taxpayers $20 billion in january? did paulson and bernanke abused their authority by ordering mr. lewis to go through with the merrill acquisition, or did mr. lewis threatened to back out in order to squeeze more money out of the federal government? did the federal government tell mr. lewis to keep quiet about the escalating merrill lynch losses, and the government goes a commitment to provide billions in federal funding? -- and the government's commitment to provide billions in federal funding? we also intend to invite mr. paulson, and mr. bernanke to testify at a future date. the committee's willingness to issue subpoenas should show full cooperation by prospective witnesses. i want to thank mr. lewis for being here today, and i look forward to his testimony. at this time, i yield to the

ranking member of the committee from california. . . ranking member of the the committee, mr. darrell eisner of california. >> thank you, mr. chairman. thank you for holding this important hearing today. it's important that those of us who see this hearing today recognize that we are not here to evaluate the value of bank of america or merrill lynch or their transition, whether it was their transition, whether it was a good deal then good deal today, for either of the parties. we're here because there's been a serious allegation and a number of pieces of evidence have risen that make us believe government officials felt necessary to use the power ux influence, and potentially threat in order to consummate this deal. when congress envisioned the t.a.r.p. and other assets, and other powers in order to help in

the post-september meltdown of the economic market, we did so in a way that was make us lessen the impact as we unwound credit markets around the world. nowhere in the legislation did it suggest that hank paulson, ben bernanke or anyone else operating on behalf of the united states government was given the power to force shotgun weddings. today we're going to hear from ken lewis, ceo of bank of america. a man who spent decades understanding the value of financial institutions. we will hear about the transactions, the ratios determined for a stock trade type merger were in fact considered to be reasonable. as the chairman has said, rightfully so, the federal government played a clear part

in this, but the american people should understand their dollars were not given to any party in this transaction, but, in fact, loaned at an amount substantially greater than the interest rate paid by the federal reserve. as such ken lewis had an obligation to reck fliz they were going to have to pay this money back and they had to receive value in this transaction. allegations made throughout the press and will undoubtedly be reiterated here today. that the value that was being questioned by bank of america had something to do with getting more money from the federal government. that may be true. having done acquisitions myself, more often it is, in fact, the ratio being paid between the buying company and the selling company that is more at stake.

had bank of america had to pay a greater amount in a stock trade than it did, the value of the bank of america to the existing stockholders would have been reduced. had, on the other hand, instead of a roughly 8 to 10 ratio had it been a 5 to 10 ratio, the stockholders of merrill lynch would have had a significantly lower value to their stock. we are not here, though, today to deal with any of that. we are clearly here today as the government form and oversight committee to deal with the question of whether or not allegations made and evidence that has arisen lead us to believe that those operating under the color of our government's seal used any unreasonable influence or threat in order to consummate this or any other deal. mr. chairman, i thank you for holding this hearing.

i appreciate the fact this is clearly the first of two hearings that will be necessary. today we have part of the story. when we have mr. bernanke and mr. paulson then we will have the other half of it. i look forward to this hearing and yield back. >> i yield five minutes to the chair of the sub committee. including the purchase something went terribly wrong with the merrill lynch acquisition. nearly enough to bring bank of america down. taxpayers now own $45 billion in preferred shares and warrants in bank of america. that money was committed by the

treasury department and the federal reserve. mr. lewis is here today as ceo of bank of america thanks to the commitment of those funds through the end of december 2008 and into early january, 2009. due to the secretive conduct with the fed addressing its current financial crisis, many questions about the bank of america merrill lynch deal and bailout have until today remained unanswered. some of the key questions have been were the merrill lynch losses that precipitated bank of america's distress call to the treasury on december 17th the first such accelerating losses bank of america observed at merrill lynch since agreeing to

purchase the company? did they believe bank of a america had a credible case for abandoning the deal? did the federal reserve compel bank of america to complete the deal against its will. or did bank of america's mistakes and miscalculations, more than any other single factor cause the experience corporate deal maker to be exposed to merrill lynch's predictably large losses? did the government believe that bank of america knew or should have known about those losses before its shareholders ratified the merger? did the government have an opinion about whether bank of america could be liable for securities fraud for withholding from investors material information it possessed about a significant deterioration in merrill lynch's balance sheet? did bank of america in effect negotiate an extraordinary deal

for billions of additional dollars from taxpayers to continue growth as the nation's largest commercial bank? this hearing today will help to answer those questions this committee's ongoing investigation and subsequent hearings will answer the following questions among others. did the federal reserve in attempting to protect the system apply well established remedies when it engineered billions of dollars in subsidies to bank of america to complete the deal with merrill lynch? or did the federal reserve pursue an untested experience in banking regulation at variance with traditional remedies in committing billions of taxpayer funds to a corporate management that the federal reserve believed had failed in major ways. this committee has sifted through tens of thousands of pages of documents by bank of america, the department of

