 47

Mayopolous, Timothy J., former general counsel, Bank of America, prepared statement of ........................................................................................ 22

Moynihan, Brian, president of consumer and small business banking,

Bank of America Corp., prepared statement of .......................................... 38

Towns, Chairman Edolphus, a Representative in Congress from the State

of New York:

Closing statement of ................................................................................. 95

Prepared statement of ............................................................................... 4

(1)

BANK OF AMERICA AND MERRILL LYNCH:

HOW DID A PRIVATE DEAL TURN INTO A

FEDERAL BUYOUT? PART IV

TUESDAY, NOVEMBER 17, 2009

HOUSE OF REPRESENTATIVES, COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM, JOINT WITH THE SUBCOMMITTEE ON DOMESTIC POLICY,

Washington, DC.

The committee and subcommittee met, pursuant to notice, at 10

a.m., in room 2157, Rayburn House Office Building, Hon. Edolphus

Towns (chairman of the Committee on Oversight and Government

Reform) presiding.

Present from Committee on Oversight and Government Reform:

Representatives Towns, Issa, Cummings, Kucinich, Tierney, Clay,

Watson, Lynch, Connolly, Quigley, Kaptur, Norton, Davis, Cuellar,

Welch, Speier, Chu, Bilbray, Jordan, Chaffetz, Luetkemeyer, and

Cao.

Present from Subcommittee on Domestic Policy: Representatives

Kucinich, Cummings, Tierney, Kaptur, Welch, and Jordan.

Staff present: John Arlington, chief counsel—investigations; Jean

Gosa, clerk; Velginy Hernandez, press assistant; Adam Hodge, deputy press secretary; Carla Hultberg, chief clerk; Marc Johnson and

Ophelia Rivas, assistant clerks; Mike McCarthy, deputy staff director; Jenny Rosenberg, director of communications; Christopher

Staszak, senior investigative counsel; Alex Wolf, professional staff

member; Lawrence Brady, minority staff director; John Cuaderes,

minority deputy staff director; Rob Borden, minority general counsel; Jennifer Safavian, minority chief counsel for oversight and investigations; Adam From, minority chief clerk and Member liaison;

Kurt Bardella, minority press secretary; Benjamin Cole, minority

deputy press secretary; Christopher Hixon, minority senior counsel;

Hudson Hollister, minority counsel; and Brien Beattie, minority

professional staff member.

Chairman TOWNS. The committee will come to order.

Let me begin by thanking all of you for being here.

When the committee held its first hearing on the Bank of America-Merrill Lynch merger over 5 months ago, I asked a few simple

but vital questions: First, how did a private sector deal announced

in September 2008 wind up as a major Government bailout with

the taxpayers on the hook for $20 billion?

Second, I asked whether the Government forced Bank of America

to go through with this deal.

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Finally, I asked whether Bank of America CEO Ken Lewis really

had a legitimate basis for backing out of the Merrill Lynch deal,

or, when he realized late in the game that there were serious problems with the deal, did he threaten to back out to gain leverage

for a taxpayer bailout?

Today, as a result of our investigation, I think the answers to

those questions are much clearer.

Each senior Bank of America executive who was involved in the

deal has told the committee that the Government did not force

them to go through with it.

Ken Lewis has also told us that nobody in the Government did

anything improper during this transaction.

If there are still people who want to say the Government forced

Bank of America to go through with the deal, they are turning a

blind eye to the facts we have before us.

A simple but important fact is that the Government did not

elbow its way into this transaction. Ken Lewis called then-Treasury

Secretary Hank Paulson on December 17, 2008, and brought the

Government to the table. That one phone call started everything in

motion.

On that phone call, Ken Lewis claimed that he believed Bank of

America could back out of the deal with Merrill Lynch based on the

material adverse change clause in the merger agreement, the socalled ‘‘MAC clause.’’

What we know now is that Bank of America’s top lawyer, Tim

Mayopolous, told two top Bank of America executives on December

1, 2008, that Bank of America did not have a MAC. Mr.

Mayopolous was suddenly fired 9 days later, without explanation,

and replaced by a senior insider who had not practiced law in

years.

Our investigation has also uncovered documents showing that on

December 15, 2008, lawyers working for Bank of America knew

that to win a MAC, ‘‘it is not enough to show a short-term earnings

decline, no matter how severe. Must show decline in value over period of years, not months.’’

Nonetheless, Ken Lewis called Hank Paulson on December 17th

and said Bank of America actually had a MAC.

Again, on December 19th, lawyers working for Bank of America

gave its executives a memo that noted that Delaware courts had

never found that a MAC occurred allowing the buyer to terminate

a merger agreement.

Nonetheless, 2 days after receiving that memo, Mr. Lewis again

called Secretary Paulson and threatened to back out of the deal.

Finally, the committee has obtained notes showing Bank of

America’s outside counsel believed on December 18th that they had

at least an 80 percent chance of losing a MAC claim. Perhaps the

most telling of all documents is the one where a lawyer for Bank

of America writes, ‘‘threat of MAC-don’t push too far-could turn

against us.’’

The documents and testimony the committee has reviewed clarify

that the Bank of America was aware that the chances of prevailing

on the MAC were very slim. Merely invoking the MAC could have

led to significant adverse financial consequences for the company.

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Based on the facts we have before us, it sure looks like it was

Bank of America that was holding the shotgun at this wedding.

Today, we will hear from Tim Mayopolous, the lawyer who was

fired 9 days after telling Bank of America executives there was no

MAC. We will also hear from Brian Moynihan, the person who replaced Mr. Mayopolous and who determined some time between

December 15th and 17th that Bank of America could back out of

the deal by invoking the MAC.

After replacing Mr. Mayopolous, Mr. Moynihan served as the

general counsel for about 44 days. He stopped serving as the general counsel about 6 days after the bailout was a done deal. He is

now president of consumer and small business lending at Bank of

America.

We will also hear from two Bank of America directors who were

on the Board when this deal and the bailout went through, and

who now are helping choose the next Bank of America CEO.

At this point, our investigation has shed a great deal of light on

a deal that was secretly made and that cost taxpayers billions. Although the investigation may be coming to a close, I am certain

that no member of this committee will stop working until all the

taxpayer dollars that Bank of America received are paid back.

Thank you very much, and on that note I yield to the ranking

member of the committee, Mr. Darrell Issa of California.

[The prepared statement of Chairman Edolphus Towns follows:]

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Mr. ISSA. Thank you, Mr. Chairman. I have greatly appreciated

your willingness to engage in necessary oversight of the Bush administration’s—I repeat, the Bush administration’s—decision to

force Bank of America and other banks to accept TARP funds and

subsequently force Bank of America to acquire Merrill Lynch. Unfortunately, the bipartisan nature of the investigation appears to

have stalled at today’s hearing.

First, Mr. Chairman, there has never been a shotgun wedding in

which the groom held a shotgun to himself. As you have said in the

past, this was a shotgun wedding and the only people that could

have held the shotgun was the Bush administration, Paulson, and

Geithner, and we all know that.

I regret the investigation today has become an apparent coverup of the continuing activities of the Obama administration, and

particularly Secretary Geithner, in securing promises of billions of

dollars of taxpayer support in exchange for Bank of America’s

waiver of its contractual right—even if it was only 20 percent likely—to attempt to negotiate a lower price using that 20 percent likely MAC clause for Merrill Lynch.

At one time, Mr. Chairman, you were willing to follow the trail

of misconduct wherever it led. Now that the trail may lead to a

cabinet officer in the Obama administration, this committee’s time

and resources have been redirected toward the political 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 a MAC; he had a good cause for saying, in an

Enron-like fashion, that in fact Merrill Lynch had overstated their

profits by booking these as good when in fact, after the fact, they

were known to be wrong.

That is no different than Enron. You can’t call a profit a profit

when it is clear that it ultimately was a risky investment likely to

lead to failure and, in fact, it had led to billions of dollars in failure.

Ken Lewis was doing what most tough negotiators do: found an

opportunity, get a dramatically better price, one that would have

saved his company money and ultimately the stockholders money.

And yet, the Bush administration, under Secretary Geithner,

then Fed chairman of New York, and Secretary Paulson forced the

issue and used money, both literally and figuratively, as justification for why they must go through. Literally because they offered

the money and Secretary Geithner offered it repeatedly verbally

during the transition team; figuratively because they offered to

take Ken Lewis and his company down if they later needed money

and did not go through with the merger.

Bank of America CEO Ken Lewis repeatedly asked the Bush administration to put purely verbal comments for additional taxpayers’ money into writing, but both Hank Paulson and Ben

Bernanke refused. Instead, they sought to control disclosure for

this new bailout until the last possible date.

The incoming Obama administration’s support for the commitment of billions of additional taxpayer dollars was absolutely essenVerDate 11-MAY-2000 13:12 May 12, 2010 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 U:\DOCS\55995.TXT KATIE PsN: KATIE
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tial to ensure Bank of America’s cooperation in this purely verbal

back-door deal.

Mr. Chairman, we do not want to see lawyers doing verbal

things, and yet in this case we had no memos that we could rely

on and no written contracts. Mr. Chairman, where is Tim Geithner,

who could in fact verbally and under oath give us the answers to

our questions?

The fact is, where is Sheila Bair? Where in fact is Mary Shapiro,

or even where is Chris Cox? Where is the Government?

Change has come, Mr. Chairman. Under the Bush administration, whether Republicans or Democrats were in charge of this

committee, we brought in administration officials. The witnesses

we are going to hear from today are appropriate, and they will

speak to their view of what happened. But we have already had

Ken Lewis here, under oath, testifying to his explanation of what

happened, and it has not been refuted by any of the subsequent

documentation, discovery, or testimony.

Mr. Chairman, as ranking member, I do not have subpoena authority. As ranking member, I do not have the ability to get a witness. As ranking member, I will be asking for, in writing, another

minority hearing. I will because, in fact, we had majority and minority agreement on this panel and the panel which is not here

today. Mr. Chairman, my request for a minority hearing will be for

the exact people that you have chosen to drop off of this list after

agreeing. I ask for nothing more.

Mr. Chairman, it is very clear that we cannot field that change

has come and therefore the Obama administration no longer can

make a mistake, even when in fact the people who made the mistake under the Bush administration are now in the Obama administration.

With that, I yield back.

[The prepared statement of Hon. Darrell E. Issa follows:]

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Chairman TOWNS. Here we go again. Let me say that if the ranking member would like for me to pull out a calendar, I am happy

to do so and remind him that this merger and bailout occurred during the previous administration. And if he had such strong feelings

and concerns about this bailout, I wonder why he was not asking

the Bush administration the tough questions last year.

I now yield to the gentleman from Ohio.

Mr. KUCINICH. Thank you very much, Mr. Chairman.

This investigation started with questions: How could a merger of

the largest bank and second largest investment bank in the country require a Government bailout only weeks after shareholders

had voted to approve it as a private deal? Was it true that the financial situation shifted so dramatically in that short amount of

time? Or did top management know, or should they have known,

about the changing situation much earlier? Did they fail to make

necessary disclosures to their shareholders?

When we asked Ken Lewis, Bank of America’s CEO, about this

at our first hearing, he told us that he relied on the advice of counsel and that he relied on forecasts from Merrill Lynch. Recently, in

response to our requests, Bank of America produced to us the documents on which they based their decision not to make additional

shareholder disclosures, as well as the notes from some of the discussions that led to that decision. This included the actual forecast

that was created by Merrill Lynch and used by Bank of America’s

lawyers as the basis to determine if there was something shareholders should know before they approved the merger.

Our examination of this forecast and how it was used should

sound alarms about how Wall Street really operates. The forecast,

when it was created by Merrill Lynch on November 12th, revealed

that in October the company had absorbed in just 1 month more

losses than in the entire previous quarter, and half the amount of

losses in the fourth quarter of the previous year. Yet, incredibly,

the forecast omitted to make any projections of how the most troublesome investments—collateralized debt obligations, subprime

mortgage-backed securities, credit default swaps—would perform in

the next 2 months, November and December. The forecast assumed

those investigations would have zero effect on Merrill Lynch’s bottom line for two-thirds of the remaining fourth quarter.

Bank of America saw the deficiency in the document, but they

have not shown us that they actually did any actual analysis to

make up for Merrill’s omissions. On the contrary, the evidence we

have suggests that Bank of America pulled a number out of thin

air. Far from being consistent with the actual experience of October, or what they knew about the third quarter, the guess wishfully

assumed that the markets for collateralized debt obligations and

credit default swaps would be significantly better in November and

December. It was assumed that Merrill Lynch would almost break

even for November, thereby spreading October’s bad results over 2

months.

Then the attorneys at Bank of America and Wachtell Lipton

went to work. They did not question the financial information they

were given. They began with the assumption that additional shareholder disclosure was necessary and they discussed what kind of

disclosure they would make. But after studying the question for a

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week, they decided that the news was not sufficiently out of line

from past performance and previous disclosures to warrant further

shareholder disclosure. Thus, on the advice of counsel, Bank of

America did not make any further disclosures to its shareholders

in advance of the merger vote.

Within only weeks, however, reality crowded out the wishful

thinking. Far from having a small effect, those collateralized debt

obligations and other exotic instruments continued to lose large

amounts of money. Bank of America’s guess, which had played a

significant role in the decision not to make additional disclosures

to shareholders, proved to be billions off the mark. That is when

Bank of America went to the U.S. Government for help.

This investigation has opened up a rare window onto the management suite of the largest bank in the country. Here is a story

of how Bank of America’s top executives allowed guesswork—guesswork—to masquerade as actual expert knowledge, and how numbers pulled out of the air, without any actual analysis, served as

the basis for corporate decisions made about other people’s money,

shareholders’ money.

Unfortunately for all of us, I doubt Bank of America is unique.

Look around to see what the geniuses of Wall Street have wrought.

The house of cards they have built has buried our constituents

under debt they can’t pay, record rates of foreclosure and joblessness. If you think these bankers and financiers deserve the millions

of dollars they are paid and the bonuses they award themselves,

if anyone thinks they can be trusted with running companies that

are too big to fail, think again. The wizards of Wall Street are no

more wizard than the Wizard of Oz, except, unlike the Kingdom of

Oz, when that kingdom falls, there is wreckage all over America.

I yield back.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Chairman TOWNS. Thank you very much. I now yield to the gentleman from Ohio, Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman. Mr. Chairman, I just

want to respond to your previous statement. This is not about holding one administration accountable and not the other. This is about

holding Government accountable. I mean, that is this committee.

This is the Government Oversight Committee, and the ranking

member’s suggestion that we need Ms. Shapiro, Mr. Cox, Ms. Bair,

and Mr. Geithner here is exactly on target.

No one in our previous hearings, which I appreciate, no one went

after the previous administration, specifically Secretary Paulson,

harder than Ranking Member Issa and myself. We just want the

opportunity to question the same folks who are now in our current

administration who were involved in this decision.

The chairman mentioned a shotgun being held. The only shotgun

involved here was what the Government held to Bank of America’s

head when they forced them to take TARP. Nine days after this

passed, when Bank of America had to sit down with eight other big

institutions in this country, forced them to take TARP money.

Then, in the deal itself. That is why we need officials who were involved in this whole decision here.

As I suggested in some of our previous hearings, I think Mr.

Paulson actually misled the Congress when he came in front of the

Congress last year asking for the TARP money and then, as I said,

9 days later changing course dramatically and saying we are not

going to purchase any of these mortgage-backed securities, we are

just going to give capital to the banks.

So the question that Mr. Issa asked I think is right on target.

The unprecedented moves we have seen from the Government, the

unprecedented pressure we have seen from the Government on this

institution I think requires us to get Mr. Geithner, Mr. Cox, Ms.

Bair, and Ms. Shapiro in front of this committee, and I hope that

the chairman will do that so we can have a full airing of what took

place and ask the appropriate questions.

With that, I would yield some time to the ranking member, if he

would like.

Mr. ISSA. I thank the gentleman. I just want to set the record

straight a little bit because I think it is important.

First of all, we understand that we are not the Financial Services

Committee; the SEC does not report to us and, in fact, the SEC has

more jurisdiction over this commercial portion than we do. But we

the Government Oversight Committee and I would join with my

colleague from Ohio, in this case Marcy Kaptur. We led the charge

and worked to try to defeat the TARP because we knew that the

money would not be properly spent the way the administration

brought it to us. And, as it turns out, just days after they got the

money, they spent it in a very different way.

So I think that when we are setting the record straight, we are

setting the record straight that we didn’t think the last administration should have these hundreds of billions of dollars of walking

around money loosely disguised as an emergency fund for a specific

reason, and that, in fact, a merger which was approved on December 5th, consummated on December 31st, in those 20 days that

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President Bush was still in office, there wasn’t any oversight we

could have done; we weren’t even in session except to organize.

