tv [untitled] CSPAN June 12, 2009 6:30am-7:00am EDT
your decision in december when they said we don't want you to exercise the mac clause? >> i didn't correlate them or connect them in any way. i was never thinking of that in relation to -- >> when you walked in the meeting in october -- >> request the consent to give the gentleman two more minutes. >> so moved. >> when you walked in the meeting on the 13th, did you know what it was about? did you know it was going to be -- they are going to ask us@n what were the rumors on the street amongst your colleagues in the other big lending institutions? >> it was a weekend -- i think it was a monday, a holiday or something. i didn't hear a lot of things in that time period, sir. i don't know if it ever got out
as to what was going to be done. but did i talk to one other person and he did not know anything. >> did anyone in that meeting express any reservations -- and forgive me. i don't have the data in front of me. anyone not sign? >> not to my knowledge. >> did anyone express reservations about not signing? >> one person. expressed reservations, yes. >> was that you? >> no, it was not. >> ok. >> mr. chairman, thank you for the time. disoi have to one -- i do have to run to another meeting. i want to thank the witness for his thoughtful answers. >> thank you very much. and i yield to the gentleman from ohio again. from ohio again, this time mr. kucinich. >> thank you, mr. chairman. mr. lewis, we would hope a ceo would have a good memory and responsibility to take responsibilities for his
actions. you stated in response to my previous question that you did not recall asking for a letter from the government stating that bank of america was ordered to proceed with the purchase of merrill lynch. this is the linchpin of clarifying whether you were threatened by the fed or whether the fed was tough with you because you were threatening to be irresponsible. i want to direct your attention to an e-mail response from the fed's general council to chairman bernanke's e-mail which i previously disclosed. mr. chairman, says, i don't think it's necessary or appropriate for us to give lewis a letter along the lines he asked. first, we didn't order him to go forward. we simply explained our views and what the market reaction would be and left the decision to him. second, making hard decisions is what he gets paid for and only
he has full information needed to make the decision so we shouldn't take him off the hook. by appearing to take the decision out of his hands. i'm entering this into the record. >> without objection. >> mr. lewis, is it still your testimony that you don't recall asking for a letter to absolve you of your responsibility for a acquiring merrill lynch's huge losses? >> congressman, what i do remember is calling chairman bernanke and asking him if he could give us something in writing along the lines of what the solution would be. >> we're now updating mr. lewis's previous testimony -- this -- that may help you escape perjury but doesn't get away from the question of whether or not you were trying to absolve yourself of responsibility for
acquiring merrill lynch's huge losses. we're talking about events that transferred a few months ago and the decision to withhold from bank of america shareholders material information about the detear yoration of merrill lynch finances. it is about your responsibility and your failure to inform your shareholders could constitute a fundamental violation of security laws. i'll give you documentation, mr. chairman, that mr. lewis tried to deflect the matter to the fed by asking for a letter that they made him do it. now, i'm going to ask you, mr. lewis, our investigation finds that mr. bernanke believed that your thought to invoke a mac was not credible. take a look at the following e-mail from chairman bernanke dated december 21st 2008, i think the threat to use mac as a bargaining chip -- we don't see it as a likely scenario at all.