treasury and the federal reserve. our investigation will help set the record straight about bank of america and merrill lynch. the story of bank of america's merger with merrill lynch and the huge subsidy helps to answer brooder questions about how the corporate management of very large institutions operate with virtual impunity for their mistakes. this is a disconnection between the fed's ability to analyze financial problems and its ability to remedy them when they involve very large financial institutions. finally before congress rushes to revise the banking regulatory frame work, we would do well to incorporate the lessons of the

bank of america merle limplg episode that this committee's hearings over the coming weeks will draw. i yield back. thank you. >> thank you, gentleman from ohio. now with yeel to ranking member, jim jordan from hor. >> >>. i want to thank you and the chairman of the sub committee to get to the truth about the issue. i think it's an important first step in learning the full extent of the government's manipulation of the the banking industry. this committee's investigation into the bank of america merrill lynch transaction is raising troubled questions about the abuse of power as both the chair and ranking member have indicated. we've learned that at a minimum then secretary hank paulson threatened to remove mr. lewis and bank of america's board of directors if he exercised his legal option to back out of the deal. we've learned the department of treasury and the federal reserve

were involved in discussions about how to be disclosed. we know in october of 2008 mr. paulson brought the ceos of the largest private banks in america to the treasury department and demanded they accept nationalization of their bank in exchange for amount of money of the government's choosing. i understand the significant challenges that our economic system faced last fall. i understand their intention to do what they thought was in the best interest of the economic system as a whole. we must understand the full story in what happened in the banking project so when the next crisis occurs we can understand the limit of government action in a free and civil society in addition to important questions regarding bank of america's transaction with merrill lynch,

i hope mr. lewis can shed light on his personal interaction with government officials. i intend to ask him about the participation -- about his participation in initial capital injections, and to what extent they were forced upon bank of america. as someone from an auto making country, i would like to know the extent to which the government is currently involved in day-to-day operations of the company. i know that the chairman and the ranking member talked about that. we look forward to that happened in a bipartisan fashion in the near future. thank you for that. with that i yield my time if i could to henry to introduce our witness. >> mr. henry -- >> thank you, mr. chairman.

today i have the privilege of introducing our witness whose company is headquartered in charlotte, north carolina. my district is just to the west of. the only committee from the carolinas i think it's my duty and privilege to introduce our witness. kenneth d. lewis is the chief executive officer of bank of america. he's responsible for more than $55 million consumer and small business relationships and $1.7 trillion in total client assets with various business and institutional clients in more than 150 countries and business relationships with 98% of u.s. fortune 500 companies. mr. lewis oversees one of the the largest financial services corporations in the world and one of the largest institutions headquartered in north carolina. born in 1947 he earned a bachelor' degree in finance from georgia state university and a

grut of the executive program at stanford university. arising in 1969, which is bank of america's predecessor. he served more than 30 years within in the bank and 2001 obtained his current position of ceo. he secured millions of new customers an paved the way for future expansion. he's been named 100 most influential people by "time" magazine. he's been former chairman of the national urban league and has been involved in every possible community cause in charlotte. large and small. for that we thank you for your and service.

thank of america employees 17,000 citizens of north carolina, many of whom are my constituents. thank you for your testimony today and thank you for your presence. >> it is a tradition that we swear all our witnesses in. please raise your right hand. the sublease where to tell the truth, nothing but the truth, and if so answer in the affirmative. >> i did. >> let the record reflect that the witness answered in the affirmative. that may explain the light situation here. first of all, you have five minutes to summarize your statement, and then the light will come on. that means you have one minute, and then after the yellow light comes on, there is a red light. that means stop.

of course, after that, we will allow the members an opportunity to raise questions. you may begin. with you. so you may begin. chairman kucinich, ranking member jordan. my name is kent lewis. i'm chief executive officer of bank of america. this committee is reviewing important issues. i hope my remarks will be helpful to you. our business lines include deposits, welcomed investment management, corporate investment banking, credit cards and mortgages. we have a deep commitment to serving all the communities in which we operate. we have committed to land and invest $1.5 trillion in the community over the next ten

years. the financial services industry went underwent turmoil in 2008. earned a a profit of $4.2 billion for the year. we made two significant acquisitions. countrywide and merrill lynch. it does not appear to beny debate these were in the best interest of the financial system, the economy and the country. the failure of countrywide could have destabilized an already crippled market. merrill lynch could have caused havoc when assessing a government-style bailout. these acquisitions, those, were also in the best interest of bank of america and shareholders. certainly the merrill lynch acquisition in particular came with risk. some materialized in 2008.

