the stress test came after the fact of all of this happening. what we did not project was the severity of the credit crunch or the credit crisis that occurred during the fourth quarter. or the credit crisis that occurred during that fourth quarter. it wasn't that we hadn't identified the instruments. we just didn't see the decline, the depth of the decline that happened during that quarter and

most people didn't. so if -- to answer your question, if in fact we had been able to predict that, no, we would not have done the deal because the hole would have been too big. >> so you don't think that this stress test would have indicated the problems that merrill was going to face because you couldn't have predicted the fourth quarter collapse? >> no sir. i don't know of anybody that would have predicted that. and actually you can see some evidence of that in the fact that virtually every major bank had an operating loss in the fourth quarter. and even the financial analysts were not predicting the losses pro inspectively. >> sure. switching ground for a second. you also acquired with the acquisition a significant ownership in black rock? >> yes,sir, 49.9%. >> i'm aware, they do have

contracts with the federal reserve and the department of treasury, black rock? >> yes, they do. i think they do. we don't manage them but -- >> i'm sorry? >> we don't manage the company, but i have heard they do have contracts, yes. >> you may not know then, were any of these contracts given to black rock in furtherance of financial support to bank of america from the government? >> no. there's a big distinction in the management of two companies and we in fact make it a point not to be part of the management team. >> but you could see the potential for a conflict of interest in -- you have to have some control over them? >> we actually don't. but i do see the cosmetics of the potential conflicts. >> and cosmetics are becoming important? >> yes, they certainly are. >> how about the appearance of conflicts or i am propriety in that vein? >> you make it very clear in

terms of how the company is managed that you have nothing to do with the management and it is pretty clear in the biby laws that we do not manage the company. >> very good. thank you. >> we know go to one of our senior members in congress in terms of service, not age. >> thank you, mr. chairman, very diplomatic man. mr. lewis, thank you for appearing this morning. as you can tell, there are serious questions being raised about how much you actually knew about merrill lynch's condition and indeed of condition of bank of america that you then did or didn't share with your shareholders. and i would like to cast a wider lens on a pattern of behavior of bank of america that and perhaps other institutions in our country that have led our nation to the precipice that it now

faces. on august 20th of 2007, they reresponded to a question that limited an amount that federally insured banks can lend to related brokerage companies to 10% of bank capital. until that point, banking regulation was that banks with federally insured deposits should not be put at risk by brokerage activity. four months after that waiver was provided to bank of america, bank of america bought countrywide. which has proven to be the worst subprime lender in our nation and i would like to place in the record a report that documents that. and the question that i have is, who headed bank of america at the time the request was made of the fed to waiver that, to allow bank of america to enter into that brokerage activity?

>> i was the chairman of -- and ceo of the company. >> you were chairman and ceo. >> you made the request? >> i really -- i don't know of this particular request. >> but you are aware that bank of america then bought countrywide four months later? >> yes, ma'am. i am very aware of that. >> okay. what kind of due diligence was done on their portfolio? >> we did a great deal of due diligence on their portfolio. i'm proud to tell you that we bought them and changed all of their lending practices e they are now a prime lender. they are not doing subprimes. bank of america had gotten out of subprime in 2001. we were not doing it at all. we've turned that company around to a very reputable mortgage lender doing the right things. >> but you had to absorb all of their losses? >> no, ma'am.

we -- in the no, ma'am, in the n there's an accounting thing where you mark the assets down before you buy them. >> that leads to my next question. it has been stated that the bank of america in 2008 conspired with merrill lynch in a sweetheart deal to give out exorbitant bonus to merrill executives totalling over $4 billion. that's with a b. in december 2008. soon after, bank of america got major infusions from taxpayer t.a.r.p. money but in 2008 on its federal taxes, bank of america, though it earned $4.4 billion that year, apparently paid just $120 million in taxes and deferred $5 billion in taxes for 2008. some people are saying that bank of america acquiesced to the merrill bonuses because otherwise all of bank of

america's 2008 earnings would have been consumed with bonuses for merrill. how do you respond to that? >> well, the transaction with merrill took place on january 1 of this year. and until that time, they had a separate board and a separate compensation committee. we had enter sbod agreement which allowed us to cap the bonuses and to have influence on the bonuses but that the final decision would be made by their compensation committee and their board because it was still a separate public company. so there was not a connectivity fully until after they became is subsidiary of bank of america. >> but it certainly looks like, i don't want to use the word "hedge" but it looks like financial people inside your company were anticipating what might occur and those -- the