What we did do is those of us who fought, on a bipartisan basis,

the funding of TARP continued to say that these were outlandish

ways to spend the money, that this was wrong for us to be part

and parcels of mergers and acquisitions and price setting.

So today I think this committee needs to stand up to what we

were doing in the last Congress and continue to look at where Government failed us; and it doesn’t matter whether it was Republican

or Democratic Government. We need to continue to do that and we

certainly need to see that the remainder of the TARP not continue

to be spent in a way that you yourself, Mr. Chairman, have called

a shotgun wedding.

I thank the gentleman for yielding.

Mr. JORDAN. Thank you, Mr. Chairman. I yield back.

Chairman TOWNS. Let me just say, before we move forward, I

think that to make that assessment before we hear from our witnesses, I mean, you don’t know what they are going to say, how

much they are going to say. And based on the fact that, what has

been said up to this point by Mr. Lewis, who indicated that the

Government in no way acted improperly—this is what he said.

Now, the question is if you don’t believe him in terms of his comments or his statements, then that is another issue. But, in the

meantime, we are going to move forward.

Would the witnesses please stand?

[Witnesses sworn.]

Chairman TOWNS. Let the record reflect that the witnesses answered in the affirmative.

You may be seated.

Going from my left to right, our witnesses today are Timothy

Mayopolous, who was general counsel of Bank of America for nearly 5 years, from January 2004 until December 10, 2008. He is currently the executive vice president of general counsel and secretary

of Fannie Mae.

Mr. Moynihan was the general counsel of Bank of America from

December 10, 2008 to January 22, 2009. He currently serves as the

president of consumer and small business lending at Bank of

America.

Mr. Gifford and Mr. May are currently on Bank of America’s

Board of Directors, and were on the Board last December when the

Bank received its bailout. They are both also on the committee that

is selecting the replacement for Mr. Lewis.

Mr. Mayopolous, please give your opening statement. You have

5 minutes, and the light starts out on green, then it turns to yellow, and then, of course, it turns to red, and when it gets to red

we ask that you stop, which will allow the Members an opportunity

to be able to raise questions after all the witnesses have finished.

Thank you.

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STATEMENTS OF TIMOTHY J. MAYOPOLOUS, FORMER GENERAL COUNSEL, BANK OF AMERICA; BRIAN MOYNIHAN,

PRESIDENT OF CONSUMER AND SMALL BUSINESS BANKING,

BANK OF AMERICA CORP.; CHARLES ‘‘CHAD’’ GIFFORD, MEMBER OF THE BOARD OF DIRECTORS, BANK OF AMERICA;

AND THOMAS J. MAY, MEMBER OF THE BOARD OF DIRECTORS, BANK OF AMERICA

STATEMENT OF TIMOTHY J. MAYOPOLOUS

Mr. MAYOPOLOUS. Chairman Towns, Ranking Member Issa, and

members of the committee, thank you for the committee’s invitation to appear before you today. My name is Tim Mayopolous. Bank

of America recently waived its attorney-client privilege with respect

to the Merrill Lynch merger and has instructed me that I am free

to answer questions the committee may have for me.

Accordingly, as the committee has requested, I will briefly summarize, and have set forth in more detail in my written testimony,

the legal advice Bank of America received in connection with the

Merrill Lynch merger, as well as the circumstances of my departure from the company on December 10, 2008.

I served as general counsel of Bank of America for 5 years. I was

responsible for overseeing a very large number and wide range of

legal matters. In the case of the Merrill Lynch merger, I relied

heavily on the company’s outside counsel, who were leading lawyers at the esteemed law firm of Wachtell Lipton Rosen & Katz,

as well as my own in-house legal department.

Questions have been raised about what legal advice Bank of

America received as to whether to disclose to shareholders the

amount of the potential 2008 bonus pool for Merrill Lynch employees. To my recollection, I had no role in this issue. I do not recall

anyone raising or discussing with me whether the potential yearend bonus pool for Merrill employees should be disclosed to shareholders. As far as disclosure was concerned, as was my practice, I

relied on Wachtell Lipton and our in-house legal staff to prepare

the proxy statement properly and accurately.

The committee has asked what legal advice Bank of America received regarding the material adverse change provisions of the

merger agreement. The only advice I recall giving about these provisions was on December 1, 2008. I advised Joe Price, Bank of

America’s chief financial officer, and Greg Curl, then Bank of

America’s head of corporate strategy, that for Merrill’s poor financial performance to constitute a material adverse change, it had to

be disproportionate to that of other companies in the industry, including Bank of America. We discussed the relative performance of

the two companies since the merger had been announced, and I advised Mr. Price and Mr. Curl that there was no basis to conclude

that a material adverse change had occurred with respect to Merrill Lynch.

The committee has also asked what advice Bank of America received with regard to whether it should disclose Merrill Lynch’s

projected losses for the fourth quarter of 2008. The Wachtell Lipton

lawyers and I gave advice on that topic to Mr. Price. Everyone involved concluded that disclosure of the projected losses was not

warranted. There were a number of reasons.

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First, because the materials announcing the merger on the proxy

statement did not contain any projections or estimates of Merrill

Lynch’s future performance, there was no legal duty to update past

disclosures about future performance.

Second, Merrill Lynch’s recent financial performance put investors on notice that Merrill might well suffer multi-billion dollar

losses in the fourth quarter. Over the 12-month period beginning

with the fourth quarter of 2007, Merrill Lynch had experienced

after-tax losses of approximately $22 billion, for an average quarterly after-tax loss of more than $5 billion.

Third, the proxy statement and other disclosure statements

clearly informed investors that unprecedented adverse market and

business conditions could continue to impact Merrill Lynch negatively.

Finally, there were also many highly publicized events that were

warning signs to investors that financial institutions would remain

under great stress and might continue to incur significant losses,

including, among others, the near failure of Bear Stearns, the collapse of Lehman Brothers, the Government’s rescue of AIG—and

the Government’s extraordinary actions to authorize the expenditure of $700 billion to try to save the financial system.

Moreover, the estimates were based in part on guesses as to

what the loss would ultimately be. It is obvious, in hindsight, that

if either the $5 billion or the $7 billion loss estimates of which I

was informed had been publicly disclosed to shareholders at that

time, shareholders would have been misled, as these estimates

turned out to be wildly incorrect. No one ever suggested to me that

the losses were expected to reach $15 billion, as they ultimately

did.

With regard to my departure from Bank of America, Amy

Brinkley, the company’s Chief Risk Officer, advised me a little before noon on December 10, 2008, that Ken Lewis had decided to replace me as general counsel. Ms. Brinkley said I was being terminated effective immediately and that I was to leave the premises

immediately. I was stunned. I had never been fired from any job,

and I had never heard of the general counsel of a major company

being summarily dismissed for no apparent reason and with no explanation. I cannot tell you why I was fired. I don’t know.

After I left Bank of America on December 10th, I was never consulted about any of the matters I had been working on. Accordingly, I cannot tell you what legal advice the company received

after I was gone.

I can assure the committee that at all times I acted in good faith

to provide legal advice that I believed to be appropriate, considered,

and in the best interest of Bank of America and its shareholders.

I did my best to be a good, careful, and honest lawyer.

I would be pleased to answer any questions that Members may

have.

[The prepared statement of Mr. Mayopolous follows:]

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Chairman TOWNS. Thank you very much, Mr. Mayopolous.

Mr. Moynihan.

STATEMENT OF BRIAN MOYNIHAN

Mr. MOYNIHAN. Good morning, and thank you, Mr. Chairman,

Congressman Issa, Subcommittee Chairman Kucinich, Ranking

Member Jordan, and the rest of the committee.

My name is Brian Moynihan and I serve as the president of

Global Consumer, Small Business, and Card Services at Bank of

America. Prior to that job, I served in many capacities, including

running the group that Merrill Lynch came into in January 2009.

I also served as Bank of America’s general counsel. Prior to that

I served as deputy general counsel for a predecessor company.

Prior to that I was a law partner in private practice, and I specialized in mergers and acquisitions, financial institutions, securities

law, and other matters relating in particular to the financial sector.

I want to touch on two points today. First, while not the specific

point, but the backdrop of this committee’s hearing, I want to briefly discuss how our company, Bank of America, continues to help

homeowners, families, and businesses weather the economic challenges we all face.

Second, I want to talk about how our acquisition of Merrill Lynch

helped prevent a further financial collapse last winter. The deal

turned out to be a good deal for our shareholders and our customers. But, most importantly, it turned out to be a good deal for

the taxpayers who provided assistance. We acted in good faith, in

the best interest of our shareholders and the country in mind.

Let me turn to my first point. I know you hear from constituents,

as we hear from our customers, about the challenges they face in

today’s economy.

Bank of America is doing all we can to help them. We understand the public expects that of us, especially as a financial institution that received taxpayer assistance.

As we recently announced in our quarterly lending and investment report, we have extended $759 billion in loans since our first

report late last year. That represents $17 for every $1 of financial

assistance we have received.

Making home loans is a priority for our company. In the first 9

months of 2009, we have made almost $300 billion in home loans

available to over a million customers. We have also made $255 billion of credit available to large and small businesses. In addition

to that, we made $26 billion in credit available to municipalities

and other non-profits.

All these figures don’t include the $1.5 trillion that we committed

to invest in low- and moderate-income communities around our

country, and also don’t include the $200 million in support we provide to charitable organizations on a yearly basis.

I now turn to my second point, the topic of today’s hearing. I

think it is important to keep one thought in mind throughout our

discussion today. Although the Merrill Lynch transaction, and Merrill Lynch itself as a company, was severely impacted by the worst

dislocation that the financial markets have seen since the Great

Depression, our acquisition of Merrill Lynch is a success.

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First, the acquisition has provided great benefits to our customers. A stable Bank of America-Merrill Lynch platform can simply provide more capital to more businesses in these tough times.

Second, the taxpayers are also benefiting, from a stronger financial system and more directly in the form of the financial return

they are receiving on their investments.

Third, closing the transaction in December 2008 was in the best

interest of the financial system, the economy, and the country. As

the committee has heard in prior testimony, the failure of Merrill

Lynch in December 2008, particularly on the failure of Lehman

Brothers and other financial firms, would have exacerbated the

economic havoc that our country faced, and I am proud that Bank

of America stepped forward.

Bank of America has cooperated and will continue to cooperate

with this committee to help develop a better understanding of the

circumstances surrounding this transaction.

The record created by the testimony and those documents

shows—and I hope my testimony today will help further demonstrate—that throughout the deliberations with Merrill Lynch

around the acquisition, Bank of America acted in good faith and

consulted with one of the premier law firms in the country to address very difficult issues.

Business people, confronted with complex business and legal

issues, acted in an open and honest manner. All the parties involved, including the lawyers, did their level best to address and

balance the merits of these complex questions in a time of great

stress and in the face of unprecedented economic conditions.

Thank you for the opportunity to make this statement, and I am

pleased to answer your questions.

[The prepared statement of Mr. Moynihan follows:]

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Chairman TOWNS. Thank you very much, Mr. Moynihan.

Mr. Gifford.

STATEMENT OF CHARLES ‘‘CHAD’’ GIFFORD

Mr. GIFFORD. Chairman Towns, Ranking Member Issa, Subcommittee Chairman Kucinich, Ranking Member Jordan, my name

is Chad Gifford. I have been a member of the Bank of America

Board of Directors since 2004, when Bank of America acquired

FleetBoston, where I had served as chairman and chief executive

officer. I was chairman of the Bank of America Board from April

2004 to January 2005, and I have continued to serve as a member

of the Board since then.

Mr. Chairman, I understand the committee’s interest in gaining

my perspective on Bank of America’s acquisition of Merrill Lynch.

I would only like to make two observations at this point.

First, I believe the Bank of America-Merrill Lynch combination

is already bearing fruit. Merrill Lynch has been accretive to Bank

of America’s earnings for the year-to-date, and the systemic benefits envisioned when the Board approved the merger are already

beginning to take hold. Although it is fair to say I had a number

of probing questions about the transaction at the start, I firmly believe that over the long haul Merrill Lynch will continue to be an

important contributor to Bank of America’s profitability.

Second, as someone who has spent his entire professional career

in the banking sector, I can attest that the financial crisis of 2008

was simply unprecedented in its depth, breadth, and velocity. Even

in the midst of it, predictions of how bad it would get consistently

understated the scope, the severity, and its duration. Our Government, elected and appointed officials, took bold action and made extraordinary decisions to stabilize the financial system.

For these measures, those of us in the banking industry should

be grateful. I want to take this opportunity to personally say thank

you to the American people. As the process of the recovery moves

forward, admittedly slowly, we at Bank of America will always remain mindful of what was done to stabilize our system and of our

important role in helping these decisions work for our customers—

families, businesses, and investors.

Thank you again for the opportunity to participate in today’s

hearings, and I too look forward to your questions.

[The prepared statement of Mr. Gifford follows:]

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Chairman TOWNS. Thank you very much, Mr. Gifford. We were

caught off-guard by your shortness. That is unusual around here;

we generally have to stop people. Thank you.

Mr. May.

STATEMENT OF THOMAS J. MAY

Mr. MAY. Chairman Towns, Ranking Member Issa, Subcommittee Chairman Kucinich, and Ranking Member Jordan, my name is

Tom May. I am chairman, president, and CEO of NSTAR, a Massachusetts-based public utility holding company, and I have been a

member of the Bank of America Board of Directors since 2004.

I also appreciate the opportunity to be here today to discuss

Bank of America’s acquisition of Merrill Lynch. I would like to associate myself with the remarks of Mr. Gifford and Mr. Moynihan

so that I can be brief also.

The Bank of America-Merrill Lynch merger is working, thanks in

no small part to our extraordinary associates. We all remain mindful of the extraordinary circumstances the global financial system

faced in late 2008, the assistance we received to complete the Merrill merger and the commitments we made at that time to the

American taxpayers. We look forward to fulfilling those commitments and to ensuring that the Bank of America and Merrill Lynch

continue to provide exceptional value to our customers and our investors.

I also am pleased to answer any questions you may have today.

[The prepared statement of Mr. May follows:]

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Chairman TOWNS. Thank you very much. Let me thank all of you

for your testimony.

Let me begin with you, Mr. Mayopolous. On December 1, 2008,

did you tell Bank of America CFO Joe Price that you did not think

Bank of America could back out of the Merrill Lynch deal, by invoking the MAC?

Mr. MAYOPOLOUS. Yes, Mr. Chairman, I gave that advice.

Chairman TOWNS. Were you fired 9 days after giving that advice?

Mr. MAYOPOLOUS. Yes, Mr. Chairman, I was.

Chairman TOWNS. Do you know why you were fired?

Mr. MAYOPOLOUS. No, Mr. Chairman, I don’t know why I was

fired. I don’t know whether it had anything to do with the advice

I gave or might give, or whether it had to do with something else.

I don’t know why I was fired; I wasn’t given an explanation.

Chairman TOWNS. Did you, at any point, have a conversation

with Ken Lewis, talking about your role after the merger of Bank

of America and Merrill Lynch? At any point did they talk to you

about what your role would be after that?

Mr. MAYOPOLOUS. Yes, Mr. Chairman. On the evening that we

negotiated the Merrill Lynch merger, Mr. Lewis told me personally

that I would be the general counsel of the combined company following the merger.

Chairman TOWNS. But it didn’t happen.

Mr. MAYOPOLOUS. No, sir, it didn’t.

Chairman TOWNS. Let me just move forward to you, Mr. Moynihan. Just to make sure I am clear, did anyone in the Government

force Bank of America to go through with this deal?

Mr. MOYNIHAN. No, sir.

Chairman TOWNS. No one in the Government?

Mr. MOYNIHAN. No, sir.

Chairman TOWNS. We know much more now about the MAC and

this entire deal than we did last summer. If you believe there was

something material about the Merrill deal that made you want to

back out of it, why didn’t you think it was material to the average

American who was thinking about buying some of your stock and

disclosing it publicly?

Mr. MOYNIHAN. Mr. Chairman, when I became general counsel and we worked and looked at the $18 billion loss that we were facing at Merrill Lynch, we believed that we had a valid claim for a

MAC. The disclosure requirements would arise when we had a

duty to disclose those, which was later, when we announced our

earnings in January.

Chairman TOWNS. Being you are sitting next to Mr. Mayopolous,

let me ask you a question. Did you think he was a good lawyer?

You are sitting next to him.

Mr. MOYNIHAN. Yes, sir, I did think Tim was a good general

counsel.

Chairman TOWNS. I am sorry?

Mr. MOYNIHAN. Yes, I did think he was a good general counsel.

Chairman TOWNS. Do you think it made sense to fire someone

who had been the top lawyer for the previous 5 years, especially

right in the middle of one of the biggest deals in Bank of America’s

history? Didn’t you feel uncomfortable with that?