you did get a specific amount of assistance when you dropped the threat to back out of your deal, isn't it true? >> yes, we did. >> tell the committee houp. >> $20 billion. >> you got the promise of 118 billion in asset protection for a combination of merrill and bank of america toxic assets. >> we hadn't settled on an amount until sometime -- the wrap wraz being considered. >> that was in addition to the 15 billion of t.a.r.p. moneys you received in october, 10 billion in t.a.r.p. you received upon acquiring merrill, is that right? >> we didn't sign the agreement on the wrap. >> contrary to your representations to the fed, you were concerned primarily about the losses at merrill lynch. merrill's losses were less than half of the problem you faced. losses orng orng naturing at bank of america itself were larger. mr. lewis, please look at the following e-mail dated december
18th, 2008, between officials at the new york fed. one report finding on the basis on the total of 13 basis points detee yoration of the combined bank of america, merrill lynch entity, 16 basis points is due to bank of america. 14 basis points due to merrill lynch. the other officials described this as a smoking gun. isn't it true, more than half of the decline in your all important was not caused by merrill lynch? >> your apples and oranges. the securities -- >> maybe rotten apples and rotten apples. isn't it true you were told if you went through with the mac and later needed financial assistance from the government you wouldn't get it, isn't it true? >> repeat that, please. >> inthat if you went through t mac and later needed financial
assistance from the government, wrnlts you told you wouldn't get it? >> i think i seen it in. an e-mail. >> give the precarious amount of your balance sheet you believed at the time you could reasonably could need financial assistance from the government in the future? >> the preferred stock does nothing to help the tangible common equity ratio. >> you wouldn't think about it. if you got $15 billion on october and you're going to come back two months later and ask for another $20 billion. 15 and then 20 billion, does it it show -- doesn't that show that it really increased your tier one capital ratio, doesn't it show that? >> not tangible. >> tier one. >> tier one, yes. >> now, mr. lewis, the
government believed that you knew or should have known about the merrill losses long before you said you did based on data that bank of america possessed and renally rereasonably revie reviewed. the government didn't believe you but thought that merrill losses were less significant than the losses that bank of america was experiencing as a stand alone entity. the government even thought you were making the threat to use mac as a bargaining chip. the government had given you 25 billion before you approached it about merrill lynch. if the government believed all of that about you and your management team, were you surprised that the fed arranged for you to receive consider bl additional financial support in january, does that surprise you? >> we received 15 billion, not 25 billion from the original t.a.r.p. package. it did not surprise me they were willing to give us more.
we talked about coming to a solution to get the merrill lynch deal done. >> there was a financial crisis and they thought it was necessary -- unanimous consent for two more minutes. >> without objection. >> there was a financial crisis and they thought it was necessary for the system, for the deal to go through. if there's one thing about your record that's clear, you have experienced negotiating deals. what do you believe your leverage with the government was at the end of 2008? >> the only leverage i would say we had was that two honorable people had given me their word they would try their best to find a solution. >> isn't it true it was because bank of america was a big bank. if you hadn't been a ceo, been the top executive at the mid sized or small regional bank and acquired a similar size bank, do you think the federal regulator would have behaved in the same
way? >> i don't think i have a favorite son from the e-mails you just read. >> if you were a smaller institution been taken over and liquid ated? >> i can't speculate on that, sir. >> we have a large financial institution that doesn't face the same consequences for management of small ones and the fed had an opinion there was considerable evidence of mismanagement. there's been a misconception here that the government put a gun to the head of bank of america when it's quite possible it was the bank of america that put a gun to the head of the fed by threatening to invoke the mac and i think that this whole idea, mr. chairman, about mr. lewis somehow being a victim here, flies in the face of the fact that you were ceo of the largest bank and that you are pretending that you didn't ask for help from the government to
take the burden off your back, that you didn't ask for a letter. you're going to have to excuse me. this is not credible, you're trying to change the scenario to you as a victim to you as a powerful ceo that made a decision that denied your stockholders, your shareholders, material information that they needed provider to a vote on a merger. and i think that is the central point of this hearing and i'm sorry, that you haven't been forthcoming enough about that central point. yield back. >> well, one thing for sure, there was a shotgun marriage, shotgun wedding, no question about that. let me sort of raise this issue. on december the 22nd, 2008, mr. lewis you sent an e-mail to your board and let me quote, it says, i just talked with hank paulson. he said that there was no way the federal reserve and the
treasury could send us a letter of any substance without public disclosure, which of course we do not want. do you remember that? >> i do, yes, sir. >> you know, that sort of -- i was raising this because of the answer that you gave to my colleague from virginia, mr. connolly, i didn't get that point, that you actually sent that memo. i mean, it seemed to me that in his question that didn't come out. >> may i give you the context. >> sure. >> i had called mr. bernanke and said is there something you can give us in writing because my board is concerned that everything is verbal and we have nothing concrete and going in towards the end of the year and about to have to consummate this deal without anything in writing. he said let me think about it. and the next call i got was from
hank paulson. and he told me that first of all, if they gave us any kind of agreement it would be so watered down that the board would not find it satisfactory and secondly that they did not want disclosure. he was talking about the government not wanting to create a discloseable event and have to disclose, not bank of america. >> sure didn't make that clear with my colleague from virginia. let me move on. >> i apologize. >> congresswoman from ohio. >> mr. lewis, i've been here since this morning and find your testimony a bit disquieting today for some of the following reasons. bank of america owns 49.9% of black rock. but you seem not to know anything of its activities.