deferral of taxes in 2008 seems most curious. >> well, i'm not a tax attorney and i don't know exactly what the hedging was. but it was not, it was not, i don't see the connection to merrill because merrill was, the next year. >> i would sure appreciate, mr. lewis, if you could provide for the record what net effective tax your company paid in 2008. because to me it looks like you pay 1/50th of what you should and i would like to compare what tax rate was paid and the amount that was paid versus what the average middle class family in our country pays. i think the record will show you paid actually substantially less. i have a request, mr. chairman, if i could, for information for the record. mr. lewis, is it possible that in the spring of 2008, i have information that bank of america bought a portfolio of subprime loans from the federal deposit insurance corporation that had

been previously originated by superior bank of illinois. consequently, bank of america sold those same loans valued at hundreds of billions of dollars to investors who as of last year have now suffered major realized losses. has bank of america estimated the amount of those losses attributable to the acquisition of the superior fdic portfolio sold to bank of america? and can you provide that to the record? >> yes, ma'am, i would be happy to do that. >> thank you very much. >> thank you, mr. chairman. >> now, yield to congressman welch from vermont. >> thank you, mr. chairman and mr. lewis for being here. a couple of questions. my understanding is that the original transaction started out as a private deal between bank of america and merrill lynch, correct. >> yes, sir. >> and you did the due diligence, financial review, to make you come to the conclusion that it was in the best interest

of the shareholders of bank of america to proceed, correct. >> that's correct. >> and then some time after you made this decision, you became aware of the $12 billion additional hole in the balance she sheet, is that correct? >> yes, sir. >> and that was on december 14, 2008? >> that's when we saw the accelerating losses. >> well, that's when -- accelerating as in $12 billion additional? >> correct. yes, sir. >> now your shareholders had already voted to approve the merger based on information you had provided up to that point, is that correct? >> yes. >> but the $12 billion figure that you became aware of on december 14th was of such magnitude that it made you believe that in your capacity as the ceo you would have to consider invoking the mac clause, is that correct? >> yes, sir. >> and is it fair to say that the mac clause would be

considered in effect a nuclear option? >> i don't -- >> here's what i mean, if you invoked the mac clause to get out of a deal that you entered into, then there's obviously reputationable consequences in litigation, correct. >> yes, sir, there is that possibility. >> if you lose in litigation, there are financial consequences to your shareholders, correct. >> yes, sir. >> so you wouldn't even consider invoking the mac clause unless there was something of enormous magnitude and consequence to the company and shareholders, correct? >> that's correct. >> in order to invoke the mac clause an avoid the consequences of perhaps losing, would it be prudent in the ordinary course to get financial advice from your financial advisers as to the impact of this $12 billion hole on the business plan that justified the original decision to enter into the agreement? >> well, we had finance people looking at all of that. so we were looking at that

issue. >> well, obviously. this is my question. if you found out about a $12 billion additional hole, whatever model you had about payback and value to the shareholders now was called into question, right? >> i tried to mention this before, but it extended the amount of time that you would get your payback, yes. >> it affected shareholder value, correct? >> yes. >> basically two questions. one, did you get a financial analysis that you reviewed before you made a decision to discuss with the treasury officials the invocation of the mac clause? >> there was financial analysis that i saw, yes. >> these are made available to you? >> they were, yes. >> and what was the conclusion of those financial analyses? >> the conclusion was that you pushed out your payback or your

accretion because you had these preferred shares now that you were having to pay back. >> but that's obvious. i mean the bottom line is was there a conclusion about what the viability of this transaction was? >> well, we still felt strongly that the -- all the strategy issues that were being addressed prior to merrill lynch were being addressed by the acquisition of merrill lynch. >> have you made these financial studies available to the committee for its review? >> i don't know. i don't know what the committee has. >> so what you're saying is you did review financial statements from your adviser, those being whom, by the way? >> our financial advisers are us. >> so all internal. and on the basis of that, you decided that despite the knowledge of the $12 billion hole, it was prudent to proceed, correct? >> yes, sir. >> so whatever threat or whatever word it is we're going to use for mr. bernanke and mr. paulson interactions, you had come to an independent conclusion on the basis of financial review by your people