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Mr. MOYNIHAN. Mr. Chairman, the times that we were going

through in December 2008 was we were downsizing the company

relatively dramatically, and we were changing 10 percent of our executives, were terminated then, which was terrible things and terrible times to go through, but part of the economic stress, and the

changes that were made, as best I know, were made in the context

of us changing the numbers of senior executives we had because of

the economic stress we were under. It is a tough thing to go

through, but it is part of being about business, and I think it is

clear that is what drove the decision.

Chairman TOWNS. I just want you to repeat one thing. There are

some questions about the Government’s involvement here. The

Government did not pressure you at any point to do anything that

you did not want to do?

Mr. MOYNIHAN. I did not personally feel at any point pressure by

the Government to do something that was not in the best interest

of our shareholders.

Chairman TOWNS. Thank you.

Mr. Gifford, the committee has obtained two emails you sent regarding the Bank of America deal with Merrill Lynch. In one of

those emails you used the phrase ‘‘screw the shareholders.’’ Screw

the shareholders. In the other you expressed disagreement with the

way Bank of America approved mergers. Can you tell us anymore

about what you had in mind when you wrote those emails? Is there

anything else you can tell us?

Mr. GIFFORD. I can, Mr. Chairman. I am, obviously, not terribly

proud of the choice of words, to be sure. The first reference to an

email was, as I recall, the middle of January, and it happened during the middle of a board meeting in an exchange with a very good

friend, and we were being rather informal, as the words might suggest. We were going back and forth, and it was during that meeting

that we were announcing earnings for January, for the fourth quarter in the year, which were certainly unsatisfactory and we knew

would have a very negative effect on share price. We also eliminated the dividend down to a penny.

For me, my holdings in Bank of America are very significant for

me and my family, so you took it a little out of context. The actual

expression or the actual line was ‘‘Unfortunately, it is also screw

the shareholders.’’ I don’t like saying that word in a public forum.

What I was doing was expressing remorse for all shareholders.

Chairman TOWNS. Let me just ask this very quickly, before we

move on. Mr. May and Mr. Gifford, Ken Lewis told this committee

that he and the Board ultimately decided to go through with the

Merrill deal because it was in the best interest of the company. Do

you agree that buying Merrill Lynch was in the best interest of

Bank of America?

Mr. GIFFORD. Yes, I do, sir. Back in September, when the Board

was first presented with this opportunity, after many probing questions, I might add, because these were difficult times,—it was not

a, if you will, a slam dunk transaction—but, in my opinion, the

long-term strategic benefits were such that I voted for the transaction.

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Mr. MAY. I also voted for the transaction and, to this day, still

feel that it is a tremendous combination of two wonderful companies.

Chairman TOWNS. Yield 5 minutes to the gentleman from California, Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

And thank you both for your doing your fiduciary duty; I am sure it was not easy as $10, then $18 billion of unexpected losses piled

up at a company in the middle of a merger. I have done a few acquisitions in my day and still sit on the board of my company, and

I wouldn’t want to try to decide whether to pull the trigger or not

pull the trigger with so many people on both sides, and particularly

at a time when Secretary Paulson, President Bush himself were up

here on the Hill telling us it was a crisis, and, if we didn’t vote

money in a matter of hours, the world as we knew it was going to

come to an end. Of course, as you know, the world, as you know,

it never comes to an end in Washington because we just print

money. We have had no layoffs.

Mr. Moynihan, it won’t surprise you, but Government has grown

net by 139,000 new employees just since this administration took

office. We don’t feel your pain.

But let me go through a couple of set the record straight. If we

can put up slide 1.

Slide 1: When it gets up there, is hard to read, but it says ‘‘before

formally call MAC, get Government in. Geithner gone on vacation.’’

This is from Eric Roth, BofA lawyer.

Then slide 2: ‘‘Fire Board if you do it. Tim G. agrees. Larry Summers and Tim agree.’’ This is from Joe Price, one of your CFOs of

the company.

Slide 3: ‘‘Hank Paulson made it clear that Treasury and the Fed

were prepared to deliver an assistance package. Hank made it clear

that he had concurrence of the Fed and Tim Geithner and others.

Ben also stated that Geithner and, in addition, Larry Summers

were both on board with this transaction.’’

Those, Mr. Chairman, are the words of Ken Lewis.

Slide 4: ‘‘Ben says $45 billion TARP available if necessary.

Obama team informed and agrees.’’ Tommy Franks, BofA Board

member, not here today, of course.

Slide 5: ‘‘Incoming team at Fed and Treasury in agreement.’’ This

is from another Board member not here, Tim Sloan of your Board.

Slide 6: ‘‘Paulson and Bernanke spoke to Geithner. You have our

commitment that this will be resolved. You will get some additional

investment.’’ Eric Roth, BofA lawyer.

Questions for you gentlemen: None of these are in dispute here

today. None of the testimony that we have had up until now disputes the fact that, in various ways, then Fed New York Bank

Chairman Tim Geithner was in the loop, because this was after he

was the likely and, in fact, now is the Secretary.

Knowing all of this, do you believe today that if the money had

not been made available—and this is for the Board members primarily—in the form of a loan or, in this case, a loan through preferred stock with interest, do you believe that you would have likely pulled the MAC and disputed going through with the deal at the

current cost based on the $18 billion in losses?

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And, Mr. Gifford, particularly, I would like you to answer that,

since your career has been in banking. If you take $18 billion out

of your balance sheet and then try not to have the FDIC come in

and take you out, isn’t that a real concern that you would have had

to deal with?

Mr. GIFFORD. Ranking Member Issa, it was a confusing time, for

sure. I can tell you that as we learned—we, the Board—originally

on December 19th of the growing and very significant losses at

Merrill Lynch, management presented to the Board the opportunity

to exercise the privileges of a MAC, material adverse change

clause, and get out of the transaction because of how much damage

had been, if you will, invoked on Merrill Lynch. We then talked

later with Mr. Lewis, we being the Board, a few days later, and he

expressed the fact that the Government thought it would be a

major mistake for us to walk away; they thought it was be very

dangerous systemically and very dangerous and not positive at all

for the Bank of America.

Mr. ISSA. Let me just interrupt you. Did he express that if you

walked away from it and then needed help later, the Fed wasn’t

going to be there for you?

Mr. GIFFORD. No, he didn’t. He expressed the sentiment, and

there was another session later in the month, that the Government

would provide financing. There was nothing in writing, but it was

from a very senior official of the Government that one would believe would follow through. The details were not reviewed with the

Board. I can tell you, as a member of the Board of Directors—and

I can only speak as one person—the issue was relatively clear to

me. In a perfect world, it would have been better to walk away.

Mr. ISSA. Sure. One last question for the two of you very quickly.

As CEOs, as business leaders who have had generals counsel, don’t

you normally require two things: your general counsel give you

honest statement, which you take his legal advice, but don’t you

need to have at all times a general counsel who is on board with

your leadership decisions?

Mr. GIFFORD. A general counsel who is on board with our leadership decisions?

Mr. ISSA. In other words, would you keep a general counsel who

is constantly telling you not to do what you have already decided

to do from a business standpoint?

Mr. GIFFORD. Any member of the Board has to make up their

own mind. You would like to be in a position to believe your general counsel is going to provide good counsel.

Mr. ISSA. Mr. May.

Mr. MAY. I agree with that totally.

Chairman TOWNS. The gentleman’s time has expired.

I now yield 5 minutes to the gentleman from Ohio, Congressman

Kucinich.

Mr. KUCINICH. Thank you, Mr. Chairman. I ask unanimous consent to enter into the record documents that will be part of this

questioning.

Chairman TOWNS. Without objection, so ordered.

Mr. KUCINICH. Thank you.

[The information referred to follows:]

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Mr. KUCINICH. Mr. Mayopolous, as general counsel at Bank of

America, you determined whether or not the Bank made additional

disclosures to shareholders to update its proxy solicitation. What

threshold of quarterly losses would have led you to recommend additional disclosure to shareholders before the vote? Wasn’t that

threshold anything above a $10 billion forecast quarterly loss?

Mr. MAYOPOLOUS. Congressman, the historical experience at

Merrill Lynch over the prior four quarters is it had quarterly losses

ranging from $2 billion to $10 billion. Certainly, as you got to $10

billion or higher in after-tax losses, I think the case for disclosure

became much more compelling.

Mr. KUCINICH. You state in your testimony that you received a

copy of a forecast dated November 12th and that the information

in it played a role in your legal deliberation about making additional disclosure about the financial situation at Merrill Lynch.

Let’s look at the November 12th forecast you received. Staff has already provided the gentleman with a copy of what we are talking

about here.

Merrill Lynch’s most illiquid and volatile assets—the

collateralized debt obligations, the credit default swaps, and

subprime mortgage-backed securities—were tracked in the rows

marked ‘‘significant items, total marks.’’ Now, if you follow that

across to the column entitled ‘‘BTG,’’ which stands for ‘‘balance to

go,’’ or the estimate of performance for the remainder of the quarter, in that gray highlighted box they are blank. There are no numbers there, is that correct?

Mr. MAYOPOLOUS. I don’t see any numbers there, sir.

Mr. KUCINICH. OK. So there is no projection for collateralized

debt obligations and other illiquid assets that were losing a lot of

money at that time. When my staff asked Merrill Lynch’s CFO,

whose team produced this spreadsheet, why a forecast would contain no projections for these assets, he told us that this document

was not intended to be a valid forecast, despite its title.

Mr. Mayopolous, did you notice that omission and did you ever

question whether or not the November 12th forecast document was

a valid forecast?

Mr. MAYOPOLOUS. Representative, no one ever told me that this

was not a valid forecast. I was informed—

Mr. KUCINICH. So that is a no?

Mr. MAYOPOLOUS. That is a no. I was never told it was not—

Mr. KUCINICH. OK, I need to move on here. I want you to look

at the bottom margin of the page. Those notes were added, we understand, by Bank of America’s Treasurer to the Merrill Lynch

forecast document on the morning of November 13th. They were intended to help fill in the omission noted above. Can you read those

lines aloud?

Mr. MAYOPOLOUS. There is a line that says minus the 675 AltA from OCI to P&L.

Mr. KUCINICH. OK, I am referring to the line that says ‘‘Neil,

gut?’’ Was your understanding at the time—do you see that, first

of all?

Mr. MAYOPOLOUS. Yes, sir, I do.

Mr. KUCINICH. OK. So what was your understanding at the time,

was that a reference to Neil Cotty’s gut feeling?

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Mr. MAYOPOLOUS. I don’t remember discussing that specifically. I do recall being informed that there was a $1 billion contingency

in this $5 billion forecast, and that seems to correspond to the

‘‘Neil, gut?’’ line there.

Mr. KUCINICH. Well, when my staff interviewed Mr. Cotty, he

said that the November 12th forecast was of ‘‘questionable validity.’’ He also said that he did not have time to delve deeply into

the details of the forecast. Did you know that Mr. Cotty had not

delved deeply into the details of the forecast before a billion dollar

guess called Neil’s gut was added to it?

Mr. MAYOPOLOUS. No, sir.

Mr. KUCINICH. Did the words ‘‘Neil’s gut’’ create any concern, any

concern in your mind at all that it might be a number pulled out

of the air, a gut feeling?

Mr. MAYOPOLOUS. I understood that this forecast was in part a

guess, that it was an estimate.

Mr. KUCINICH. OK, so it was in part a guess. My understanding

is you did not transmit the November 12th document to the attorneys at Wachtell Lipton. The record portrays you, sir, as the individual who relayed the relevant financial information to your outside counsel. Do you recall telling the Wachtell attorneys, on November 12th and 13th, that the October losses were $7 billion and

that Merrill Lynch could break even in November, allowing you to

spread October’s losses over 2 months?

Mr. MAYOPOLOUS. No, sir, I don’t recall that.

Mr. KUCINICH. But if you look at the documents here, you are

quoted—and to members of the committee—as saying, in a conversation with Nicholas Demo, that you said that ‘‘Merrill Lynch

lost $7 billion so far in October, how do we get the number out;’’

and that also, in the meeting notes, Wachtell Lipton attorneys,

your comments are mentioned again relating to the $7 billion number. Now, when you spoke with your attorneys at Wachtell Lipton,

did you recall telling them that the fourth quarter forecast received

from Merrill Lynch omitted November-December projections for

CDOs, CDS, and subprime mortgage-backed securities, which alone

lost $6.4 billion in October?

Mr. MAYOPOLOUS. No, sir. I recall telling them that I had received a forecast from the Finance Department, and I described for

them what the bottom line numbers were.

Mr. KUCINICH. Mr. Mayopolous, do you happen to know what the

quarterly loss for Merrill Lynch turned out to be?

Mr. MAYOPOLOUS. For the fourth quarter? My understanding was

approximately $15.3 billion after taxes.

Mr. KUCINICH. Well, in conclusion, Mr. Chairman, in other

words, the actual losses acknowledged just 2 weeks after the shareholder vote were well above the threshold that would have led you

to recommend additional disclosure. In fact, if Bank of America had

simply extrapolated October’s losses into November and December,

you would have come pretty close to the actual magnitude of losses

for the quarter, but neither Merrill Lynch nor Bank of America did

that or any financial analysis at all. Mr. Chairman, they relied on

someone’s gut feeling.

Yield back.

Chairman TOWNS. Thank you very much.

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I yield 5 minutes—

Mr. JORDAN. Thank you, Mr. Chairman.

Let me just try to tell the story the way I see it unfolding. So

last fall you make a decision, circumstances are such that you are

going to acquire Merrill. In the midst of all that, the TARP bill

passes. Through our testimony we got from Mr. Lewis earlier this

year, he indicated 9 days after TARP passes, the biggest financial

institutions are brought to Washington; they are told they need to

accept TARP money. He makes a call to Board members and decides to do that.

In the midst of all this last fall, you look to exercise the MAC

to, in my judgment, put more pressure on Merrill because you see

they are losing more than you initially thought; you want to get a

better deal, what two businesses do all the time. The Government

said no to that.

In fact, based on testimony we have heard—even though Mr.

Moynihan, in answering the chairman’s question, said differently—

based on what we have heard, there was some kind of at least subtle pressure placed on Bank of America to go through with the

deal. In fact, we have the letter from Attorney General Cuomo

which suggests that, says that Mr. Lewis and the Board would be

gone if in fact they did not follow through on the Merrill deal.

You sought assurances, as Mr. Issa pointed out in his questioning, from the incoming players, likely players in an Obama administration. You actually sought that in writing; they said they

wouldn’t put anything in writing, but our assumption is you got

some kind of verbal assurances to proceed further with this.

So let me just ask a couple questions. Is that in fact the case,

that you received assurances in some form, other than writing,

from the likely folks to be involved in the Obama administration

at the Treasury Department that, if in fact things got worse, they

would be there with additional TARP dollars to help Bank of America? And we can go right down the list. And I would like a yes or

no to that, if we could. Mr. Moynihan, we will start with you.

Mr. MOYNIHAN. We received statements from the current Secretary Paulson and Chairman Bernanke that, as we work through

from mid-December and the 2-weeks we had to work through it,

that if we went forward we could receive some sort of assistance,

which we finally negotiated and actually closed in January 2009.

As to the statements of the incoming administration, I think Mr.

Lewis has testified to that, that in his conversations with those

people he was told that they had heard about the transaction. I

was not part of those discussions.

Mr. JORDAN. So I just want to be clear. Was there a promise

made from the incoming Obama administration that they would be

there to back you up if in fact that is what Bank of America needed?

Mr. MOYNIHAN. I don’t know that, because I was only told what

Mr. Lewis’s conversation was, which I assume—

Mr. JORDAN. Mr. Gifford. Mr. May. Mr. Mayopolous.

Mr. GIFFORD. I was aware of no such promise.

Mr. JORDAN. OK.

Mr. MAY. Neither was I.

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Mr. JORDAN. Were you aware of assurances? I mean, something

short of the word promise, were you aware of that?

Mr. GIFFORD. As I understood it from our chief executive, he was

told—there are a lot of he told, he told—that—

Mr. JORDAN. And he related that to you?

Mr. GIFFORD. He related that to us, that the new Members, the

new administration, were aware of the discussions.

Mr. JORDAN. OK.

Mr. GIFFORD. Not implying—

Mr. JORDAN. Mr. May, would you agree with that?

Mr. MAY. We were being apprised pretty regularly of the

progress that was being made from the mid-December meetings.

Mr. JORDAN. OK, let me move to the end of the story here, at

least what we hope is the end; kind of cut to the chase of where

we are today. How much TARP money has Bank of America received?

Mr. MOYNIHAN. We have received $45 billion in total.

Mr. JORDAN. $45 billion. And what is your cash position today?

All of you said this was a good deal; it has worked out for the

shareholders; wonderful apple pie, God bless America, the whole

thing. So what is your cash position today?

Mr. MOYNIHAN. Our cash position is in excess of $150 to $200 billion.

Mr. JORDAN. Have you paid back to the TARP money?

Mr. MOYNIHAN. We have not paid it back yet. We have been clear

that our goal is to pay it back as soon as possible.

