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tv   [untitled]  CSPAN  June 11, 2009 10:30pm-11:00pm EDT

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should have been aware of the problems at merrill lynch earlier. perhaps as early as mid november and not caught by surprise. that could cause other problems for him around the disclosures bank of america made for the shareholder vote. mr. lewis, i will ask you a series of simple questions, and if you are not forthcoming, i am not going to have any choice but to interrupt you. is it not true that bank of america exam and merrill lynch's book of business before signing a merger agreement and then received detailed financial reports every week from merrill lynch? after signing the merger agreement on september 15? >> that is true. >> is it not true that the merrill losses in mid december that motivated you to go to the government were not the largest week to week losses use all?
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in fact, was not the experience in mid november larger than the one in the december? week-to-week loss experienced in mid-november larger than the one in mid-december. >> the losses that were. >> the losses were partly based on losses in november. i'm not saying the losses in that time frame were what caused the increase, it was the increased projections of the losses based on some of those losses in november. >> mr. chairman, i move to put up a bar graph representing the week-to-week losses recorded by merrill lynch to bank of america. i also want to insert an
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analysis by the statistics expert showing that the november loss should have alerted bank of america to a decelerated rate at merrill lynch. now, mr. lewis, isn't it true that you understood the composition and performance of merrill's portfolio because it was similar to your own? isn't that true? >> it is true. the issue, though, is nobody predicted a meltdown like occurred in the fourth quarter of 2008. >> but you were getting weekly reports. you certainly understood because of the performance of their portfolio. now our investigation found that the fed believed you should have understood the potential for
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losses at me are, rill because your own portfolio was similar to merrill's. i want you to look at the following from the fed's restrictioned analysis. the potential for losses cited by management, including those from leverage loans and trading in complex structured derivative products, what they also call correlated trading should have also been reasonably well understood particularly as bank of america itself is also active in these products. how do you explain the contradiction between your sworn testimony and the fed's findings that you knew about the acceleration in losses and the potential for future losses as early as mid-november?
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>> i can only tell you what i just said. that part of the november losses were causing the projection we were getting in december. they were a factor in the increased projection. >> my time is expired. let me yield to ranking member of california. >> mr. chairman, unanimous consent that the minority background memo as well as documents referred to in it be included in the areaing record. >> without objection. >> thank you, mr. chairman. mr. lewis n your 35 years, how many acquisitions including stock trades would you say ufbl involved with roughly?
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including boards you sat on. >> off the top of my head, ten. >> and probably hundreds that you've looked at in your review of other people's competitor's transactions and so on. isn't it true that it is fairly common to get down the road, particularly in a stock transaction and find the original ratio has changed. it's written into the contracts often that there are certain break points based on material trade in stock trading or other material facts such as you had in your agreement, right? >> yes, that is not uncommon. >> so the fed should not have been sur surprised that that would be questioned in this sur turbulent market continued to have a number of changes in what was going on at merrill lynch
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and bank of america. merrill lynch? >> i can't -- it's hard for me to speak. >> let me say this. were you at all surprised that there were date to day, week to week changes that you had to evaluate and forecast what they really meant over much longer period during this turbulent time? >> no, the way i would characterize it would be that not speaking for the fed, but somebody on the outside who was familiar with mergers and acquisitions, had that person known we had not strongly considered the change, they would have thought we were asleep at the switch. >> didn't you have a responsibility to way that, in fact, when in doubt assert the possibility, in other words if you had to err, you had to err on the side that you had to look for the material adverse change,
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not assume it wasn't there? you had to assume it could be there and you had to look for it? >> well, particularly when we saw the acceleration, yes,sir. >> okay. so i'm trying -- i don't want to spend a lot of time on that part of it because i think it's beyond the purview of this committee. on december 17th, when you called chairman bernanke and secretary paulson to tell them you were thinking of exercising the mac clause, which again, you had an obligation to at least consider, were you motivated to do so because of your obligation to your stockholders? >> i was, sir. >> and i'm going to ask a question that perhaps shows too much of my background. to the extent that you were borrowing money from taxpayer money, was that really -- let me