that it still made sense for your shareholders to proceed, correct? >> no. as i recall, they were done in a context of the receiving the money. >> let's be clear. you're saying two things now, one you, did an independent financial analysis that said it would stretch out the payback time but it's still prudent to proceed but on the other hand, you had bernanke and paulson breathing down your neck so that was a factor? are you saying those two things? >> no, i don't think i a i'm trying to say that we -- >> okay, the sheer holders -- $12 billion is of consequence. did you tell your show held as you had come upon this information and it was not the deal that was going through because it had a $12 billion hole that was accelerating? did you tell them that? >> the $12 billion was what we discovered later. >> do you think after the fact

information is of interest to the investors? >> what i do know is that when our lawyers tell us we have to disclose it, we disclose it. >> can i ask one final question? if there is an event they you consider so significant that it may allow you to a vote the material adverse consequence contract clause, do not think that that's an event is of interest to shareholders and requires you to disclose it? >> i would leave that decision to our security lawyers and our outside counsel. >> you are not the ceo? >> i have to interrupt the gentleman. we have votes and other members that have not had an opportunity. a lawyer. >> we have others who have not had an opportunity. the gentleman from virginia. >> thank you for being here this morning. several questions.

one is when did you decide gnth the financial losses incurred by merrill lynch should be disclosed to your hair shlders? >> again, i don't decide on disclosures. we have securities lawyers and many times they talked to exterth counsel to determine that. >> well, presumably, i work for a company, you, as the ceo, are in on those conversations. >> no. they come to me and they are done. >> right. >> when did that happen? when was the decision made and how was it made to disclose or not to disclose to the shareholders of your company? >> we disclosed the losses at merrill lynch consistent with disclosing the agreement we had with the government and consistent with us announcing our earnings on june -- january 16th. >> january? why such a long delay?

>> again, i'm not a securities lawyer. that is when -- that is when we announced according to the schedules given to us by our lawyers. >> were you ever encouraged or pressured by anyone at the u.s. treasury or by the federal reserve not to disclose until january? >> no. we were working on a goal of getting everything done at once. >> i'm sorry, i cannot hear. >> we were working on a goal of getting everything done at once so we didn't have an announcement of something that would cause more damage to the economy. but nobody ever told us that we should not disclose a disclosable event. >> so, for example, nobody at the federal reserve and no one at the united states treasury urged you to manage the timing of the disclosure so that

merrill's earnings and the receipt of t.a.r.p. money were all disclosed in january? >> the target was it to do that so that we didn't damage the economy any more. >> so there were discussions about that with the u.s. treasury and with the federal reserve? >> it was about announcing everything at once. >> i understand. but the timing is interesting. let's announce it in january, not in december. was there something critical that happened in in wall street that made it better in january than december? >> there was not an agreement in december. >> i'm sorry? >> there was not an agreement in december. >> there was not an agreement among whom? >> among us. us being the federal reserve and the treasury. >> so there were discussions but not an agreement in december. >> there were discussions but not an agreement, yes. >> did those discussions involve the secretary of treasury himself and a the chairman of the federal reserve himself? >> yes, they did. >> and yourself? >> yes, they did. >> and the agreement was let's hold off until january because we're not in agreement about

when what to disclose and when to disclose it? >> we did not have an agreement on the details or the amounts. >> were the reports that you were reluctant to accept t.a.r.p. funds true? >> i'm sorry, i couldn't hear. >> there was a report that you did it not want to accept t.a.r.p. funding. is that correct? >> it is true that we did not think we needed the t.a.r.p. funds at the time we were asked to take them. >> was there any connection between your reluctance in accepting them and the exhortation from secretary paulson at that time to accept them and the issue of don't disclose the $12 billion worth of losses you've just discovered? >> no. absolutely not. >> it never came up? >> no. >> why did you accept t.a.r.p. funds if you didn't think you needed them? >> because after hearing the

various regulators, i felt like given what they were saying about the potential of the deterioration in the economy that we should have a healthy fear of the unknown. >> how much in t.a.r.p. funds did you accept? >> $15 billion. >> that's a lot of money for insurance against the unknown. especially if your initial reaction was we don't need them. >> right. yes. but, if you then see that credit meltdown of epic proportions that happened in the fourth quarter, it may not have been such a big insurance policy after all. >> my time is almost up. one final question. greg curl replaced amy brinkley as boa's chief risk officer. given the fact that mr. curl fwaled to unless $12 billion of merrill lynch's losses, it is wise to have mr. curl be your chief risk officer? and did you approve of that decision?

