tv [untitled] CSPAN June 12, 2009 5:00am-5:30am EDT
the government asserted strong influence, that would be outside the ordinary influence that you would expect, from a neutral party, or, whether or not he felt that there was a threat, to yourself or the board or the company, in any of the verbal or written correspondence that you have with the government officials, including denver nine k n henry paulson. -- ben bernanke or henry paulson. i realize that you do not want to characterize -- 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 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 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 somebody else or lowered the price and packaged it 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 awayr substantially changed 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 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.
>> mr. chairman, members of the committee, our investigation also finds fed officials believe that you were potentially libel for violating security laws by withholding material information in your possession from shareholders before the vote to prove the merger with merrill lynch in december 5th, 2008. mr. lewis, please look at the following e-mail from the fed's general council to chairman bernanke on december 23rd 2008. quote, a different question that doesn't seem to be the one lewis is focused on is related to disclosure. management may be exposed if it doesn't properly disclose information that is material to investors. this potential liability here will be whether he knew or reasonably should have known the magnitude of merrill lynch losses when bank of america made its disclosure to get the
shareholder vote on a merrill lynch deal in early december. mr. lewis, did bank of america supplement the proxy solicitation it sent to shareholders with what the company learned in november about the potential for future 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 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 -- 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 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 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 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 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 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 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@@@@ companies, and why want to know is, what are the 10 companies that are not doing what i want to know is, what are the 10 companies -- what i want to know is, what are the 10 companies not doing business with you. we have important questions that we are trying to resolve, with the regulatory authority in the united states. we will need some help. but i have not heard anything so far, that there was some kind of perceived threat, or some kind of abuse of action. -- abusive action. 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 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 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 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, 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 fficult to describe it as an event because it just may not happen that way. >> now, i understood in your testimony you pointed out that merrill lynch acquisition was responsible for 75% of your last
quarter's profits. are you aware of shareholders complaining about that acquisition as a result of that? >> no, sir, not now. >> okay. thank you very much. yield back. >> thank you, very much. i now yield to the gentleman from utah. for five minutes. >> thank you, mr. lewis, i appreciate you being here. looking at some notes here dated december 31st, these are your notes also looking at some notes taken by joe brice, the cfo at bank of america were taken on december 21st of 2008 about the attempt to pull -- use the mac clause and get out of the merrill lynch transaction. in the notes it says fire board of directors if you do it,
irresponsible for country. tim g agrees. is tim g. i would assume would be timothy geithner? >> those are joe price's notes? >> yes. >> i would have to assume with you because they are his notes. >> based on your recollection of what was going on and based on the notes we see from the cfo that was there, fire board of directors if you do it, was that your understanding? >> the -- that was is probably a reference to the conversation i mentioned that i had with secretary paulson. but, again, those are his notes. >> based on your personal recollection, is that your understanding that the board of directors would be let go if this mac clause is invoked? >> i mentioned that i need a license with whether he said could or would, but basically the premise was the management and the board would be removed
if in fact we did -- >> including yourself? >> correct. >> so if the suggestion from the federal government was have your job removed as well as the board of directors, can it be looked at any other way other than a threat? >> well, actually, we didn't -- we didn't actually re -- have much of reaction to the comments themselves as it related to us being removed. again, what impressed us was here was the government telling a bank in good standing that they would do something like this. so it was the seriousness with which -- the seriousness of it which caused us to believe that they really did believe that there was an issue here with the mac and not calling it, that did influence us. but it wasn't the threat to have
us lose our jobs. it was the seriousness -- it was because they made it, not the threat itself. >> i'm sorry. i didn't catch the last part. >> it was the seriousness with which they made it, not the threat itself. >> tell me about your discussion. you call at one points as i'm looking at the time line here and mr. paulson is taking a bike ride, i guess on december 2 1st. tell me specifically what was going on in that conversation. >> well, i called in to get an update and i think that was the sunday -- i'm pretty sure that was the sunday i called him. and as i recall the conversation, he said i want to give you some blunt language and i first want to start out by saying we're very supportive of
bank of america. then went one step further and said what i've already said that -- >> he said, but, we feel very strongly you should not call the mac and if in fact you do, and again, i think he said would -- but it was would or could, as i recall -- and remove the board and management. >> that certainly sounds like a threat to me and an amazing use of power there. tell me about your interactions with timothy geithner. how early in the process was he engaged in this process? >> i had no -- after the confirmation hearings or once he excused himself from the new york fed, i had no contact with mr. geithner. >> but he was involved before he
was named and brought in as the treasury secretary, correct? >> he had been involved in the original t.a.r.p. money, yes. >> right. and tell me about mr. summers, the intersection and place of involvement that he had with the project. >> i personally had no involvement with mr. summers. mr. chairman, i would ask that mr. price's notes from december 2 1st of 2008 and mr. lewis's notes also be entered into the record. >> without objection. >> thank you. >> so ordered. >> tell me about the interaction you continued to have in -- with mr. bernanke and mr. geithner at this point? >> well, i've had very little conversation with -- in fact, i can't recall of a conversation
i've had with mr. bernanke in terms of being one on one. i remember council called the federal reserve advisory council and we -- there were 12 of us and we have dialogue with federal reserve, including mr. bernanke in a group setting. >> any interaction with the administration -- >> gentleman from utah, your time has expired. >> my apologies. >> now yield to the gentleman from maryland, mr. cummings. >> mr. lewis, i've listened to your testimony very carefully and you know, i understand and read about you're a great man. i think one of things you have tried to do today is to walk a very thin line. you just heard republicans and democrats say to some degree
that whatever was said to you about losing your job and the board being dismissed, basically what we've said is i don't buy it. let me -- i assume the minutes are accurate from your board meetings. these things you vote on. the minutes from board meetings -- >> yes,sir, we do -- >> i'm talking about december 22nd, 2008. >> let me read something to you. it says, you've apparently -- mr. lewis reported a series of calls. and you talk about a number of things. this is one thing i found interesting. the second point. this says -- this is what you told your boys, it says the treasury and fed stated strongly that were the corporation to invoke the material adverse change mac clause in the merger agreement with merrill lynch and fail to close the transaction, the treasury and the fed would
remove the board and management of the corporation. if that isn't a threat, i don't know what is. if i say i'm going to fire you, if you don't do what i tell you to do, not only am i going to fire you, but i'm going to fire your board, what you said -- and i know you were caught in a difficult situation. i know that after this merger was done your folks benefited tremendously and i know that bank of america is doing fine now. i'm here to tell you, no matter how great bank of america is doing today, the end does not -- the means does not justify the end. in other words, throughout these transactions we must have honesty and integrity and transparency, period. what i'm saying to you is -- i know you're trying to be nice but here we've got a situation
where apparently mr. paulson has told you, do it. so like the nike 18181818c8c8c8y we do not buy this. i will give you another chance. you did not feel threatened? >> we are trying to figure out what you were feeling. we want to know because we want to straighten this up. >> i have been consistent, as you have described this. >> maybe you should be inconsistent and tell us how you were feeling? >> as i have said this at some time, this was a strong