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put it this way. that is still borrowed money, wasn't a gift. you were not trying to renegotiate a gift from the government or even the amount of money coming from them if you had cited and they had said, yes, go ahead and exercise that clause, would the more likely outcome change have been a difference in the purchase price of merrill lynch relative to b of a? >> that is one possibility, but i can't predict -- >> when you looked at the material adverse clause and particularly the losses that were building up, did you do so as an officer of a regulated company, who if your capital dropped below a certain point could be in fact closed by the fdic, were you protecting b of a's position that you not take an anchor that could lead to
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insol conveniencecy of your own company? >> that is a factor. >> and as a regulated entity, the real risk if you did not insure that b of a's capital base was sufficient, recently had the stress test, sufficient for you to be a going concern? >> i want to at least make sure i get the full disclosure here. we have -- if we had done this deal, at least our tier one ratio, which is the one the regulators look at the most, still would have been ov overcapitalized but would have been a relatively low ratio in this environment. >> so, today's hearing at least from this member's standpoint is really about whether or not the
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government asserted either strong influence that would be outside the ordinary influence one would expect from a neutral party or and whether or not you felt that there was an implied threat, either to yourself or your board or your company, in any of the verbal or written correspondence you had with government officials, including bernanke and paulson? >> well, there was the strong advice that i just mentioned. i do want to put it -- >> i realize you don't want to characterize it as a threat or any one word. but did you feel that you were being pressured to go through with the deal at least as strongly as that salesman trying to sell you the car and get you to close or the insurance salesman. you know the pressure i'm
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talking about. were they advocating strongly and using both positive and negative forces to do so in those conversations? >> yes, sir, but i think it was in the context of them thinking was in the best interest of bank of america and the financial system. >> you said the best interest to bank of america and the financial system. i'm not going to quible over their motives on the financial system. but why do you say bank of america? did you believe that they really believed this was a good deal for bank of america, even know you were seeing a change which would have affected your arm's length negotiation of a price? >> well, their concern obviously was from the top and that is for the financial system. but we're so intertwooined with the financial system, they base that off all of this happening
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and the uncertainty coming back into the financial system, that if fact that would hurt the system and us. >> when you say and bank of america. you mean the financial system and as a member of financial system you would be affected? >> yes. >> if they went and sold it to somebody else or lowered the price and packaged it up or if merrill lunynch had gone througa bankruptcy, all of those alternatives would have been either better or at least no worse? >> yes, i can't speak to that but those would be options. but i can't speak to whether it would be better or worse. >> my last question and i'll yield to one of other members. if you did not have the government at the table and i know that's hypothetical. if you did not have the government at the table, would you have, a., asserted the clause, and b, either walked away or substantially changed
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the deal? >> it didn't happen that way, so it's hard for me to project what i would have ultimately done. but obviously we were strongly considering it. >> so it would be somewhere between possible and likely? >> i don't know how to characterize it. i just -- i'll stick to how i described it, i think. >> thank you. and you're constituent, mr. mchenry will control the balance of my time. >> thank you. mr. lewis, you've been with bank of america and its predecessor companies for how long? >> september would be 40 years. >> 40 years. how many mergers or acquisitions have you personally been involved with in your career? >> i would have to take a few moments and count them up, but obviously probably more than one, less than 10. >> okay, would this be the largest merger or acquisition
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that your company and the predecessor companies have taken? >> no, the nation's bank, bank of america acquisition would have been -- i would have to think back to the market caps and things, that would be the biggest and this would be one of biggest. >> in terms of how you analyzed these deals, do you have a process within your bank to analyzed appropriate growth measures and acquiring other institutions or merging with other institutions? >> we do. >> and did you conduct that same method with this merrill acquisition? >> we, we did. we used the same methodology. my time has expired and i have other questions in that regard later. >> let me yield to the chairman of the subcommittee, mr. kucinich for five minutes. >> we also find that federal
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officials were potentially liable for violating securities laws by holding material information in your possession from shareholders before the vote to approve the merger with merrill lynch on december 5, 2008. mr. lewis, a look at the following e-mail from the fed's general counsel to german bernanke. a different question that does not seem to be the one lewis is focused on it is related to disclosure. management may be exposed if it does not disclose information material to investors. his potential liability will be whether he knew or reasonably should have known the magnitude of the losses when bankamerica made its disclosure to get the shareholder vote on the merrill lynch deal in early december. mr. lewis, did bank of america supplement the proxy solicitation it sent to shareholders that the cover --