the merrill lynch acquisition also came with a promise of significant long-term rewards. rewards bank of america and shareholders are already beginning to reap. we put together an organization already producing substantial profits, not losses, for o company. understanding that fact is absolutely critical to understanding why we acquired merrill lynch. we really bought two businesses. the first is the world's most productive brokerage force. currently 14,000 financial advise advisers. top 100, top 1,000 and top 100 women financial advisers than any other firm. the second major business was investment banking and serving institutional investments. the results here are nothing short of remarkable. as for the first quarter of 2009

bank of america and merrill lynch was first in underwriting high yield debt. second in underwriting investment grade corporate debt. fifth in -- in the first quarter of 2009 bank of america earned $4.2 million. merrill lynch contributed $3.7 billion for 75% of the first quarter profit. we continue to go about the business of lending. in the first quarter of 2009 bank of america issued $85 billion in first mortgages. extended 3.9 million in new credit to small businesses and provided $31 million in community development loans bolstering the country's most underserved people and businesses. i also want to stress we have paid 1.1 billion in dividends on the treasury of t.a.r.p.

as a result, neither i nor my senior team received any bonus. to the next level down the bonus pool was cut by 80% the previous year. the level below that by 70, 75%. let me walk you through the decision to purchase merrill lynch. we made the decision in september of 2008. we did so because we saw the potential benefits i just described. we did so without any promise or expectation of governmental support. in-december i was advised merrill lynch raised forecasted losses and recontacted the federal reserve to inform them we had concerns about closing the transaction. as a matter of contract law, this can propel to consummate a deal. federal and treasury reserve

asked tus to delay action and expressed significant concerns about the systemic consequences and the risk to bank of america. we explore government support. we both were aware the the system was in fragile condition and a collapse could hasten the crisis. bank of america concluded that proceeding with action with governmental support was the better course. this made sense for bank of america and shareholders. it made sense for the marks. i believe committed people with good intentions in the private sector and the government were desperately hard in late 2008 to prevent a collapse of the global financial system. six months later it's easy to

forget just how close to the brink our system became. i will never forget. i believe the efforts will be well remembered long after any current controversy is forgotten. with that, sir, i'll conclude my remark remarks. >> thank you for your statement. let me begin the question. let me ask unanimous consent that we have ten minutes on each side initially. then after that five minutes for each member. of course, if we need a second or third round, we will do that as well. without objections, so move. >> one of the key questions is when you discovered the massive losses at merrill lynch, mr. lewis. you said you learned of them late and they came as a big sur

prize. but the e-mails from the fed tell a different story. tim clark from this fed said that you're claim to be surprised seemed somewhat suspect. the federal government wrote this claim is not credible. and there are more like this. it's clear the fed think that you either knew or you should have known about these losses sooner. i have to say, everything that was happen manager the financial market last fall, your claim that you had no idea about merrill's losses until september is remarkable.

the fed either seem to think you are not being forthcoming about that, or you were completely clueless about the merger and the situation on wall street. when exactly did you know about these losses, and why didn't you know about them sooner? >> thank you for the question. the financial marks in the fourth quarter of 2008 suffered a massive credit meltdown. something that probably had not been seen during -- had not been seen during our lifetimes. we saw that happening in september, and october, and we knew that that was -- we saw things that was evidenced in our own book that suggested that things were getting -- were bad and getting worse we also heard rumors on the streets that other banks were suffering losses as

well. so that particular -- the losses that particular time were not concerning because they were consistent with others in the marketplace and what we were seeing as well. then in mid-december the forecast losses accelerated dramatically. so it wasn't that we didn't know about losses, the concern was the fact that these losses accelerated and that was what gave us the grave concern. >> let me put it this way. did you move forward with the merrill deal because of pressure from government officials or because you thought it was in the best interest of bank of america and the shareholders? >> yes, there's been a lot of talk about the pressure from the federal government. it is true we were told if we

went through -- i can't remember the exact words. please give me license with words for word. but basic ally went through wit calling them -- that the government could or would remove management and the board. i've said in the past that the threat -- the threat was not what gave me concern. what gave me concern that they would make that threat to a bank in good standing. it shows the seriousness with what they thought we should not call. so as a results of that that was a factor in our decision. they're saying we don't think it's the best thing for you or the financial system. you weren't assured you would win the mac. if you lost you were subject to

severe lawsuits and severe amounts of money you would have to pay. we thought given the fact that the government felt that strongly and the fact that there was a risk that you wouldn't get, you would not win the mac. and finally that you might end up not getting merle lynch in any sengs even after paying the fines. >> so you were pressured? >> it's hard to find the exact right words to describe what i just described. i found as i tried to have different words it's best just to describe it and let people come to a conclusion. >> yeah. i yield to gentleman ranking member for the rest of my minutes.

>> thank you, mr. chairman. mr. lewis, in our review of the fed's documents, it reveals in contrast to your representations to us today, fed officials concluded that you must have known about the accelerating losses at merrill lynch much earlier. as early as mid-november. when your shareholders could have voted to disapprove. an e-mail sent to assistant chairman bernanke the deterioration has been under way during the entire quarter. all be it picking up

significantly around mid-november. the claim that they were surprised by rapid growth of the losses seems somewhat suspect. bac management, contention that the severity of merrill's losses came to light in recent days is problematic and supplies substantial efficiencies in the due dill generalsy carried out. we're showing in -- and there is an e-mail from december 23, 2008 --