Mr. JORDAN. And why haven’t you paid it back, Mr. Moynihan?

Mr. MOYNIHAN. Last week they issued a series—the Federal Government issued a series of requirements to pay it back and we are

looking at those and—

Mr. JORDAN. Have you asked the Federal Government to pay it

back, yes or no?

Mr. MOYNIHAN. It is not—

Mr. JORDAN. Have you got permission—what is preventing you?

You have a $150 billion positive cash position and you owe the taxpayers of this country $45 billion. Why isn’t it paid back?

Mr. MOYNIHAN. You can look at the guidelines. It takes a series

of steps and a series of requests and answers.

Mr. JORDAN. If you could, would you pay it back?

Mr. MOYNIHAN. If we could, yes, we would pay it back. We have

been clear that our intention is to pay it back as soon as possible.

Mr. JORDAN. In your judgment, are there hindrances or obstacles

that the Obama administration is putting in place that are preventing you from paying it back?

Mr. MOYNIHAN. I think the question that the Government is

looking at this is to make sure we can all stabilize the economy,

which was the intention, and I think, as I said earlier, we have

done a pretty good job of doing that, as have our colleagues that

received the money; and I think—

Mr. JORDAN. In your professional judgment, why the hindrances?

Why can’t you get that money back to the Federal Government to

pay back the taxpayers?

Mr. MOYNIHAN. I think we just have to be assured that, if we do

that, then the economy is in the kind of shape for a company like

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ours, which supports America and around the world businesses,

that we can—

Mr. JORDAN. Would you agree that, in fact, in October we ran the

highest single month deficit in American history? Last fiscal year

ran the highest single annual deficit in American history? Wouldn’t

you think that the new administration would want that money to

get back into the Treasury and help with that situation?

Mr. MOYNIHAN. I think you would have to ask them that. Our

intention is that we will pay it back as soon as we can.

Chairman TOWNS. The gentleman’s time has expired.

Let me ask all of you to pull your mics closer. We have some senior citizens up here having trouble hearing.

Yes, I yield to the gentleman from Maryland, Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. Moynihan, I find your testimony very troubling, and I don’t

know who you think we are, but I have to tell you I find some of

the things that you have said not believable. First of all, the chairman asked you why Mr. Mayopolous was fired, a seasoned attorney

was fired 9 days after he gave an opinion, and you basically said

you all suddenly got into downsizing fever. Is that right, is that basically what you were saying, you were downsizing?

Mr. MOYNIHAN. I said I wasn’t personally involved in the decision, but it was in the context of downsizing.

Mr. CUMMINGS. Well, you replaced him, didn’t you?

Mr. MOYNIHAN. Yes, I did.

Mr. CUMMINGS. And what did they tell you—and I remind you

that you are under oath—was the reason why he was fired?

Mr. MOYNIHAN. Ken asked me to take the job as general counsel

and I said I would take that.

Mr. CUMMINGS. I am sorry, say that again.

Mr. MOYNIHAN. Mr. Lewis asked me to take the job as general

counsel and I said I would take the job.

Mr. CUMMINGS. You didn’t answer my question. I said were you

told—you were replacing somebody; you hadn’t practiced in years,

and you are replacing somebody who is a seasoned attorney, who

had just given an opinion that apparently Mr. Lewis did not like

or others did not like, and you mean you are walking into a job and

you didn’t say, ‘‘well, what happened to the last guy?’’ That is a logical question.

Mr. MOYNIHAN. That is absolutely a logical question.

Mr. CUMMINGS. And what did you find out? Did you ask the

question, first of all, or did you know?

Mr. MOYNIHAN. I didn’t ask the question and I went about

doing—

Mr. CUMMINGS. So you didn’t care, right?

Mr. MOYNIHAN. I cared for Mr. Mayopolous as a person, obviously, but I met with the director and started my job.

Mr. CUMMINGS. And if you were advising a client the size of

Bank of America, what would you say to the management if they

told you they wanted to fire their in-house counsel and replace him

with a senior business executive, who, while an experienced attorney, had not practiced law in 10 years and was not even licensed

at the time? Would you advise them to make that move?

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Mr. MOYNIHAN. I think if the decision was made for me to be

general counsel, I think it was a wise move on behalf of the company and I was competent to do it.

Mr. CUMMINGS. That is very interesting. Now, let me ask you

this. You had an opportunity to talk to our committee staff, did you

not?

Mr. MOYNIHAN. Yes, I did, sir.

Mr. CUMMINGS. And you believed that there was a MAC, a MAC

was appropriate, there was a case for a MAC, is that right?

Mr. MOYNIHAN. I believe we had a valid claim.

Mr. CUMMINGS. And at the time that you talked to the committee

staff, you produced no evidence with regard to why you had that

opinion. Do you have any evidence today?

Mr. MOYNIHAN. Representative, the evidence is that in the fourth

quarter of 2008 Merrill Lynch lost $21 billion pre-tax, and it was

not clear that they would be able to use tax benefits. That was

twice as much as they had ever made as a company and completely

depleted their capital by 50 percent. So, therefore, that was a material change in their circumstances. Their ability to earn money at

the level they were supposed to was impaired by their capital going

down.

Mr. CUMMINGS. Now, that was inconsistent with the law firm

Wachtell and what Mr. Mayopolous had said, is that right? Was

that inconsistent?

Mr. MOYNIHAN. I think—

Mr. CUMMINGS. In other words, you all had hired a big law firm

and you had a general counsel, and then you come in, you hadn’t

practiced law in 10 years, and you come along and say, ‘‘ahh, I

think this is a good time, the MAC is fine.’’ So I am trying to figure

out how did you get there.

Mr. MOYNIHAN. I relied on Wachtell Lipton, who was of the same

opinion, we had a valid claim for a MAC and informed as such. I

also relied on my experience in dealing with MAC clauses and having taken apart deals for MAC clauses in my experience in the

past, the hundreds of deals I have done as an attorney and a business person; and we were all of the same opinion that this was, at

$21 billion in losses, this was a material change in the circumstances of Merrill Lynch that we had to address—

Mr. CUMMINGS. Well, let me get to Mr. Mayopolous, because apparently he had a different opinion. Is that what Wachtell had

said, Mr. Mayopolous? He says they were all in agreement. Is that

right? That is not what they told you, is it?

Mr. MAYOPOLOUS. We didn’t have any conversations. I didn’t

have any conversations with Wachtell about the material adverse

change clause.

Mr. CUMMINGS. All right.

Now, Mr. Gifford, Mr. Moynihan is one of the people that you are

considering to take Mr. Lewis’s place, is that right?

Mr. GIFFORD. That is what I read in the newspapers, sir.

Mr. CUMMINGS. That is what you read in the newspapers? What

do you mean?

Mr. GIFFORD. We have tried very hard, Congressman Cummings,

not to be talking publicly about individuals.

65

Mr. CUMMINGS. Well, the fact is, the reason why I am talking

about it is this the guy—I am just trying to figure out is this the

guy that we have to face when we are trying to deal with Bank of

America, when we have $45 billion invested in a company? I am

just trying to figure out is this the face that we are going to be facing.

Mr. GIFFORD. And I am responding, Congressman.

Mr. CUMMINGS. And I am not asking you for your decision; I am

just asking is he one of your top candidates.

Mr. GIFFORD. He is a very talented executive at Bank of America.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Chairman TOWNS. Thank you very much.

I now yield to Mr. Luetkemeyer from Missouri.

Mr. LUETKEMEYER. Thank you, Mr. Chairman.

I would like to follow along this line of questioning. Mr.

Mayopolous, in our documents here, it indicates that you informed

Mr. Price that Bank of America did not have the basis for invoking

a MAC. What was the basis of that decision?

Mr. MAYOPOLOUS. The basis of that decision was that, in order

for there to be a material adverse change, there had to be an event

that had occurred that had a disproportionate impact on Merrill

Lynch in contrast to other companies in the industry, including

Bank of America. And as I discussed with Mr. Price, the stock price

of Bank of America had declined almost as much as Merrill

Lynch’s. Bank of America had gone out and raised substantial capital, had cut its dividend, its earnings had been reduced. So basically both companies had suffered significant downturns in their

prospects in the time since the merger had been announced.

Mr. LUETKEMEYER. Was the information that you had, did you

not have the information that Mr. Moynihan had with regards to

the $21 billion loss at the time that you made your advisory opinion to Mr. Price?

Mr. MAYOPOLOUS. That is correct, I did not have that information.

Mr. LUETKEMEYER. OK, if you had known that, what would your

advice have been at that time?

Mr. MAYOPOLOUS. I believe my advice would have been—although I don’t have all the information that the company had at

that time since I was gone, but my view would have been that invoking material adverse change clause would be a dangerous and

risky prospect. But I didn’t have the information and I didn’t study

that question.

Mr. LUETKEMEYER. So what you are saying is you would have

gone along with saying that the MAC would have been a very viable way of—go ahead and invoke MAC, then?

Mr. MAYOPOLOUS. No, sir, I am not saying that. I am saying that

I think it would be a very difficult decision to invoke the material

adverse change clause. I believe I would have suggested that the

company sit down with Merrill Lynch and try to renegotiate price,

but, if that didn’t work, I don’t know that I would have threatened

to invoke the material adverse change clause.

Mr. LUETKEMEYER. Well, do you believe, then, that the reason

that the MAC was eventually then used as a bargaining chip—or

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was it used as a bargaining chip, in your judgment, to extract a

better price from the Government?

Mr. MAYOPOLOUS. Congressman, I don’t know what it was used

for. I was never privy to any of the discussions; I was gone.

Mr. LUETKEMEYER. OK. Along this line, also, obviously, in a lot

of our documentation here and in the testimony, there is the threat

to fire Mr. Lewis, as well as the entire Board. Can you tell me, can

any of you gentlemen tell me the circumstances under which they,

No. 1 had the authority to do that and, No. 2, the circumstances

under which they believed that you as a Board or as Mr. Lewis as

chairman, were doing something wrong that they could fire you

for?

Mr. MOYNIHAN. Well, I think the discussion about that is, I

think, reflective of the very serious circumstances that we faced in

December 2008. The economy was in a total disarray—

Mr. LUETKEMEYER. They were going to fire you for the economy?

Mr. MOYNIHAN. The economy was in disarray; the regulators

were serious about us thinking about the pros and cons, and using

our judgment around the MAC and what we would do as a company; and I think that I always took that as a view of how serious

the situation and how serious they wanted to think about it. We

were prepared, if it was the right interest for our shareholders, to

exercise the MAC irrespective of what would happen to management, and I assume Mr. Gifford and Mr. May would say the Board.

Mr. LUETKEMEYER. Unfortunately, Mr. Moynihan, that answer

does not fly with me. You cannot tell me that Bank of America is

going to cause their entire economy go down if you don’t do this

and because of that they are going to replace your entire Board and

the chairman. You expect me to believe that?

Mr. MOYNIHAN. The point, I think, was would we feel that if we

had to be removed if the Government said that we had to be removed, that did not factor into our decision of what our course of

action—

Mr. LUETKEMEYER. So basically they were extorting your decision

to go along and accept Merrill Lynch as a business partner, is that

what you are saying?

Mr. MOYNIHAN. What I said was that we did not let that factor

into our decision of what the best interest to our shareholders was.

Mr. GIFFORD. If I may respond as a member of the Board, Congressman Luetkemeyer.

Mr. LUETKEMEYER. Yes.

Mr. GIFFORD. We heard on I believe it was December 22nd the

CEO reporting to the Board that the Government, Secretary

Paulson, had made it clear that the Government felt very strongly

that this transaction should continue; it was in the best interest of

the American financial system as well as Bank of America. And we

also heard the comment and, if it doesn’t happen, there is a risk

to members of the Board and management keeping their jobs.

I can assure you, sir, as much as I care about the American financial system, our job is representing shareholders, and that did

not, one iota, factor in the decision that I and I believe my cohorts

made in proceeding with the transaction. To do so would be just

directly dishonoring our fiduciary duty. And we made that clear in

our discussions at the Board.

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Mr. LUETKEMEYER. OK, I have one more quick question before

my time expires.

Obviously, Mr. Moynihan, you testified that Merrill Lynch lost $21 billion. Can you tell me what the problems were, why they lost

that money, and have those problems been rectified now that Bank

of America owns the company?

Mr. MOYNIHAN. The problems were due to the markdowns of securities and other things that were going on in December 2008 as

the markets continued to deteriorate. They are rectified because

Merrill Lynch makes money, but the context of that is Merrill

Lynch, being owned by Bank of America, with a stable capital base

and ability to keep its balance sheet, is now able to produce the

kind of money and do the kinds of things for our customers which

are strong. But in December 2008, those were not—

Mr. LUETKEMEYER. Do they still involve themselves in a lot of

the investment derivative type activity that caused a lot of the

problems?

Mr. MOYNIHAN. They continue to trade with their clients. I think

a lot of their ‘‘legacy’’ positions that you hear people talk about are

not being renewed, are running off as we speak. But I think it is

a much more straightforward, clear, and less risky platform than

it was as a standalone company due to the stability and capabilities that Bank of America and Merrill Lynch together have.

Chairman TOWNS. The gentleman’s time has expired.

Mr. LUETKEMEYER. OK. Thank you, Mr. Chairman.

Chairman TOWNS. I yield 5 minutes to the gentleman from Massachusetts, Congressman Tierney.

Mr. TIERNEY. Thank you, Mr. Towns.

Mr. Gifford, at what point in time did you become aware that

Mr. Mayopolous was being relieved of his duties and that Mr. Moynihan was assuming the role of general counsel?

Mr. GIFFORD. I believe, Congress Tierney, it was the afternoon

of December 9th, following a Board meeting.

Mr. TIERNEY. So that was the day before he actually had unceremonious firing incident.

Mr. GIFFORD. Having just heard the December 10th, yes.

Mr. TIERNEY. OK. Would you tell us what was discussed when

you learned that he was being fired and that Mr. Moynihan was

being hired?

Mr. GIFFORD. I and the rest of the Board, Congressman, was informed at the end of that December 9th Board meeting that Mr.

Moynihan was leaving the company because he wasn’t able to take

a job that the CEO wanted him to take. A number of Board members, within a couple minutes timeframe, expressed regret because,

as I said earlier in testimony, Mr. Moynihan is one of the most talented executives I have ever worked with, and we expressed that

regret to the chief executive officer.

At that point, I and a bunch of others who live in Boston got on

a plane, went back to Boston. I, at that point, thought Mr.—I knew

nothing about Tim; all I knew was that Brian was leaving the company. When I returned to Boston, I got, sometime in the late afternoon, an email, as did all members of the Board, from Ken Lewis,

the chief executive officer, informing him that Brian was staying at

Bank of America and becoming general counsel.

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Mr. TIERNEY. Thank you.

Mr. May, were you privy to that same set of facts, the same conversations?

Mr. MAY. Yes, I was. That day, at the Board meeting, we found

out that Brian was leaving the company. I did express to Ken

Lewis a concern about that because of his versatility. I indicated

he can play third base, he can catch, he can pitch; we have had

him in almost every aspect of the business, whether it was wealth

management, whether it was investment banking, or whether it

was in legal, and we were happy to hear that he had found a solution. Again, you have to recall that this was at a time when a

merger was going on, so we don’t usually use the word fired during

mergers, but positions are eliminated; you have two treasurers, you

have two controllers, you have two presidents, and things were

being eliminated and the top management of the organization was

shrinking.

Mr. TIERNEY. You don’t really think that this all happened in the

context of the merger and you were shuffling positions around, just

at that critical moment, instead of waiting until after the transaction was completed by the Board, then you are going to shake

out? You want us to think that while that was going on you decided to do all that?

Mr. MAY. This absolutely was happening. Mr. Moynihan had

been in investment banking, he was leading the Bank of America

investment bank. The merger with Merrill Lynch eliminated his—

not eliminated his position, but someone else was chosen to lead

the investment bank and Brian was asked to go to the credit card

business in Wilmington. That was a job that he turned down. We

were going to potentially leave him. So, yes, sir, he was a victim

of a merger synergy.

Mr. TIERNEY. How long did he hold his job of general counsel

after it was decided that he had to have that job?

Mr. MAY. I am not sure of the exact—a couple months.

Mr. TIERNEY. Forty-four days?

Mr. MAY. Something like that, yes, sir.

Mr. TIERNEY. So it doesn’t strike you as incongruous that you

give a position for 44 days, that holds him on to the company, then

you shuffle him off to supposedly where he didn’t want to go to

begin with?

Mr. MAY. Again, that is the fragility of an organization that is

going through transition, and there was fallout. There were people

that left Merrill that were former Merrill executives that left the

combined company, and we were fortunate to have Brian to put

him into some of these holes.

Mr. TIERNEY. Mr. Mayopolous, didn’t Mr. Moynihan tell you that

you were going to be the general counsel of the merged entities?

