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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 he cirmanhe ramembked aut 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

leadership. bank of america's presence is certainly felt in north carolina in my district and north carolina generally. the tenth district has become particularly hard hit in the economic recession. bank of america employed 17,000 north kacarolinians. >> it's a long standing tradition that we swear our w z witnesses in. do you solemnly swear to tell the truth, nothing but the truth, be seated. let the record be set that the witness answered affirmative. you may now -- let me just sort of explain to the light situation here.

first, you have five minutes to sum raise your statement. then the yellow light will come on. that means you have one minute. after the yellow light comes on, then there's a red light. that means stop. of course, after that, we'll allow the members an opportunity to raise questions with you. so you may begin. turn your mike on. push that button. >> chairman, sub committee 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 our 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 baã

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 the internal risk management reports that

bank of america reviewed during due diligence. then there's an e-mail from the fed general counsel to bernanke on december 23rd, 2008. "lewis should have been aware of the problems of merrill lynch earlier" perhaps as early as mid-november and not caught by surprise. that could cause over problems around the disclosures bank of america made for the shareholder vote. now, mr. lewis, i'm going to ask you a series of simple questions. if you're not forthcoming i'm not going to have any choice but to interrupt you. i'm asking for your cooperation. isn't it true that bank of america examined merrill lynch's book of business before signing the merger agreement and then received detailed financial reports every week from merrill lynch after signing the merger agreement on september 15th? >> that is true.

>> isn't it true that the merrill losses of mid-december that you claimed motivated you to go to the government were not the largest week-to-week losses at merrill you observed since agreeing to purchase the company. in fact, wasn't the 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 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 theerformance of their

portfolio. now our investigation found that the fed believed you should have understood the potential for 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? >> i can only tell you what i just said. just said. that part of the november losses were causing the projection we were getting in december. they were a factor in the increased projecti. >> 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? 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 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, 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 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 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. >>