>> mr. curl didn't miss the instruments which caused the loss. what happened is we did not anticipate the meltdown of such a significant proportions in the fourth quarter. so we -- he identified everything properly. no one thought things would get as bad as it did in the fourth quarter. and i made that decision. >> you made the decision that mr. kerl should go ahead and become the coo. >> i made the decision for him to become the cro. >> let me announce that we have two votes on the floor and that we will recess for until 12:30, we will be returning at 12:30 and of course continue the questions. so the committee is in recess until 12:30. [captioning performed by national captioning institute]

[captions copyright national cable satellite corp. 2009] >> at this time, i yield five minutes to the gentlewoman from california. >> thank you, mr. lewis. in your testimony, you stated that nine days after the shareholders vote approving the merger, you became aware of significant accelerating losses.

he raised concerns that the bank of america might want to avoid finalizing the deal due to the revelation of mac. to the revelation of mac. however, it is difficult to understand how this came as a complete surprise given reports by "the new york times" that shortly after the deal was announced in september, b of a a had quickly unstalled 200 people at merrill lynch to thoroughly review their books. were any of the 200 bank of america employees responsible for analyzing merrill lynch aware of the potential for the $12 billion loss before you legendly discovered it in mid december?

>> -- we did have people there and we did know that there were losses and that was clear both in our company and theirs. we can see that that was happening and there were rumors on the street that that was happening across all finance institutions and we saw evidence of that after the fourth quarter close because we saw most everybody had losses. the thing that caused us to be concerned was the acceleration that we saw when we got the numbers that we did on the 14th. >> did you feel that the reviews of merrill lynch's books were thoroughly adequate? were they resaerchd analyzed adequately? >> yes, ma'am, i thought the due diligence was done adequately. we identified the instruments that we thought might have issues, if you have credit

deterioration, but we did not expect the magnitude of the deterioration that occurred in the fourth quarter. >> so you're saying that you really weren't aware of the substantial loss before the shareholders' meeting on december 5th? >> no, ma'am. we saw losses but they seemed consistent with what we were are hearing about in the marketplace and consistent with what we were seeing at our company. it was only when we saw the acceleration that when we got the report, when we did, that caused the alarm. >> well, do you seesy think -- >> well, do you think if you had that knowledge before, you would have proceeded with that merger differently. >> well, i can't, it's hard to predict what i would have done other than what we did when we had them. >> the scenario i just gave you, if you were aware, would you have proceeded differently? >> i don't know because it didn't occur that way.

>> in testimony to the new york state attorney general andrew cuomo, you stated that you had been advised by representatives from the treasury department and the federal reserve not to disclose details of merrill lynch's difficult financial position. so why do you believe that representatives from the federal government would not want you to disclose knowledge you had of merrill lynch's increasingly dire economic position? >> during all of that time, there was never ever a time that the federal reserve or the treasury department told me that we should not disclose something we thought would be a disclosable event. >> so there was never a time that you were told to hold back

on this information? >> not as regards something that should be disclosed. >> okay. remember you're under oath. okay. despite the fact that the plan for a merger was announced on september 15th, 2008, there was no mention of the $20 billion capital injection from the government until january 16th. at what point during the negotiations between the b of a, merrill lynch and federal government was it determined that this money would be necessary for the merger to be finalized? >> the discussionsround the injection of the preferred stock took place after we went to the federal reserve and the treasury on the 17th. and so, during that time, we began to talk about various ways to inject capital and so-called

fill the hole. we did not come to a conclusion about the amounts and nature of the structure until some time well into that first first weeks of january of 2009. >> thank you. my time is up. thank you. >> thank you very much, gentlewoman from california. just before i move to other member, let me just sort of ask a couple other questions. mr. lewis, did merrill lynch give you all the information that you needed to make a decision, an informed decision? did you get all the material that you needed in order to be able to make an informed decision? >> yes, sir. they did. and we in fact not only were we looking at the data but we had an outside firm that looked at the data before, a company run

by chris flowers who was looking at the data alongside of us and he had looked at their data some time ago, a few months before then and so they had a very good knowledge of the various instruments and securities. so we actually had two sets of eyes looking at that again, sir, it was not the fact that we didn't identify the securities, it was that we did not expect the credit to deteriorate like it did in the fourth quarter. >> so do you agree that the decision on whether to proceed with the merger was ultimately yours? it was yours? >> well, it was my recommendation to the board and it was mine and the board's decision to go forward, yes, >> congressman. >> he has a follow-up.