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company learned in mid november about the rapidly mounting losses at merrill lynch before the shareholder vote on december 5. losses at merrill lynch before the shareholder votes on december 5th? >> congressman, if we take disclosure very, very seriously. if any -- >> were there supplements? >> if anybody in our legal group had suggested we do anything of that nature, we would have done it. >> there were no supplements, isn't that right? >> no suggestions to have a supplement. >> there were no supplements. okay. mr. lewis, look at the following e-mail that circulated on december 23rd, 2008. ", i think he's worried about stockholder suits. knows they did not do a good job of due diligence and issues facing the company are finally hitting home and worried about his own job after cutting loose lots of good people, unquote. mr. lewis, was your decision to
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tell the government you were considering invoking a mac, which of course refers to a clause in the merger agreements that allows the to abandon the deal if a material adverse change is said to have occurred. in fact a strategy you deployed to protect yourself from shareholder lawsuits? >>, no, it was not. >> isn't it true, mr. lewis, that during the course of your conversations with chairman bernanke and secretary paulson, you requested a letter from the government saying that the government ordered you to close the deal to acquire merrill? >> no, that was not what i asked for. our board was concerned -- >> your answer is no? are you sure has your answer? >> our board was concerned we had verbal assurances but nothing in writing about getting some assistance. i called chairman bernanke and asked him -- >> you're referring to a different letter. i'm talking about a letter --
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you requested a letter from the government saying that the government ordered you to close the deal to acquire merrill. wasn't there such a letter? >> i don't recall such a letter. >> your under only but your answer is you do not recall. >> i do not recall. >> isn't it true your request of the letter was motivated by your desire to protect yourself from the shareholders. >> if i can't recall -- >> our investigation reveals your request for such a letter was motivated for a desire to protect you from shareholder lawsuits as demonstrated in the e-mail from chairman bernanke to the fed's general council on december 23rd, 2008. and i quote, he, speaking of you, mr. lewis, said he now fears lawsuits from shareholders for not invoking the mac giving the deterioration at merrill lynch, he, speaking of you, still asked whether he could use as a defense that the government ordered him to proceed for
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systemic reasons. i said no. unquotes. this is from chairman bernanke. is chairman bernanke's e-mail an accurate statement of your concerns of bank of america's situation? >> i can't recall the exact e-mail but we did have concerns and we wanted some assurances they would support our position. >> i yield back, mr. chairman. >> thank you very much. i now yield to the ranking member of ohio, mr. jordan. >> let's me go back to this so-called threat concern here mr. lewis. i want to be clear of the on december 17th, when you called mr. paulson, mr. bernanke, did you -- i want to know the nature of the call, did you say we were going to exercise the mac clause or thinking about exercising the mac clause? >> again, it seems like a long
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time ago. to the best of my recommendation i said we're strongly considering a mac. >> in other words, what the response you then got changed your decision? you were going to exercise the clause, you felt that was the best interest of your bank and your shareholders, you were going to do it. and then what the government told you -- based on what the government told you, you took a different course? >> no sir, it was a factser because they felt stronger but it wasn't the only factor. we also thought after a lot of consideration that there was a downside risk in not winning the mac. >> let me change directions we've been talking about this a lot. i want to get to a bill big concern i have with the unprecedented level the government has in the private sector in way too much industries in my judgment. let me provide a little context. i was on a conference call a week ago sunday with members of
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the auto task force talking about a gm situation, i come from car country, we had a gm plant closed, 800 jobs and families and community impacted. the night before i was at that announcement, we were on this conference call, members of task force talked about what was going to happen. and one member of the auto task force indicated, we're not going to run general motors, we'll only get involved if these a major event. major event was the language he used. then explained the whole deal. i asked the question, mr. spur ling, define major event. define what's major because it's going to be pretty major tomorrow in our district when 800 people find out they will not have a job. he didn't have a definition. we don't have a working definition. it would be something along the lines of a merger -- which basically told me could be any
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darn thing they wanted it to be. my question to you is, what day to day involvement does the government have in decisions you are making relative to t.a.r.p. funds, relative to any talk about -- ifny, talk about that please. >> there is a t.a.r.p. committee that looks at lending and seeing if we're using the t.a.r.p. funds to lend money. that is a report we just requested. there obviously is the involvement of regulators as they normally would be -- >> i'm talking over that. more than that. >> the only involvement that would be explicit would be after we were ordered to attain more capital as a part of this stress test, they did suggest to all banks that were raising that