Mr. MAYOPOLOUS. Yes, sir, he did.

Mr. TIERNEY. Did you believe him when he told you that?

Mr. MAYOPOLOUS. Yes, I did.

Mr. TIERNEY. Mr. Moynihan, did you tell Mr. Mayopolous that he

was going to be the general counsel of the combined units?

Mr. MOYNIHAN. Yes.

Mr. TIERNEY. And why did you lie to him?

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Mr. MOYNIHAN. At the time, he was the general counsel, he was

one of four or five different people I had working for me, 35,000,

40,000 associates, and he was the general counsel.

Mr. TIERNEY. And you believed that he was capable of doing the

job?

Mr. MOYNIHAN. Absolutely.

Mr. TIERNEY. So then tell me why it was that a man that you

believed to be capable of doing the job got bounced out in the fashion that he did? Why did he get fired?

Mr. MOYNIHAN. Congressman, I know this is difficult, but in the

business world this happens. When I took the job to run the combined Bank of America-Merrill Lynch Global Banking Wealth Management, the person who had that job left that day also. We have

to make decisions; it is very difficult economic times. The decision

was made to eliminate 10 percent of the senior executives and one

of the outcomes of that decision was a change between Tim and I.

It is not great for people and I know it is hard to understand if

you are outside business, but in these tough times those are the

things that happen.

Mr. TIERNEY. And the fact that it happened just a matter of days

after he told Mr. Lewis—Mr. Price, at least, that the MAC wasn’t

an option has nothing to do with it?

Mr. MOYNIHAN. I had no knowledge it had anything to do with

it.

Mr. TIERNEY. My time is up.

Chairman TOWNS. Thank you very much.

I now yield 5 minutes to the gentleman from Louisiana, Mr. Cao.

Mr. CAO. Thank you, Mr. Chairman.

This is my question, I would assume, to the members of the

Board, and maybe even to Mr. Moynihan. I have heard your statements saying how good the acquisition of Merrill Lynch is to Bank

of America. My question to you here is if I were to ask you to compare Bank of America now without the purchase of Merrill Lynch

with the Bank of America with the purchase of Merrill Lynch,

which of the two would be a stronger institution today?

Mr. MOYNIHAN. I think from the ability to serve customers standpoint, there is no doubt we are a stronger institution today with

the product capabilities we have not only in the United States, but

around the world, to serve customers, whether they are an individual, a small business, a large business, investor across the world.

The capabilities we have when you put these two companies together are better than the capabilities either one had before they

came here.

Mr. CAO. And do you have, for example, any kind of profit studies with respect to Bank of America without Merrill Lynch and

Bank of America with Merrill Lynch?

Mr. MOYNIHAN. I mean, the eggs are scrambled at this point in

terms of decisions we have made, so it is hard to separate it, but

just to give you a sense, the legacy Bank of America investing

banking platform would have been maybe five, six in some businesses and two or three in other parts of that business. Now we

have received the second highest amount of investment banking

fees every quarter this year, second to J.P. Morgan and ahead of

every other investment banking firm you can name. So that shows

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you that the combination together is more than Bank of America

had in that business.

I could do that and go through every one of the businesses,

whether it is the 15,000 financial advisors, whether it is what we

have in the sales trading investment banking capability. All that

is true and it happens in every business. We are better now today

than we were as two separate companies.

Mr. CAO. Now, knowing that a company were to face a loss of billions of dollars, was the $45 billion in TARP money, was that one

of the reasons why Bank of America purchased Merrill Lynch?

Mr. MOYNIHAN. I think you have to separate the TARP money

that we received, for lack of a better term, irrespective of the transaction would have been 25, and then we got 20 in connection with

the transaction to help handle the losses that Merrill Lynch in the

fourth quarter of 2008, and particularly in the latter half of that.

So I think the investment helped stabilize the economy, stabilize

the financial system. If Merrill Lynch would have failed, it would

have been a complete surprise at that point and would have

wrecked damage on the whole system. It would have hurt our company just because we are a participant in the markets.

Mr. CAO. Is the answer yes or no, was it factored in the $45 billion in TARP money?

Mr. MOYNIHAN. The $20 billion relates to the Merrill Lynch

transaction; the other stuff doesn’t relate to anything, it was done

before the Merrill Lynch transaction closed.

Mr. CAO. Now, did I hear correctly that you are one of the potential candidates to replace Mr. Ken Lewis, pursuant to the questions

of Congressman Cummings?

Mr. GIFFORD. That is probably not a question for Mr. Moynihan,

Congressman Cao.

Mr. CAO. Well, would that be a question to you, Mr. Gifford?

Mr. GIFFORD. OK, sir. We are trying, and it is very difficult with

the visibility of Bank of America, to keep the selection process confidential, I think for obvious reasons. It is very difficult for us when

presumed candidates appear in the press; it makes it difficult for

their current jobs.

Mr. CAO. Let me ask you another question.

Mr. GIFFORD. I am trying to say, as I did as best I could to Congressman Cummings, that we are not disclosing publicly those that

we are considering.

Mr. CAO. So based on what I have heard so far, you are saying

that Mr. Ken Lewis is not doing a very good job?

Mr. GIFFORD. I hope I didn’t imply that, sir.

Mr. CAO. If he is doing a good job, why would you want to replace him?

Mr. GIFFORD. Mr. Lewis announced 2 months ago that he wished

to retire at the end of this year.

Mr. CAO. OK.

Mr. GIFFORD. That is what prompted this search.

Mr. CAO. That is all the questions I have.

Mr. ISSA. Would the gentleman yield?

Mr. CAO. Yes, please.

Mr. ISSA. Thank you.

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Just following up on that, the question earlier from Mr. Jordan, you have $100 billion-plus in the bank. If it were not for the regulatory rules of how much capital you have, would you, in the ordinary course of business, pay back the $45 billion? And I am going

to caveat it in a way Mr. Jordan didn’t. If you could get it back

tomorrow, would you pay it back today? In other words, is the only

reason you are not paying it back that, if you pay it back, it can’t

come back out again? Mr. Moynihan.

Mr. MOYNIHAN. I don’t think I meant to say that. What I am saying is—

Mr. ISSA. No, I want to try to get it straight. You have the

money. You would pay the Government; you would happily pay the

Government if you ‘‘were later deemed to need it,’’ and it was a line

of credit, you would pay it back. The only reason you are not paying it back today is the Government has put hurdles in your way

to prove that you can not only pay it back, but you can still pass

the stress test, isn’t that right?

Mr. MOYNIHAN. Mr. Issa, our goal is to pay this back and return

the money to the taxpayers.

Mr. ISSA. No, I appreciate that, but Mr. Jordan didn’t get the answer from you that I have asked. The fact is you have the money.

In the ordinary course, if it were just another creditor, you would

pay it back. There are regulatory questions the Government has

put up and there are questions about ‘‘capital provisions.’’ But notwithstanding that, you are not putting that money to use today.

For Mr. Cummings and others, you are not loaning that money out;

it is cash. You would pay it back if there were not hurdles to cross,

isn’t that correct?

Mr. MOYNIHAN. I think you are talking about a cost of $2.3 trillion balance sheet we have cash. You asked me what our cash balance was; I told you. The fact of the matter is money is fungible,

so this capital provides our ability to lend and help support our balance sheet.

Mr. ISSA. So it is a balance sheet question. But the fact is, for

the Board, you would pay this money back in the ordinary course

if it were just normal—

Mr. GIFFORD. We stated, Ranking Member Issa, that we would

like to pay back TARP. The Board—

Chairman TOWNS. The gentleman’s time has expired.

I now yield 5 minutes to the gentlewoman from California, Ambassador Watson.

Ms. WATSON. I want to direct this question to Mr. Moynihan.

After Kenneth Lewis approached officials at the Fed and the

Treasury Department about invoking the MAC, Fed Chairman

Bernanke expressed skepticism about the truthfulness of Bank of

America’s claim stating, in an email, that he thought the threat to

use the MAC is a bargaining chip and we do not see it as a very

likely scenario.

Was the MAC, and do you know, used as a bargaining chip to

get more Federal assistance and/or a lower purchase price?

Mr. MOYNIHAN. Congresswoman, the MAC was a right under the

agreement to terminate the agreement if there had been a material

adverse change. The $21 billion loss in the fourth quarter constituted, gave us a valid claim for a MAC.

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What immediately became clear is we had a very, very difficult

situation in very difficult times that I think reasonable people tried

to figure out a solution that necessarily didn’t result in litigation,

and in the aftermath of having a company that could have failed

that we would have had to litigate against; and it was those judgments that led us to take the course of action we did, which we believe and was in the best interest of not only our shareholders, but

the economy, and that is how it came down. So the MAC was a

right we had the right to exercise, but the context of where we

ended up was a discussion about what is the best course for our

company.

Ms. WATSON. Mr. Mayopolous, before the issue of the MAC arose,

had the Bank of America engaged in any discussions with representatives of the Federal Government about receiving additional

TARP funds? Do you know?

Mr. MAYOPOLOUS. Not that I am aware of.

Ms. WATSON. OK. Had they not attempted to invoke a MAC and

do you think Bank of America would have received the additional

$20 billion in TARP funds announced on January 16th?

Mr. MAYOPOLOUS. I don’t know.

Ms. WATSON. OK, Mr. Gifford, in your testimony you stated that

you had a number of tough decisions and questions about the reaction or transaction at the start. Could you please describe the problems you foresaw with the merger?

Mr. GIFFORD. Yes, Congresswoman Watson. Overwhelmingly, my

issues back in September—this was in September—had to do with

timing. We were at a time when the next day Lehman failed, the

day after that there was an AIG bailout, if you will, and within 2

weeks after that, I think, WaMu failed and Wachovia was taken

over by Wells Fargo.

So my point is, at a time like that, inevitably, your guard is up,

and when we are looking at a transaction at a time like that, admittedly in a short time period, I was just in a, if you will, a very

sensitized state. So it was much more along those lines than it was

Merrill Lynch itself. Merrill Lynch, for a long time, we knew was

a terrific addition to Bank of America.

As I said in my testimony, I believed and believe it is a terrific

strategic combination. It was very difficult in December and January, as the markets became much worse than we or anybody had

expected. So that is my background, ma’am.

Ms. WATSON. Well, do you think the shareholders were given

adequate information about Merrill Lynch’s economic condition and

compensation practices prior to their vote to approve the merger?

Mr. GIFFORD. As a Board member, Congresswoman Watson, I

felt, had felt continuously and do feel that management—and it

really is a management issue to determine—working with inside

and outside lawyers what should and shouldn’t be disclosed. There

was absolutely nothing in my mind that we were holding back information that we should. I can assure you that if I or any member

of the Board felt that way, which, again, we did not, we would have

raised the issue.

Ms. WATSON. Well, do you think the shareholders will ultimately

benefit from the merger?

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Mr. GIFFORD. I do indeed, ma’am. In fact, so far, year-to-date this

year, which started out hard, it has been accretive to our earnings.

Ms. WATSON. Let me go back to Mr. Mayopolous. During your

tenure as general counsel, you did not report directly to CEO Ken

Lewis, but your successor, Mr. Moynihan, did?

Mr. MAYOPOLOUS. That is correct.

Ms. WATSON. OK. To whom did you report as general counsel?

Mr. MAYOPOLOUS. Congresswoman, at the beginning I reported

to the vice chairman and CFO, Mr. Hance; then I reported to the

chief risk officer, Ms. Brinkley; and finally I reported to Mr. Moynihan.

Ms. WATSON. Well, do you think reporting directly to the CEO

would affect the general counsel position?

Mr. MAYOPOLOUS. I think that it can affect the general counsel

position.

Ms. WATSON. Thank you.

Chairman TOWNS. The gentlewoman’s time has expired.

I now yield 5 minutes to Mr. Chaffetz from Utah.

Mr. CHAFFETZ. Thank you, Mr. Chairman.

And thank you all for being here.

Mr. Gifford, my questions are directed at you, if I could, please,

sir. Did you at any time feel pressure from the Federal Government to complete this transaction? Yes or no?

Mr. GIFFORD. It is hard to quibble with words, sir. I felt, again,

getting it from the CEO, that the Government was very desirous

of us completing the transaction.

Mr. CHAFFETZ. But then you also said, I think, if I heard you earlier in your testimony, ‘‘In a perfect world, it would have been better to walk away.’’ Why? What was the pressure that was creating

this imperfect world that led you to come to its conclusion?

Mr. GIFFORD. Because we had a contract to buy Merrill Lynch.

Mr. CHAFFETZ. But you could have stepped out of it, right?

Mr. GIFFORD. With due respect, sir, a material adverse change

clause is not straightforward. There have been few material adverse change clauses—I am not a lawyer, so I could be getting over

my head—

Mr. CHAFFETZ. Neither am I. I will take that to credit for both

of us.

Mr. GIFFORD. That is helpful to me.

Mr. CHAFFETZ. Thank you.

Mr. GIFFORD [continuing]. Have been successful in Delaware

courts.

Mr. CHAFFETZ. But the point I want to try to get to is was the

Government applying pressure that affected your decision whether

or not to move forward with this?

Mr. GIFFORD. And what I have said—and I am under oath for

sure—that, for me, the key decision was not the Government

threatening Board seats. Because if that were the key, then I

would not be doing my fiduciary duty. The key was the uncertainty

of the MAC, to litigate a MAC, to walk away and say we are not

going to close. The uncertainty of whether we would win was a

lose-lose for the Bank of America shareholders. If we lost—

Mr. CHAFFETZ. My time is short, and my apologies for cutting

you off, but if we could pull up slide No. 7, if we could. Sir, this

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is, my understanding, an email of Wednesday, January 21st. I hope

you are familiar with this. Can you just go through who this is to?

Mr. GIFFORD. I can’t see it.

Mr. CHAFFETZ. And I would like to know who these people are,

their relationship to you, and what they do professionally, starting

with Ramsay Trussell.

Mr. GIFFORD. Yes, sir. This is an email dated January 21st.

Mr. CHAFFETZ. Yes.

Mr. GIFFORD. It is addressed to my four children, Ramsay

Trussell, Charlie Gifford, Rufus Gifford, Jessica Gifford, with a

copy to my wife.

Mr. CHAFFETZ. Could you, real quickly, tell me what your children do professionally, and do they do anything politically?

Mr. GIFFORD. I can. Ramsay Trussell is a stay-at-home mom,

hardest job of all. My son Charlie Gifford works in Boston in a private equity operation. My son Rufus Gifford works here in Washington as the Finance Director of the Democratic National Committee. My daughter Jessica works pro bono—not pro bono, in the pro

bono area of a law firm in Boston. And my wife, Ann Gifford, takes

care of me.

Mr. CHAFFETZ. Now, in this email that you sent out, it said—I

am going down to point No. 3, which is midway through the first

page, if we can pull that up. Part of it is highlighted. You are talking about Merrill Lynch: ‘‘This was a bad mistake.’’ ‘‘No,’’ it says

‘‘this was a bad mistake, and their assets became much worse than

expected when presented in September. When the deal was announced, we were $31 to $32 a share and then, boom. This was a

bad decision. And when realized same, the U.S. Government pressured us to stick with it. That is when they agreed to give us more

capital and guarantee some of their bad assets.’’

That seems to be in direct contradiction to what you have said

time and time again in this committee, that, ‘‘well, it was important to them.’’ But here you are clearly directly saying it was a bad

decision and a bad mistake. Who are you lying to? Which is accurate and which is inaccurate?

Mr. GIFFORD. What I have said, Congressman, is that I believe,

and I voted for it in September, that is a fact, and I based it, notwithstanding words, that it was a good strategic decision. What

happened since then, as we all know, the markets went phlooey,

to the point where——

Mr. CHAFFETZ. But you see the challenge——

Mr. GIFFORD. If you are going to ask me the question, I have to

continue, sir. I realize you have 5 minutes.

It got so bad in December that we tried to figure out a way to

exit the transaction. It was within that context that the fact that

we eliminated our dividend, Merrill Lynch had lost $21 billion. In

this period of time, when the day was the darkest, and I am expressing to my children what is going on with the security of Bank

of America, that is what it was.

Mr. CHAFFETZ. I am just confused by the inconsistency of the

way you characterize the decision, but in what was at the time, I

am sure, seemingly private, to your wife and your children, you are

saying this was a bad decision, it was a bad mistake, essentially

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that we shouldn’t have done it; and yet, publicly, you are putting

a real good face on it.

Let me go to the end of this email. ‘‘What do I worry about? A

serious 12 percent-plus unemployment number that is prolonged,

or really stupid politicians or extended panic in markets. I don’t

think that will happen . . . There is some stuff I am not saying

vis-a-vis some of our management decisions; will do that in person.

In the meantime, I am sleeping fine and so should you.’’

What is it that you told them in person that you haven’t disclosed here today about the management decisions that would be

pertinent to this decision?