number two, you are the person who was in charge when bank of america acquired countrywide over a year ago, but you apparently weren't aware of its books and the losses inher ent in the purchase. number three, you are the ceo of the largest bank in the country and you seem to present yourself as having a rather hands off relationship with the federal reserve and the treasury. i find that somewhat incredulous. let me ask some follow-up questions. in terms of the purchase of black rock that was a part of your merrill lynch merger, it's my understanding that black rock now valued over $1.3 trillion. and that they've just received 5
no-bid contracts from the federal reserve, among them managi troubled subprime mortgages in the
freddie mac and fannie mae portfolios. the people of the united states have through the fed have propped up fanny and freddie to the tune of $200 billion. for the record, can you provide the contract that black rock has with the fed, particularly the one regarding the management of fannie mae and freddie mac's port fort yoes? >> i don't know if i can. we don't run black rock. we have two or three seats on the board, but don't have a ceo or chairman and he doesn't report to anyone in bank of america -- >> you own 49.9%. isn't that a strange relationship. >> we don't own 51%. that would be the difference. >> do you know how much black rock will earn from that
contract with the federal reserve to manage fannie and freddie papers. >> no,
i don't. >> let me mention, "new york times" wrote the following, can a company being paid to sell troubled assets for the same kind of assets for private clients without showing preference and should the government seek counsel from a company that stand to make or lose billion fz the policies are enacted. can you outline how the bank of america will avoid conflict of interest in the mortgage portfolios and insider dealing charges as mortgage portfolios are resolved and bank of america mortgages are involved when black rock is actually the des ig knee to manage the portfolios on by half of the federal reserve. >> black rock would have to manage those with the client
would have to manage anything like that. >> but obviously, bank of america, some of your mortgages are held by fannie mae and freddie mac, you were acquirer of country wd, the largest subprime abuser in the country. >> and black rock would have to take that into account, yes. >> can you provide for the record the documents you may have at bank of america that contain or record the conflict of interest review undertaken by bank of america to ensure proper ethic as these mortgages are resolved. >> the conflict would be with black rock and the client, which would be freddie or fannie mae. countrywide is doing quite well and we have changed policies to become one of the most reputable in the country. >> there's a whole hearing on countrywide. >> it would be prebank of
america. >> are any of the former countrywide staff on your staff of bank of america? >> there's some stuff but nobody in executive management. >> i beg your pardon? >> we sent our ceo to run the company. >> mr. chairman it wouldn't be bad to hold a hearing on the relationship, black rock the countrywide and fannie mae and freddie mac and explore the interlocking relationships that you claim have no bearing on activities within your institution which sound very unusual as you state them before the committee today. i wanted to just in my second question here, relating to superior banks, which had the largest settlement in american history at the fdic in 2001, over $450 million as a result of their subprime activities in
chicago and beyond including services by merrill lynch, which is how you would acquire the superior loans, troubled loans. let me ask you when bank of america acquired those loans, did you audit them prior to reselling them to investors? >> i'm not sure of that transaction. i would have to get you somebody who was more familiar with the transaction. >> explain to us as head of this massive and important bank in our country, what is your plan for dealing with bad loans such as the superior loans that came to you through the fdic merrill acquisition? >> well to the extent that you have loans, you can rehabilitate, you do. to the extent that you can sell loans for discounts, you do. to the extent you can't do either, hold them on the books and at some point write them off. >> if you sell them to knowing investors enthey were bad loans, what happens? >> you would take a massive discount. the bank selling them would take a massive discount.