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capital to relook he at the boards for financial expertise and look at the management and succession as part of the process and we have been doing that. but no day to day decisions made by regulators. >> talk to me about the t.a.r.p. dollars. t.a.r.p. funds you have, any kind of indue influence you felt there in relation to when you initially accepted t.a.r.p. dollars. >> no undue influence, no, sir. >> thank you and just a couple of follow-ups. although the threat seems to have been stated whether or not it influenced you, to your understanding under u.s. law and i realize we're not asking a banker to be a lawyer, but does the federal reserve chairman have the right to fire you or any member of your board? >> i have -- i think there's something called a cease and
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desift which gives them power to make -- to do things like that. but i've been told that -- i haven't read it myself. >> and the u.s. treasury secretary, any similar power? >> no, sir, i don't think he would have the power. >> when acting in concert, you would perceive that threat to be real that he could execute on that threat of having you or your board relieved? >> my perception was he was speaking on behalf of himself and the regulators and my perception was in concert they would have that power. >> thank you. >> i now yield to the gentleman from pennsylvania who has been working on these issues more than 20 years. >> thank you very much, mr. chairman. mr. mchenry made a comment in its introduction to you that bank of america has business relations with 98% of the
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fortune 500 companies. what i want to know, what are the ten companies that aren't doing business with them? >> i don't know but it's a very interesting question. >> get home and check that. >> mr. lewis, in some regard, we have important questions that we're trying to resolve with reforming regulatory authority in the united states, so to that extent, these hearings are helpful. but i don't hear anything thus far, either by my colleagues or yourself in responding that there was some perceived threat or abuse of action on the part of federal regulators. i'll ask you directly. do you think mr. bernanke or anyone working under the federal reserve chairman took unauthorized illegal or improper action toward you or the bank of america during these trying times? >> i do not. i would say they strongly advised and they spoke in strong
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terms but i thought it was with good intention. >> if i had to characterize in a i was thinking if the titanic were going down and some of us were in the life rafts, it sounds like an argument between the captain and some in the water and refusing to get on board and he's ordering them to get on board. is that not too dissimilar to what happened here on this mid september to december period of time when all of us admittedly had our hair on fire? >> yeah and i think they saw probably with their perspective, they saw rougher seas ahead that no one institution would be able to see. >> the one thing, because my subcommittee and financial services charged with looking at the reform of regulation, is there anything that you could see that granted in extreme circumstances such as that weekend of september 15th and the failure of lehman brothers
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and what was happening in the collapse of the financial system, was there anything we could do in reforming the regulations to provide for faster disclosure, for instance, the 8-k requirements that were not carried out precisely in this case and that disclosures by the company were not necessarily made within the four days? i know there was an argument about whether or not they were lil litt legally required to. was there something we could do to assure shareholders who do get at risk as a result of not forced but encouraged acquisitions such as this, is there anything we in the federal government can do to clarify that problem and to make it clear that would help the banking institutions in future events of this sort? >> sir, are you speaking to the lehman or merrill lynch? >> to the requirement of your
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filing for disclosure and notice to your shareholders when this was pending. you didn't necessarily precisely follow what could be considered a notice requirement. >> i think clarity is always better. if it were left up to me i would go to clarity first. >> so what you recommend we do, go into that area and declare more disclosure as to what's happening? should we put you on the net or what? >> i don't know. i'm not sure i'm following you in terms of the disclosure that you're speaking to. i'm a little shaky on your question, frankly. >> okay, do you know of any disclosure, do you have any feelings s of any disclosures,
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there anything that we could create in the form of our regulatory requirements on acquisitions or mergers? >> it would be difficult because you don't have an event many times because you're still looking at alternatives and negotiating and lehman or the merrill lynch bank of america situation, then it could be well into the morning before you get a signed deal and then you do announce it the next day for instance. so the ebb and flow of the circumstances would make it difficult to describe i understood you pointed out that the merrill lynch acquisitions shannon was responsible for 75% of your last quarter's profits. are you aware that shareholders are complaining as a result of that? >> no,


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