Mr. GIFFORD. Congressman, I have no idea what I told them in

person, absolutely no idea what I told them in person. And I was

obviously wrong about stupid politicians.

Mr. CHAFFETZ. Now, that is the one thing I can agree with you

on. [Laughter.]

That was the sense and credibility I saw in this document.

Chairman TOWNS. The gentleman’s time has expired.

Mr. CHAFFETZ. Thank you, Mr. Chairman.

Mr. GIFFORD. Thank goodness.

Chairman TOWNS. I now yield to the gentleman from Massachusetts, Congressman Lynch, 5 minutes.

Mr. LYNCH. Thank you, Mr. Chairman.

I want to thank the witnesses for coming before the committee

and helping us with our work. As a matter of disclosure, Mr. May

was formerly with NSTAR, active in my district back in Boston;

Mr. Gifford was formerly with the Bank of Boston; and Mr. Moynihan, I have familiarity with him as well. Bank of Boston and

NSTAR, just as a matter of full disclosure, were supporters of mine

when I was back in the State Senate. So that much out of the way.

Mr. Mayopolous, I want to ask you, I am a little confused on

some dates here. My time line that I have—and it has been provided by the committee—indicates that you were fired on December

10, 2008. Is that right?

Mr. MAYOPOLOUS. That is correct.

Mr. LYNCH. OK. And it says 4 days later, December 14th, then Ken Lewis learned of a $12 billion loss at Merrill. And, yet, your

testimony indicates that you advised on the fact that the $12 billion may or may not have been a material adverse change. My time

line indicates that would be impossible because you were fired before the events giving rise to the MAC. And I am not questioning

your veracity at all; I am just trying to get the facts straight here.

Can you help me with that?

Mr. MAYOPOLOUS. Sure. Congressman Lynch, on December 1st I

advised Mr. Price and Mr. Curl that I didn’t believe that there was

a material adverse change based on the information that I knew

as of that time. I was not informed at that time that there was a

loss at Merrill Lynch of $12 billion.

Mr. LYNCH. OK.

Mr. MAYOPOLOUS. At that time, I understood there was an aftertax projected loss of approximately $5 billion.

Mr. LYNCH. Right, right. And that is true, because the Bank of

America shareholders were provided with information that there

was a forecast, I believe at the time of the approval of the sale, of

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about $9 billion, and then later on there was an additional disclosure, apparently December 14th, when Ken Lewis learned of a $12

billion loss at Merrill. So your testimony is consistent with that. I

was just curious. We have been looking at this undisclosed addition

of $12 billion in losses as being the MAC and the subject of your

letter, and that is not necessarily the case. OK.

In Ken Lewis’s testimony, his deposition, at page 84, he indicated

that in his conversations with Secretary Paulson, that Secretary

Paulson promised to ‘‘fill the hole,’’ he will fill the hole that the recent losses of $12 billion had caused after the losses were disclosed.

Later on he said he went back to the Board. I think at least a couple of witnesses might have been on that Board at the time, I am

not sure. And then, subsequently, Bank of America received $10

billion from the top in connection with its purchase of Merrill

Lynch, on top of the $15 billion that it says it didn’t ask for; and

that is also supported by Eric Roth’s testimony that was raised by

the ranking member and Mr. Jordan that you will ‘‘get additional

investment.’’ That was a statement that he recounted.

Tell me about that. Mr. Gifford, Mr. May, were you in the Board

room at that time, when Ken Lewis told the Board that Paulson

said he was going to fill the hole with, apparently, taxpayer

money?

Mr. MAY. We were in the Board. We had just found out about

the expanding losses, the accelerating losses. We did talk, first,

about the MAC, and I was one that was very much in favor of pursuing that route because of the losses and because of the effects on

capital that Mr. Moynihan mentioned earlier. And then we talked

about the other issues, which were the Government’s desire to have

this go forward and the fact that financial help similar to the first

traunch of TARP could be available to us that would plug that

hole. So, yes, we were in those discussions and that continued for

some time throughout the month of December and into January.

Mr. LYNCH. Thank you, Mr. May.

Mr. Gifford, were you there?

Mr. GIFFORD. Yes, sir, I was.

Mr. LYNCH. Is that pretty much——

Mr. GIFFORD. It is indeed, Congressman Lynch.

Mr. LYNCH. OK. So you are being reassured. I am trying to repaint the picture here. You are being reassured by the U.S. Secretary of the Treasury that, if you go forward with this purchase

of a private company, that the U.S. taxpayer is going to fill the

hole, is going to protect your losses from that purchase. Is that basically how it went down?

Mr. MAY. Ultimately, yes. There were two aspects, one which,

again, was similar to a transaction that happened for JP Morgan,

and that was a so-called fencing off of the bad assets. So there was

an insurance policy, if you will, a wrap of the bad assets so that

losses would not continue to escalate if we went forward with this

transaction and cause further damage to the balance sheet. So

those two elements were negotiated between the company and the

Feds, and ultimately was the path we took instead of trying to pursue a MAC.

Mr. LYNCH. All right. Was there any discussion in that Board

meeting or thereafter about the advisability of informing the shareVerDate 11-MAY-2000 13:12 May 12, 2010 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 U:\DOCS\55995.TXT KATIE PsN: KATIE
77

holders about—I mean, here you have events that cause you to consider a material adverse change in this huge purchase, which is

fairly momentous, and then, on the other side of the scale, no one

is talking to the shareholders. And I understand that they had

been advised that there were some losses at Merrill, but here you

are talking about something on a different magnitude, and I am

just wondering if there were discussions at the Board about whether the shareholders should be informed.

Mr. MAY. I think we generally understood the rules of the SEC

with respect to quality reporting and 8K or special events reporting, and we were not able to—if we disclosed something that didn’t

happen and wasn’t closed, we could have misled them in the wrong

way. So typically what you disclose is a transaction that you have,

and we ultimately were able to get that term sheet signed around

January 16th and that is when we disclosed it.

Chairman TOWNS. The gentleman’s time has long expired.

Mr. LYNCH. OK. I thank the gentleman. I yield back.

Chairman TOWNS. Congressman Bilbray.

Mr. BILBRAY. Thank you.

Mr. Moynihan, did the Bank of America pressure its special outside counsel, Wachtell Lipton, to make a case that the firm didn’t

believe in on the MAC?

Mr. MOYNIHAN. Wachtell Lipton, this is what they do in life, and

we rely on them as outside counsel. I believe that they were given

the facts of the losses that we found out about, as Congressman

Lynch talked about, in mid-December that had moved to $14 billion

or $18 billion pretax and ultimately $21 billion, and they came to

the same judgment and advised us that they believed that we had

a MAC clause, a valid right to claim under the MAC clause. I think

the advice that people look at is these are difficult cases and they

make it clear that, as you think about it, you have to balance the

potential and success. But the reality was that they gave us the advice and they were consistent in their advice.

Mr. BILBRAY. So your outside counsel you hired specifically on

this issue was not unduly pressured to come up with this answer.

Mr. MOYNIHAN. I had no knowledge of that or anywhere.

Mr. BILBRAY. To your knowledge, did anyone in this committee

actually interview this outside counsel that was advising you on

the MAC?

Mr. MOYNIHAN. I am aware that I think they talked to some of

the staff of the committee, is what I was told today.

Mr. BILBRAY. You were told what?

Mr. MOYNIHAN. I think Wachtell Lipton has talked to committee

staff, as far as I know. I am not positive, but I was told that. I

think committee staff could probably——

Mr. BILBRAY. But, as far as we know, they haven’t been interviewed specifically about their MAC advice?

Mr. MOYNIHAN. I think they—I would have to ask—I don’t know,

honestly, what was——

Mr. BILBRAY. OK. For the record, as far as I know, we haven’t

specifically—there has been a claim made that they have unduly

influenced and they basically were being pressured by you or by

the company to come up with a justification, when in fact, as far

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as I know, we haven’t sat down and gotten that testimony directly

or allowed them to come here and explain their position.

Doesn’t it seem a little interesting that here you had a special

counsel directly advising that there is a question about what pressure was put on them, that they are not testifying before us today?

Mr. MOYNIHAN. I would leave that to you. I have no knowledge

that they have been nothing but clear that we had a claim for a

MAC.

Mr. BILBRAY. OK, I just think that—I appreciate all of you being

here today. I just think when we leave out somebody as critical as

the special counsel, that there is an issue here that we need to go

in.

Mr. Chairman, I would really like to raise the issue again that

special counsel on something this important should be considered.

Mr. Gifford, I understand your concerns as to this process. I will

tell you, the testimony we heard from Paulson here in this committee was there wasn’t specifically a ‘‘you either do this or we will

fire,’’ but there was a statement here that said ‘‘if you don’t do this

and it doesn’t work out, there will be hell to be paid.’’ And I think,

in the jargon of grown individuals, that pretty well indicates that

this was expected, the MAC was a very important issue to the Government and they did not want you to execute that MAC. Is that

a fair observation? Is that testimony consistent with what you observed?

Mr. GIFFORD. It is, sir.

Mr. BILBRAY. OK.

Mr. Chairman, I just think that a lot of times nuance and words

do matter, and all I have to say is if someone told me, ‘‘look, Congressman, if you don’t do this and you get in trouble, there is going

to be hell to be paid,’’ I would take that very personal as being a

fact that there was going to be action taken against me one way

or the other, and I would expect any staffer who was given that

direction by me would take that as a direct persuasive statement,

if not a downright threat.

At this time, I would yield to the ranking member, Mr. Chairman.

Mr. ISSA. I thank the gentleman.

Mr. Gifford, in light of your email, your family personal email

that has now come to light, if we asked a question that is a little

different—and we danced here for quite a while with Mr. Lewis—

the Government clearly asserted or intended to assert pressure.

You were being pressured by the Government is what that says. So

when we ask you did you feel pressured, that is always the ambiguous word. But was the Government clearly pressuring you, your

own email says that, isn’t that true?

Mr. GIFFORD. The pressure——

Mr. ISSA. No, no, no. This is one of those times in which you only

get a yes or a no for a reason. You have said here, you have said

they were pressuring.

Mr. GIFFORD. Yeah.

Mr. ISSA. You stand by your email as truthful?

Mr. GIFFORD. I believe the Government—I am sorry, sir, I have

to use words that I am comfortable—I am telling——

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Mr. ISSA. Were you telling—do you stand by your email as truthful, sir?

Mr. GIFFORD. I wrote an email to my children trying to explain

a certain circumstance in the largest financial holding we have,

and words in a private email to your children are probably—I

didn’t even proofread it, Congressman Issa, to be honest.

Mr. ISSA. I am giving you an opportunity—you weren’t under

oath. I am giving, this committee is giving you an opportunity to

say that, upon reflection, you don’t agree with the email you sent

or you stand by it as truthful and, in fact, the Government was

pressuring, that the words speak for themselves.

Mr. GIFFORD. I think it is fair to say, as I reflect, that the Government pushed us hard to do this deal. If that is interpreted as

pressure, sir, then I would interpret that as pressure.

Mr. KUCINICH [presiding]. The gentleman’s time has expired.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. KUCINICH. The Chair recognizes Ms. Norton from the District of Columbia.

Ms. NORTON. Thank you, Mr. Chairman.

Mr. Gifford, you used what for me, in all of these proceedings,

is the seldom invoked word, fiduciary. Therefore, I am much more

interested in the role of the boards here. And yet, generally, in

newspapers and general discussion, the role of boards, it seems to

me, has been given too little attention. Would you agree that in our

system of corporate governance, the board is where the buck stops?

Mr. GIFFORD. I think the board is the ultimate decider of a corporation.

Ms. NORTON. Wouldn’t you agree, Mr. May, to that as well?

Mr. MAY. I believe I would.

Ms. NORTON. I am fascinated by the role of the Board. I served

on the board of three Fortune 500 companies before coming to Congress. I am trying to put myself in your position given the crisis

context in which you were operating. Could I ask each of you how

long were you on the Board here?

Mr. GIFFORD. I joined the Bank of America Board, Congresswoman Norton, in 2004.

Mr. MAY. I did also, at the same time.

Ms. NORTON. So you understood the business, you were experienced Board members. Could I ask you, prior to Mr. Mayopolous’s

termination, what was your opinion of the job he had done as general counsel?

Mr. MAY. I thought he did a fine job as general counsel.

Mr. GIFFORD. I would concur.

Ms. NORTON. How did you learn of his termination?

Mr. GIFFORD. As we testified earlier, Congresswoman, in an

email from the chief executive officer on the afternoon of

December——

Ms. NORTON. So there was no discussion about terminating the

general counsel, whose reputation with you was solid, no discussion

with the Board about his termination, but an email informing you

of his termination?

Mr. MAY. That is correct.

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Ms. NORTON. In light of the fact that you had seen no issue or

problem with his work, would you ask for an explanation, as Board

members, given the context of a deal going forward at that time?

Mr. MAY. I believe, as I said earlier, we had a context. We had

shifting sands, as they say, at the time because of the Merrill

merger and there was dislocation of many executives. This was not

an issue about performance.

Ms. NORTON. Mr. May, I heard that explanation, and I can understand that if there is a merger, you don’t need two of everything. The context in which my question is addressed is that in the

middle of December there is a deal influx, in the middle of a crisis

in the United States and a crisis in your company. Don’t you think

you could have made that change in the usual order of business

rather than in the middle of—I mean, were you making other such

changes in the middle of a deal that wasn’t even consummated yet?

Mr. MAY. It was a chief executive officer making a decision on

who he wanted on his team, and he was concerned about losing Mr.

Moynihan at the time, as we said earlier. And that is the time he

made and we supported it.

Ms. NORTON. Losing Mr. Moynihan, who wasn’t even in the position, but had a position in the company.

Mr. MAY. He was in a higher position in the company, one of the

key four or five executives.

Ms. NORTON. Had he threatened to leave?

Mr. MAY. We had been notified that afternoon that he was leaving the company, yes.

Ms. NORTON. So you believed it was important to change general

counsel while you were in the midst of—as Board members, now—

while you were in the midst of this deal because you might otherwise lose Mr. Moynihan, whom you didn’t keep for very long.

Mr. MAY. This was Mr. Lewis’s decision.

Ms. NORTON. I am asking whether or not, as Board members

with a fiduciary responsibility to the shareholders, as Board members, where you yourselves have said the buck stops here, whether

or not you inquired in detail as to this huge change in the middle

of the deal or whether you simply accepted, as you said, Mr. May,

it as somebody else’s decision.

Mr. MAY. I supported the decision. I under——

Ms. NORTON. Based on what facts?

Mr. MAY. On the facts that Mr. Lewis was choosing a team, putting a team together, and he felt that the best qualified people for

his management team included Brian.

Ms. NORTON. On reflection, if you were doing such a complicated

deal in the middle of an economic crisis in our country—not only

the deal within your company, would it not have been prudent to

await the completion of the deal one way or the other before shifting chairs on top of the Titanic?

Mr. KUCINICH. The gentlelady’s time has expired.

Ms. NORTON. Were you shifting other chairs?

Mr. KUCINICH. The gentlelady’s time has expired——

Ms. NORTON. Were you shifting other chairs as well?

Mr. KUCINICH [continuing]. But the gentleman may answer the

question.

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Mr. MAY. Again, the actual transaction involved literally dozens

of our executives, and Mr. Moynihan was more involved in the

transaction of Merrill and putting it together, and all of the risks

associated with that business platform, than Mr. Mayopolous was

at the time. He was a more critical member of our management

team at the time.

Mr. KUCINICH. The Chair recognizes the gentlelady from California, Ms. Chu. You may proceed.

Ms. CHU. Mr. Moynihan, you highlight the success of the merger,

but can you tell us about Bank of America’s initial rationale for

consummating the deal with Merrill Lynch? Did this rationale

change when Bank of America learned of the financial loss at Merrill Lynch? And if the transaction continued to be beneficial, why

did Bank of America consider pulling out of the deal? Was this

about leveraging the Merrill Lynch losses to renegotiate the purchase price?

Mr. MOYNIHAN. I think you have to separate. From an operating

perspective, the logic that I think that led us to acquire Merrill

Lynch in September, agree to acquire Merrill Lynch was about the

brokerage firm capabilities it gave us, meaning the 15,000 financial

advisors, was about the capabilities it gave us in investment banking, and the capabilities it gave us in sales trading. Those facts are

the same facts that bear today that we are No. 1 in those businesses in the country and No. 2 in some around the world. Those

facts, from an operating basis, were all true.

What we faced in late 2008 was from an earnings perspective,

capital perspective, the situation changed dramatically in the markets in effects. In mid-December and out, when their losses came

clear, the amount they were losing, there was a different set of decisions, even with the value of that business as an operating basis,

we had to make to protect our shareholders, and that gave rise to

the assertion of the claim for the MAC.

Ms. CHU. Well, again, let me go back to the fact that you focused

so much on Bank of America’s responsiveness to consumer needs.