>> i would like the paper trail, audit trail on the superior loans that your bank has been handling. >> thank you, mr. chairman. >> mr. chairman -- may i ask the chairman to yield just for a second -- may i place in the record an article from the atlantic monthly, may 2009 on the financial crisis, please? >> without action. >> ask unanimous consent to insert e-mails i offered on the screen for the record. >> without objection. >> the gentleman from maryland. >> thank you very much, mr. chairman and mr. lewis, i'm confused. just picking up on some of the things that the chairman and mr. kucinich were asking about. i can kind of understand your reaction to discovering there was a $12 billion loss suffered by merrill lynch especially coming after shareholders vote to purchase merrill lynch.
i can understand you telling the fed and secretary paulson you were thinking of backing out of of the deal. i can understand that. that was based upon your expertise and your experience. i cannot understand the agreement you reported that you made with treasury and the fed which they both denied to disclose the $12 billion loss. if the loss made this horrible business deal to acquire merrill lynch, why did you still do it? and i know you've told us over and over again. but let's be frank. i mean, and i'm wondering, how do you determine what is -- you must disclose. we have shareholders here who are concerned. you're about to go into a deal with a company that is worse off than is made to believe. and it just seems to me that and a person with your experience,
there are a lot of people in this situation and i don't care what paulson may have said, what bernanke may have said. they would have said, the tell with you, i'm going to stand on principle and my principles tell me there's a mac here and a real problem. if i go down, i go down. but i'm going down on principle. i want to give you an opportunity to tell us, because i got to tell you, i mean, i'm kind of concerned because i think there are some serious credibility issues and i think mr. kucinich raised some things that if i were your lawyers, i would be concerned about. so help me. >> your referring to the fact that despite the fact we thought we could have a mac we relied on the -- >> and i'm also going to the
point that i believe that when you said you don't just go and tell the feds and paulson that, look, i smell a rat here. somebody of your stature, i can understand if you were some guy that came off the street six months ago and the last thing you did was even though you were a bank teller, no offense to bank tellers, that's all you did, you're a major player. and when you speak, people listen. so i'm trying to figure out, you've got -- you -- i mean, you said there is a problem here. but then you let these folks -- i mean in all due respect to bernanke and the feds and all due respect to paulson, you're the head of this bank and head of bank of america, they are
not. you're -- you've got to answer to the shareholders. i'm trying to figure out why -- and this is stuff, it seems to me, if i had this kind of information, i wouldn't even want my shareholders to be voting on something and they did not have full disclosure. i'm trying to figure out where does the disclosure come in. i get the impression that there was insufficient due diligence, i know you were dealing with a crunch time and only a matter of hoursz irp you were trying to turn all of this over. i got that. i man of your stature i refuse to believe you set traps parns sparnscy to the side for xpeed yency. i'm trying to give you ap opportunity to explain this to us. if you don't want us, that's up to you. >> if you ask, i will do my
best. i don't know what else i can say other than we were influenced by the strong nature of the wording from the federal reserve and the treasury in the sense that they obviously felt very strongly that we did not have a mac. i also looked -- still thought we had a strategic reason to do merrill lynch despite the fact it had a financial issue. and the third i thought the downside of calling a mac and not winning was severe. all of those factors were factors in me making that decision. if i had thought that it was a mac i would have called a mac. >> i see my time is up, mr. chairman. >> thank you, gentleman from
maryland. as we come to the conclusion of this hearing. it's important to remember that we have heard only one side of the story today. the committee needs to hear from mr. paulson and mr. bernanke before we draw any hard and fast conclusions. i do believe in fairness. however, i do think it is fair to observe that a flawed financial regulatory process was at work in this case. we see closed doors, meetings, coded messages. motives questions and private e-mails. basically the regulators and the financial institutions seems to be making up the rules as they went along. as congress considers financial regulatory reform, one of the lessons from this case is that we need much more transparency and accountability in the financial regulatory and
oversight process. the american taxpayers and corporate shareholders deserve no less. they need to know what's going on. let me again, thank you mr. lewis, for being here today. before we adds adjourn let me stay, this committee has and will continue to protect the american taxpayers. and we'll continue to make sure that the taxpayers dollars are spent in a transparent and wise manner. without objections, i enter this binder into the committee records and without objection, the committee stands adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]
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