However, the real focus of this hearing is about the circumstances

in which your bank received an additional $20 billion in hardearned taxpayers’ dollars. Can you give specifics on how this additional $20 billion has been disseminated and utilized? Is any of this

money going to this year’s executive bonuses?

Mr. MOYNIHAN. The money that was received as part of the Merrill Lynch transaction, which is the hard-earned taxpayer money,

was meant to provide the capital that Merrill Lynch had lost in the

fourth quarter and to stabilize that platform so it could be acquired. It sits there today as capital in our company; it allows us

to provide business and consumer loans, as I stated earlier, so it

is put to good use. It is put to good use to make loans, it is put

to good use to provide commitments to business and governments

in these tough economic times; it is not used to pay bonuses.

Ms. CHU. Will it go in any time in the future for executive bonuses?

Mr. MOYNIHAN. I think Mr. Lewis would have told you, I think

when he was here, if I remember right, or we all agreed that the

idea is that we will pay this TARP money back as soon as we can,

and it will not be used to pay bonuses.

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Ms. CHU. It is my understanding that when you were offered the

general counsel position by Ken Lewis, you had not practiced law

in over a decade. Why do you think the CEO, Mr. Lewis, gave you

this position? And, also, why were you asked to report to him directly when the counsels before and after you were not required to

report directly to the CEO?

Mr. MOYNIHAN. I had been reporting to Mr. Lewis continuously

since I came in the company, so I think the reporting relationship

remained that I had, it wasn’t a change. It was a change to the

general counsel position, but it was not a change for my reporting

relationship.

Mr. Lewis asked me to be general counsel—and Mr. May talked

a little bit about this, in terms of how we were changing the company’s organizational structure in management in the context of

the Merrill Lynch merger and in the context of changes being

made. I accepted the position because it was what the company

needed me to do.

Ms. CHU. Mr. Gifford, today we discussed your concerns about

the merger with Merrill Lynch. We know you raised these concerns

privately, but did you raise any objections about this with your colleagues on the Board?

Mr. GIFFORD. Yes, I did. And I might add, Congresswoman, it

really was asking questions at the Board, and other Directors also

raised questions about certain events and timing and so forth.

Ms. CHU. Thank you.

I yield back.

Mr. KUCINICH. The Chair recognizes the gentlelady from Ohio,

Ms. Kaptur. You may proceed for 5 minutes.

Ms. KAPTUR. Thank you, Mr. Chairman.

Let me just state that as a citizen of our country and a representative from Ohio, the important question to me is, for the future, what quality of banker and banking system America should

restore to regain prudence and confidence in our marketplace again

in a banking system that is sound. And as I listen to you gentlemen testify, that is the thought that keeps running through my

mind, what about the future.

The total TARP money that went into Bank of America was over

$45 billion, as best as I can tell, and, Mr. Gifford, you are one of

the largest shareholders in Bank of America, is that true?

Mr. GIFFORD. I wish I were. I am for me. From my family I am

a large shareholder, but it is hardly one of the largest.

Ms. KAPTUR. Who is the largest shareholder in Bank of America?

Mr. GIFFORD. I think it is——

Mr. MOYNIHAN. It would be a series of institutional shareholders.

Ms. KAPTUR. Institutional shareholders.

Mr. MOYNIHAN. Like a Barclays Global Investors.

Ms. KAPTUR. Who is the first one?

Mr. MOYNIHAN. Barclays Global Investors.

Ms. KAPTUR. I couldn’t hear you.

Mr. MOYNIHAN. It would be a series of institutional shareholders

like Fidelity, Barclays Global Investors, Wellington, John Paulson

Hedge Fund; it is a whole series of people like that.

Ms. KAPTUR. Can you provide that for the record, the top 10,

please?

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Mr. MOYNIHAN. If we are allowed to do it under the law, we

would be happy to.

Ms. KAPTUR. All right, thank you.

Mr. KUCINICH. Without objection.

Ms. KAPTUR. Mr. Gifford, how did you become a Board member

for the Bank of America?

Mr. GIFFORD. I became a Board member, Congresswoman, when

FleetBoston Financial, of which I was chairman and CEO, was purchased by Bank of America. At that time, for a short period of time,

a year, I became chairman of Bank of America and since have

stayed on the Board.

Ms. KAPTUR. All right. Was that a normal bank or was that a

private equity fund? What kind of institution was that in Boston?

Mr. GIFFORD. I would like to think it was a normal and good

bank.

Ms. KAPTUR. It was a normal, good bank. Did you do subprime

loans out of that bank?

Mr. GIFFORD. Did we do what?

Ms. KAPTUR. Did you do subprime loans?

Mr. GIFFORD. Not to the best of my knowledge.

Ms. KAPTUR. You didn’t enter into that market. All right. According to the Charlotte Observer this month, there is a story that is

rather critical, Mr. Gifford, of your presence on the Board, stating

that you may well be the highest paid executive associated with the

Board, other than Mr. Lewis, though he is gone now, I guess.

It states in the article that just for your airplane flights the Bank of America spent $947,682 on those flights on private jets, and another $281,307 to help you pay the accompanying taxes on those.

The story then goes on to state that does not include the Bank paying you more than $225,000 in office and administrative support.

And then it doesn’t go into your restricted stock and other benefits

that accrue to your present position.

Would you agree with the statement that they make in the article here that you are by far the most highly compensated member

of the Board?

Mr. GIFFORD. I think—I believe I am as a result of my retirement agreement from Fleet 5 years ago. That was a contract, Congresswoman, that was agreed to 5 years ago as part of my retirement for the corporation, retiring early and so forth. It is not part,

if you will, directly of my compensation as a Board member. My

compensation as a Board member, excluding my retirement agreement, is the same as every other Board member.

Ms. KAPTUR. I looked at a poll yesterday and it was talking

about what the American people think of the country and the direction we are headed, and they look at all these bills that have

passed Congress and they are very angry because they feel that the

bills that have been passed up here, such as the TARP, have benefited—two-thirds of the American people think they have benefited

the big banks and their executives and so forth, and they don’t feel

anything we have done up here has really helped them. Ten percent of the people think anything we have done to date has really

helped them.

And I just say you are a value setter in your industry; you have

one of the largest institutions in the country. What people think is

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pretty important in terms of confidence in our financial system,

and the people are very angry, and I would just urge you to think

about what you can do institutionally to reshape the value set that

is operating inside these institutions, because something is fundamentally wrong. Nobody is against somebody making money, but

when most of the public’s incomes are going down and people are

making extraordinary salaries and benefits, particularly when the

public is supporting these institutions on life support, we have to

behave differently.

Mr. GIFFORD. Congresswoman, I can appreciate the difficulty of

that.

Ms. KAPTUR. Thank you. Thank you.

I want to say, Mr. Mayopolous, the timing of your termination

was very, very curious. Could I ask you a question in the way the

institution you used to work for functions? Why would the chief

risk officer, whose name, I guess, is Amy Brinkley or was Amy

Brinkley, be the person tasked to terminate you? What kind of organization—you were the general counsel. Were you the top lawyer?

Mr. MAYOPOLOUS. I was the top lawyer.

Chairman TOWNS [presiding]. The gentlewoman’s time has expired, but we will allow him to answer. We will allow the witness

to answer, yes. Go ahead.

Ms. KAPTUR. I was just curious. What kind of an organization—

you are the top lawyer. I would want my lawyer right there. Why

would you go to a Risk Officer, and is she still with the company?

Mr. MAYOPOLOUS. As I understand it, she is no longer with the

company, and I don’t know why she was sent to fire me.

Ms. KAPTUR. And who did she report to?

Mr. MAYOPOLOUS. She reported to Mr. Lewis.

Chairman TOWNS. The gentlewoman’s time has definitely expired.

Ms. KAPTUR. Thank you, Mr. Chairman.

Chairman TOWNS. The gentleman from Virginia, Mr. Connolly.

Mr. CONNOLLY. Thank you, Mr. Chairman.

Thank you all for being here today.

Mr. Gifford, when did you first learn, when did the Board first

learn that there was a significant hole at Merrill Lynch?

Mr. GIFFORD. Congressman Connolly, we first learned at the De- cember 9th Board meeting that the loss had increased to $9 million—sorry, to $9 billion.

Mr. CONNOLLY. $9 billion.

Mr. GIFFORD. Billion dollars.

Mr. CONNOLLY. And was that information revealed to shareholders?

Mr. GIFFORD. Not, I don’t believe, at that time.

Mr. CONNOLLY. Is there a reason for that, Mr. Gifford?

Mr. GIFFORD. In circumstances like that, Congressman, we on

the board rely on management dealing with lawyers—as you can

appreciate, it is pretty complex with SEC laws and so forth—as to

what should and shouldn’t be sent out to our shareholders. So——

Mr. CONNOLLY. OK.

Mr. May——

Mr. GIFFORD. Sorry.

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Mr. CONNOLLY. I am sorry, Mr. Gifford. I wanted to go to the

lawyer.

Mr. Mayopolous, did you advise Mr. Lewis or anybody in senior

management that maybe that piece of information needed to be disclosed to shareholders?

Mr. MAYOPOLOUS. I also learned at the Bank of Directors Board

meeting on December 9th that the projected loss had grown to $9

billion. I sought to talk to Mr. Price, the CFO, after that meeting;

he wasn’t available and I decided I would talk with him the next

day, and that day I got fired.

Mr. CONNOLLY. You first learned that the loss was about $9 billion the same time Mr. Gifford did?

Mr. MAYOPOLOUS. Yes, sir.

Mr. CONNOLLY. When did you first have a conversation with Mr.

Lewis or other senior officers of the corporation about possibly invoking the MAC?

Mr. MAYOPOLOUS. The only conversation I ever had with senior

executives at the company about invoking the MAC or whether it

should be invoked or could be invoked was on December 1st.

Mr. CONNOLLY. I can’t hear you, sir, December what?

Mr. MAYOPOLOUS. On December 1st.

Mr. CONNOLLY. December 1st. Why would they be talking about

invoking the MAC on December 1st if the information about the extent of the losses at Merrill Lynch was available only 8 days later?

Mr. MAYOPOLOUS. Mr. Price did not tell me why he was asking,

he just asked me to review with him the terms of the material average change clause, how it would be interpreted, and we discussed

whether——

Mr. CONNOLLY. In retrospect, Mr. Mayopolous, would a reasonable person perhaps deduct that the reason he initiated that conversation on or about December 1st was that, as a matter of fact,

he was in possession of the extent of Merrill Lynch’s material

losses long before December 9th?

Mr. MAYOPOLOUS. I don’t know what Mr. Price knew at that

time.

Mr. CONNOLLY. Do you know when Mr. Lewis had conversations

with Mr. Paulson, then the Secretary of Treasury in the Bush administration, about invoking the MAC?

Mr. MAYOPOLOUS. No, I don’t.

Mr. CONNOLLY. Are you aware of the fact that documents have

been provided to this committee that there were several conversations, one of which took place while Mr. Paulson was on his treadmill?

Mr. MAYOPOLOUS. No, Congressman, I am not aware of that.

Mr. CONNOLLY. When you were asked about the MAC, what was

your legal opinion about the validity of invoking the MAC by BOA?

Mr. MAYOPOLOUS. My opinion and my advice at the time was

that, based on what I knew, I did not see a basis to invoke the

MAC.

Mr. CONNOLLY. And the nickel’s worth, why not?

Mr. MAYOPOLOUS. Because there had not been a disproportionate

impact on Merrill Lynch that was outsized to the impact on Bank

of America and other companies.

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Mr. CONNOLLY. Mr. Moynihan, I am going to ask you to move

that microphone close to your mouth, because I cannot hear you.

Thank you. Why did you have a differing legal opinion about that?

Mr. MOYNIHAN. I think there is some confusion about the timing

from when Tim was general counsel to when I became general

counsel, in the sense that when I became general counsel on December 14th or 15th, we became aware that the losses had now

reached $18 billion pretax. It was a different set of facts and circumstances than Tim has testified to here today. Faced with that

$18 billion pretax, which went to $21 billion pretax, or basically

half the capital of Merrill Lynch, twice the amount it had ever

earned in its best year, that is when the question of the MAC that

I had to address, was at $18 billion that moved to $21 billion loss;

and that was in the week that began December 15th and took us

through that.

Mr. CONNOLLY. So if I understand your testimony, you are saying

the difference between you and your predecessor as general counsel

was the extent of the loss.

Mr. MOYNIHAN. The losses had gotten much more dramatically

different, and that has been the testimony that you have heard,

during the course. In mid-to-late December, the losses kept getting

worse and worse and worse.

Mr. CONNOLLY. Well, in your opinion, wouldn’t a $9 billion loss

qualify for invoking the MAC? That is a pretty significant loss.

Mr. MOYNIHAN. Sir, when I came in the face of the facts, the loss

was $18 billion pretax. That gave rise for a valid claim of a MAC.

Mr. CONNOLLY. Yes, I understand, but you were certainly reviewing the opinion of your predecessor, were you not? Did you disagree

with his judgment?

Mr. MOYNIHAN. The facts were different; I was looking at $18 billion.

Mr. CONNOLLY. I understand that, Mr. Moynihan. I am asking

you a different question. Did you in fact disagree with your predecessor in his judgment about the extent of the loss and whether it

qualified for the MAC at the time of his opinion to senior management?

Mr. MOYNIHAN. I did not reflect on his opinion; I faced the

facts——

Mr. CONNOLLY. You had no reflection whatsoever?

Mr. MOYNIHAN. I had no reflection on his opinion.

Mr. CONNOLLY. You only looked at the losses you started with

when you became the general counsel?

Mr. MOYNIHAN. That was the situation we faced, was the $18 billion of pretax losses that were disclosed.

Mr. CONNOLLY. I find that extraordinary, Mr. Chairman. My

time is up.

Chairman TOWNS. The gentleman’s time has expired.

I yield 5 minutes to the gentlewoman from California, Congresswoman Speier.

Ms. SPEIER. Thank you, Mr. Chairman.

Mr. Mayopolous, why do you think you were fired?

Mr. MAYOPOLOUS. Congresswoman, I don’t know why I was fired.

Ms. SPEIER. Well, you must have an opinion. Why do you think

you were fired?

87

Mr. MAYOPOLOUS. I have speculated about lots of things, but, in

the end, I don’t know why. I wasn’t the decisionmaker. I don’t

know what considerations went into it and I don’t know.

Ms. SPEIER. Do you think it was because you offered the opinion

that the MAC could not be exercised effectively?

Mr. MAYOPOLOUS. I don’t know; I wasn’t given an explanation.

I don’t know.

Ms. SPEIER. All right.

Mr. Moynihan, you evidently indicated that you were about to

leave the company, based on testimony we heard from Mr. May. So

what was your conversation with Mr. Lewis?

Mr. MOYNIHAN. About what, ma’am, about leaving the company

or about——

Ms. SPEIER. About leaving the company.

Mr. MOYNIHAN. Mr. Lewis had asked me to take a job to run the

credit card business, which would have required a change in location. And having gone through this with our company and predecessor companies, I personally couldn’t do it and it was decision

that, because I personally couldn’t do it, I made a decision about

my potential future with the company. And I know that may sound

different to people outside of a large business like ours, but when

we make a decision you know the ramifications of that decision.

Ms. SPEIER. So at that point he said, ‘‘well, wait a minute, we

will make you general counsel?’’ What did he say to you?

Mr. MOYNIHAN. No. That was in the days prior to this, and his

statement was I understand your decision, and that was basically

the discussion.

Ms. SPEIER. All right. You would, in hindsight now, reflect on the

decision to buy Merrill and probably suggest that it was a good decision, is that true?

Mr. MOYNIHAN. As I said, the operating business that we have

between Merrill Lynch and Bank of America, by putting these two

companies together, is a business which is very good for our customers and can do many things that neither company could do

prior.

Ms. SPEIER. So you made money in the first quarter, is that true?

Mr. MOYNIHAN. We made money at Bank of America in the first

quarter after——

Ms. SPEIER. And the second quarter?

Mr. MOYNIHAN. Yes.

Ms. SPEIER. And in the third quarter?

Mr. MOYNIHAN. We did not make money in the third quarter.

Ms. SPEIER. OK, so two out of the last three quarters you have

made money. You paid how much for Merrill Lynch?

Mr. MOYNIHAN. We issued about 25 to 30 percent of our stock.

The value, I think, was in the $20 billion range at the time.

Ms. SPEIER. About $20 million.

Mr. MOYNIHAN. $20 billion, I think.

Ms. SPEIER. $20 billion. Excuse me, $20 billion. All right. And

then the taxpayers of this country have now given Bank of America

about $45 billion, correct?

Mr. MOYNIHAN. That is correct.

Ms. SPEIER. So we have almost paid for Merrill two times over.

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Mr. MOYNIHAN. The TARP investments in Bank of America had

three different pieces; the first piece was done back in October.

Ms. SPEIER. I understand. I am just talking in total. So, in total, you have received $45 billion from the taxpayers of this country.

Mr. MOYNIHAN. We have received $45 billion.

Ms. SPEIER. Merrill was purchased for about $20 billion, and two

of the last three quarters you have actually seen profits.

Mr. MOYNIHAN. Yes, that is right.

Ms. SPEIER. All right. Now, the taxpayers have seen the interest

rate on their credit cards jump to 29 percent, in many cases. Many

of your clients now are paying 29 percent interest on credit cards.

You were in charge of the credit card division, so you are pretty

familiar with that, correct?

Mr. MOYNIHAN. We continue to look at—the credit card is not a

majority of our clients; it is clients that have the risk characteristics. And we have pulled back on the pricing and stopped all repricing for risk in advance of the Card Act, which none of our peer

companies have done.

Ms. SPEIER. So you have actually reduced the actual interest rate

you are charging?

Mr. MOYNIHAN. The pricing that you are talking about is pricing

when people have delinquencies or repricing cars based on risk in

the portfolio, and we have not done that, as the Card Act comes

in, shortly here, would not allow you to do it. We actually stopped

that early this fall.

Ms. SPEIER. So what is the interest rate that most credit card

holders are paying, the range?

Mr. MOYNIHAN. I would have to get back to you. I could give you

that. I don’t know it off the top——

Ms. SPEIER. Are they paying as much as 29 percent?

Mr. MOYNIHAN. There could be a cardholder who has had significant risk and other things that can be paying that much, yes.

Ms. SPEIER. Are they paying 35 percent?

Mr. MOYNIHAN. I don’t know what the cap is; I would have to get

back to you on that.

Ms. SPEIER. Well, when you were at the head of the credit card

division, how much were they paying?

Mr. MOYNIHAN. I am not the head of the credit card division; it

is run by one of my teammates that works for me. But I would be

happy to get back to you with all the information about that and

give you the details about that.

Ms. SPEIER. OK, my only point in pursuing this line of questioning is that there has to be something in it for the taxpayers, and

right now the taxpayers feel pretty burned. You have heard that

from a number of Members who have testified. I don’t want to

focus on ex comp, I want to focus on what can we do to the taxpayers in this country.

So I guess my suggestion to you and to any bank that has received TARP funds is that, during the time in which you will have

TARP funding and Federal support and taxpayer support, that you

should reduce the interest rate you are charging the taxpayers of

this country to something close to 12, 14, 16 percent. But show

some good will to the people that are picking up the tab.

My time has expired.

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Chairman TOWNS. Yes, the gentlewoman’s time has expired.

Let me call from the gentleman from Illinois—I am sorry, from

Missouri, Mr. Clay.

Mr. CLAY. Thank you, Mr. Chairman.

My questions are for Mr. May and Mr. Gifford. In your testimony

you state that this acquisition is already bearing fruit. However, it

seems that these results have come at the expense of the taxpayers

and shareholders who were not fully aware of Merrill’s losses. Do

you feel that this deal was fair to both shareholders and American

taxpayers? In other words, do you believe that the ends justify the

means? Mr. Gifford, you start.

Mr. GIFFORD. Congressman Clay, the answer is yes, I do. In

terms of the Bank of America shareholders, as both Mr. May, Mr.

Moynihan and I have testified, we believe this is a good transaction

for shareholders. There was a time in December and January when

it looked very, very dicey, but, as I said earlier, it is accretive to

date. So I think we are building an incredible platform for our customers.

As it relates to the taxpayers of this country, as I said earlier in

response to a question from the ranking member, the Board of this

Bank is determined to pay back the taxpayers in full with very significant dividend payments. The timing isn’t exact, but we are very

determined to do that. And by putting these two companies together, you made for a much stronger company who has the ability

to repay the taxpayers in full, which we are determined to do.

Mr. CLAY. Mr. May, was it a seamless merger?

Mr. MAY. No, it wasn’t. As the analogy has been discussed earlier, this marriage has had its ups and downs. We thought, in September, that it had great potential. In December, when the losses

were piling up, we were concerned about its ability to execute on

the mission that it had, and by that I mean Merrill. With the addition of that TARP capital, things have improved and, as a result,

I do feel very good about the future.

Mr. CLAY. And I am not sure if this question has been asked yet,

but how much does Bank of America plan to pay out in bonuses

and similar awards this year?

Mr. MAY. There has been no decision. The year has not been

completed yet, and that will be based on the performance of the

company in January or February, when it is being looked at.

Mr. CLAY. Looking forward, what is the projected time line for

Bank of America to return Federal bailout moneys?

Mr. GIFFORD. Sir, the Board continues to review the issue. We

are discussing it with the Government. Those discussions are very

sensitive, but we hope it is sooner than later, and that is all I can

say at this time, sir.

Mr. CLAY. OK. Are you familiar with the process of liquidating

the combined toxic assets of both Bank of America and Merrill

Lynch? And, if so, can you give me some kind of sketch of how that

will work?

Mr. GIFFORD. I think Mr. Moynihan is ideally capable.

Mr. CLAY. Mr. Moynihan, go ahead.

Mr. MOYNIHAN. We have continued to work down the assets that

you would refer to as toxic assets; they continue to be worked off

the balance sheet over time. The team that works on that works

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every day to bring those balances down, and they are lower now

than they were last week, and they will be lower next week than

they were this week.

Mr. CLAY. Mr. Moynihan, were you familiar with the circumstances surrounding the departure of Mr. Mayopolous?

Mr. MOYNIHAN. Congressman, I was not involved in the decision,

but what I talked about earlier was the context of where we were

as a company and the context of downsizing both legacy Bank of

America management and bringing the company together. These

were very difficult times and continue to be difficult times in the

economy, and we have been shaping our associates headcount

down, and it was in the context of changes in senior management

that went on at the time that affected not only Mr. Mayopolous,

but about 10 percent of our senior executives.

Mr. CLAY. All right. I thank the panel for their responses.

Mr. Chairman, I yield back.

Chairman TOWNS. Thank you very much. I thank the gentleman

from Missouri.

We now will have closing statements, so I will yield 5 minutes

to the gentleman from Ohio, Mr. Kucinich, the chairman of the

subcommittee that has jurisdiction.

Mr. KUCINICH. First of all, Mr. Chairman, I want to thank you

for holding these hearings. It has given us a rare window into the

management suite of the largest bank in the country. What we

have seen is a story of how Bank of America’s top executives allowed guesswork to masquerade as expert knowledge; how numbers were pulled out of thin air. They guessed at numbers; they

guessed wrong. Their wrong guess hurt shareholders, involved the

taxpayers of the United States, and created great consequences for

markets not only in this country, but around the world.

And I don’t think that the Bank of America scenario is unique.

But the house of cards that was built—through collateralized debt

obligations, credit default swaps, the subprime mortgage fiasco—

has ended up burying our constituents under debts they can’t pay,

record rates of foreclosure and joblessness. And yet, frankly, it

would be wrong to put this all on the Bank of America or to put

it all on Wall Street, because in our economic system, if we have

a true system of checks and balances, we would see some measure

of discipline exacted on behalf of the people of the United States.

This investigation has also raised questions about Government

oversight, about the agencies that are charged with protecting

shareholders and protecting taxpayers. From what we have seen,

it is not clear there has been any criminal conduct. But it is clear

that there has been a lack of fidelity to shareholders and to taxpayers.

I appreciate that Mr. Moynihan, in his opening remarks, talked

about where we are in terms of the economy. We need to start looking forward here. We are really at the end of this discussion about

who did what to whom. But we really need to look forward with

15 million Americans unemployed, with another 10 million whose

homes are at risk, with businesses failing all over the country. A

report yesterday, 47 million Americans hungry.

We really have to start looking forward, and this is, within the

context of our economic system, really going to be a matter of findVerDate 11-MAY-2000 13:12 May 12, 2010 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 U:\DOCS\55995.TXT KATIE PsN: KATIE
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ing a way for business to do its part in creating more liquidity; for

the banks to do your part to create more liquidity so businesses can

survive; for the Government to do its part; where the private sector

is failing to create the jobs, for the Government to create the jobs.

The President is having an economic summit in December about

that. We really have to find a way of looking forward.

And I am hopeful, Mr. Chairman, that as this committee continues to do its work, we understand the responsibility for the collapse

that spread pretty much across the boards. Where do we go from

here? What do we do for the people who are worried about getting

a job? They don’t really care who is going to provide the job; they

sure want a job. And that is where we have to find a way to work

together to create that, because otherwise, a year from now, when

we are being judged on our performances, people are going to ask

not whose side were you on, not whether you were on the side of

Wall Street or on the side of the administration or on the side of

the taxpayers.

The question is going to be what did you do to help protect—not

just protect, to help enhance the economic position of that average

American, the person who is struggling to hold on to their homes,

their jobs, their retirement security, their investments, their health

care. What did you do? And that question and our response, both

in Government and in the private sector, is going to determine

whether or not people can have confidence in our system anymore,

not unlike the questions, Mr. Chairman, that were posed in the

1930’s.

I am hopeful that, on this side of the table and on that side, that

we are going to have the right answers, because if we don’t, this

system is threatened at its core.

I yield back.

Chairman TOWNS. I thank the gentleman from Ohio for his comments.

I now yield 5 minutes to Mr. Jordan, the ranking member of the

subcommittee, also from Ohio.

Mr. JORDAN. Thank you, Mr. Chairman. I want to thank our witnesses as well for being here. I know it is not easy to come here

and take the abuse and questions you get from Members of Congress, but we appreciate it.

This whole escapade just highlights why we should have never

traveled down this role. This unbelievable path we have put the

country on with this unprecedented Government interference in the

private sector, this just shows why it is bad.

But for the Merrill merger, which was done at the prompting of

the phone call from Hank Paulson to John Thane, who said you

need—but for that, Bank of America would have never needed

TARP funds. Under any conventional analysis you wouldn’t have,

but the Government says you are going to take the TARP money.

Then the Government says you have to complete the deal with

Merrill Lynch. Then the Government, based on what we have here

from Mr. Moynihan, basically prohibits you from giving the money

back, now that you are in a position to return it to the taxpayers.

And now we have the amazing thing to me, particularly when

you think about this institution, Mr. Chairman. We have a Federal

Government pay czar telling private American citizens how much

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money they can make in the United States of America. I mean,

think about where we are at because we started down this trail.

That is what troubles me as we go forward.

Mr. Kucinich is right, as we move forward, we need to make the

right kind of policy decisions across the aisle. But they need to be

decisions where we scale back this unbelievable move by the Federal Government to get involved in the private sector. It is making

matters worse. Heck, if big government spending and big government regulation was going to get us out of this mess, we would

have been out of it a long time ago.

That is all we have been doing for the last year and a half. It

is wrong and it needs to stop, and this example and these hearings—and I appreciate the chairman having these hearings—these

hearings highlight what is wrong with the path we chose to take.

Ranking Member Issa and I didn’t support the TARP; we

thought it was a terrible idea. But this is the move the Bush administration and the Obama administration have taken us down.

It is wrong, and all you have to do is look at this example. And

the American people, I think, more importantly, see where this has

taken us and see that it is wrong, and they want us to turn and

go the other direction.

With that, I would yield back, Mr. Chairman.

Chairman TOWNS. Thank you very much.

I now yield to the ranking member of the full committee from

California, Congressman Issa, for 5 minutes.

Mr. ISSA. Thank you, Mr. Chairman. In closing, I want to ask

unanimous consent that a page from the SIGTARP’s report be included in the record.

Chairman TOWNS. Reserving the right to object.

Mr. ISSA. OK. No, that is only fair.

I want to thank you all for being here today. I want to thank the

chairman for considering a document which shows that the only

money that was given to Bank of America was the $6.2 billion that

Merrill Lynch got, most of which you would not have gotten if we

hadn’t bailed out AIG at 100 cents on the dollar, and the 0.8 or

$800 million—peanuts, really, by Washington standards—that

BofA got directly. These were for the credit defaults, essentially the

guarantees. Seven billion is what you got that you shouldn’t have

gotten, because AIG should not have been bailed out at 100 cents

on the dollar. You should have taken your haircut there, and I am

sure you would have in the ordinary course if the Government

hadn’t intervened.

Our hearings today have made it very clear that, one, Merrill

Lynch was not worth what you paid for it. Had you been able to

negotiate in December, instead of in September, you would have

been able to negotiate a much lower price. I think Mr. Gifford

made that very clear, that had you been able to do the deal with

what you knew in December, you would have done it for a lower

price.

We have had a series of hearings, starting with Stan O’Neal

being brought up here to try to explain why he got tens of millions

of dollars while bankrupting Merrill Lynch while the company was

going the wrong way for a very long time. At the time, I wasn’t

sure that those hearings were really worthwhile. After all, we were

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looking at public companies who paid large bonuses to their executives when in fact their stock was going down. Those executives explained to us that those were accruals from an earlier time.

Now, it seems interesting that we had the very man who set up

the company for failure at Merrill Lynch in front of us and we

never asked him what about the brokers, what about Merrill

Lynch’s future, what about the risks that are being taken in order

to have any profits at all in the company, at least on paper? I wish

we had an opportunity to know then what we know now.

But with what we know now, we know that you gentlemen were

pressured by the Government. And depending upon how we define

pressure, we can put it a lot of different ways, but it was very clear

that Ken Lewis and Attorney General Cuomo made the record reasonably clear that, in fact, pressure was being applied.

We also know that, in the ordinary course of banking as we knew it before the meltdown, the $45 billion that is currently owed would

be repaid; that, in fact, our position of interest-bearing preferred

stock would be repaid, America would have been made completely

whole by Bank of America’s investment, the stockholders of America would get a higher yield than we ordinarily get on money that

goes out from the Government, far higher than the rate that T-bills

pay on our debt. So to use a term out of the financial services industry, the arbitrage is positive; Bank of America will pay back all

of the money that it borrowed during the bailout.

Having said that, the legacy of Government intervention—and,

as Mr. Jordan said, one which he and I did not vote for—continues.

Long after you are eventually allowed to pay back the $45 billion,

we will continue to have people in Egypt and other countries where

we have been telling them to privatize their banks for generations

and telling them about how government does not create meaningful

jobs, and that they need to have a vibrant private sector, we will

continue to have those countries ask us ‘‘did you really mean it

when you said it, and what has changed?’’

So, Mr. Chairman, I look forward to us continuing to look at the

AIG bailout, one in which Secretary Geithner, then the head of the

New York Fed, appears to have made a decision to pay far more

in these guarantees than the current market value. And, in fact,

the paper which was floating in some cases in the market at far

less than 100 cents on the dollar went immediately to gains for

those who held the paper. And, Mr. Chairman, I hope that and the

administration that we would like to have in to complete this hearing will come in due course.

I thank the gentlemen for their time and for giving us a very effective half a hearing today.

I yield back, Mr. Chairman.

Chairman TOWNS. Thank you very much.

I also would like to thank the witnesses, would like to thank all

the Members for their participation, of course, and the staff for

their work as well.

Before I begin my final comments, I want to make an observation

with regards to Mr. Mayopolous, who was abruptly fired in the

middle of this transaction. He does not know why he was fired. His

boss, Mr. Moynihan, says he does not know why he was fired. The

Board members present don’t know why he was fired. Either it was

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divine intervention or someone didn’t like his legal advice. Being

I am from Brooklyn, I am leaning toward that last one. It looks to

me like Ken Lewis and others at the company weren’t about to tolerate someone who might get in the way of what they had planned

to do at this shotgun wedding.

The central question of our investigation was how did Bank of

America’s acquisition of Merrill Lynch, which started out as a deal

between two private sector companies, become a $20 billion—‘‘B’’ as

in boy—Federal bailout. After 4 days of hearings, hours of testimony, and a review of half a million documents, it looks like the

answer is pretty clear. The facts show that Bank of America, one

of the largest banks in the United States, was able to manipulate

Federal regulators to obtain billions of dollars in taxpayer money

to help it go through with the deal that it intended to do in any

event.

In a way, it was quite a feat. Bank of America will probably end

up being heralded in the business schools across this country as a

result of their innovative approach. While the financial world was

crumbling around them, they saw an opportunity to snap up Merrill Lynch, a leading company in the field, and get the taxpayers

to bear the risk. This has important implications for public policy

and how we approach problems like this in the future.

Billions in taxpayers’ money were committed in secret. No one

outside a privileged few knew anything about it until weeks after

it was over. That should never, never happen again. As Congress

considers regulatory reform, I think we need to focus on the need

to protect consumers and shareholders.

Thank you again for being here today. Without objection, the

committee stands adjourned.

[The closing statement of Hon. Edolphus Towns follows:]

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[Whereupon, at 12:41 p.m., the committee and subcommittee

were adjourned.]

[The prepared statements of Hon. Elijah E. Cummings and Hon.

Gerald E. Connolly follow:]

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