this was not the only influence. >> so apparently -- let me ask you this. did he have any influence with regard to this? did he did it -- did ben bernanke say that you should not disclose the information, did this come to you from any way from bernanke? >> henneberg said that we should not disclose anything that was already disclosed. i never heard from him on this issue of not disclosing something. >> it looks like you are trying to go somewhere. ing. >> anything else -- look like you')gg@@ @ @ @ @ m" z >> when did he do this? >> he expressed this on more than one occasion. >> last but not least, you are

experienced, and you have used the trade judgment -- great judgment. this was based on your own experience. this was of the clearest -- clear blue sky. >> the were out of line with other institutions and the institutions that we have. >> this was not this kind of situation? there was not a mac situation? >> i can't say that there wasn't a mac because we never called it so we just don't know. >> very well. >> if the gentleman would yield for a moment. >> my time is up. >> the gentleman's time is expired. i now yield to congressman flake from arizona for five minutes.

>> thank you, mr. chairman. i just want to share my colleague's skepticism about whether or not this was a threat. it seems completely inkred you house this wouldn't be considered a threat. if this wouldn't be considered a threat, if i could ask you, what would be considered a threat? kidnap the family dog? release your college gpa scores, what is a threat if this is not a threat? >> i'm just trying to describe the circumstances and not put one word to it myself. >> this -- >> it seems from this vantage point, it seems there's sort of a kind of a stockholm syndrome

here, you're still regulated by these entities and it seems you've identified with your cap tors or regulators in some ways here but we would like to have a candid answer here. and i don't know if you can wiggle your pinky finger or give us some sign that nobody else will see, it just -- the big grin, maybe that gives it away. let me tell you from this v vantage point it seems difficult to accept that that would not seem threatening behavior. again, from the notes, i believe mr. price, the cfo took during one of these meetings, identifies hank p, fire board if you do it, invoke the c. responsible for the country.

tim g. agrees. i mean it just seems like there's no other explanation here. and i can understand maybe from the smile and what not that you agree but can't say it here. but let me just say, if you learned later on that there was a 12 billion in losses that you didn't know about. it wasn't so much what they said but how they said it, the seriousness of which they explained the need for you to move forward with this merger, if not 12 billion, wheres the threshold that you would have said can't do it? can you enlighten us there a bit? >> i can't. because i dealt with the circumstances and i don't know -- what caused that to happen, to your point even if

you -- whatever you want to call it, i wouldn't change how i described it. i'll let you put the word to whether it is a threat or whatever, but the circumstances that i described remain the same. >> how compelling was the seriousns of that conversation? would it have compelled you if the losses were twice as big as you didn't understand that they were for 24 billion instead of 12? >> at some point you couldn't have made it that deal. at some point a number that you -- the hole would have been just too big. >> if the taxpayers back fell, 24 just as easy as 12? >> no sir, because you would all of a sudden -- this is 8% after tax dividends that you're paying. at some point you couldn't bear the burden of that kind of cash flow drain. >> the 12 billion was within the

range? >> it was painful and it caused us to have to push out our horizon in terms of the deal to work, but it is workable. >> mr. flake, i would yield to the gentleman -- >> i would like to associate myself with your comments and the gentleman from maryland where you are a little inkredhouse when it was stated before the new york attorney general, the gentlemen was threatened. we are oddly enough arguing over when you're threatened you, you feel threatened, but not whether or not there is a threat. we made that pretty clear and i appreciate your sticking to a position of not further indicting those that regulate you. it's our job to get to the truth and i think we have. yield back. >> i now yield to the gentleman from massachusetts, mr. lynch. >> thank you, i want to thank

chairman ckucinich as well. thank you as well, mr. lewis, for coming before the committee. let me go back to a point that mr. cummings and also mr. kucinich raised earlier. mr. kucinich seemed to be hung up on the fact of when there was a significant indicator that merrill lynch was in rapid decline. rather than focus on november of '08. we can go all the way back to fall of '07 when they mounsed an almost $8 billion loss and mr. o neil was forced into retirement. there's a long history of decline here, all be it it accelerated to some degree around the time of your purchase. but there was significant

evidence that they had overloaded with collateral debt obligations and other complex derivatives and they were in pretty tough straits for a while. isn't that true? >> yes,sir, it is true. >> let me a you, there's a couple of e-mails and unfortunately they are very small up there. let me try to help you. one is from chairman bernanke to a selection of the board of reserve governors. and this is december 21st, 2008, around the time that your thinking about this material adverse change being existent or not. this is from chairman bernanke, i think the threat to use the mac, the material adverse change, is a bargaining chip and we do not see it as a likely scenario at all.

nevertheless, we need analyses of that scenario so we can explain to bank of america with some confidence why we think it would be a foolish move and why regulators will not condone it. the other e-mail is actually sort of reinforces that and that is from jeffrey lacker, who was a president, i believe, of the federal reserve bank of richmond at that time and i think he's a voting member now. this e-mail was also cc to the chairman, i believe. just had a long talk with ben, ben bernanke, i presume, says they think the mac threat is irrelevant because it's not credible and tends to make it more clear that if they, meaning bank of america, play their card and then need assistance,

management is gone, period. and then says forgot to tell them that kl, i believe that's you, ken lewis is near retirement, close. the there's a different dynamic going on here. there is -- remember the context of all of this is the sky is falling, as mr. cummings said. and tremendous pressure on everyone. they think you're playing a game. they think you're throwing this thing out as a red herring in that they think what you're really trying to do and what some people suggest you might have been doing was to leverage taxpayer support by falsely putting this mac out there. the fact that you're going to let this deal crash, walk away, even asserting -- you don't have

to win the mac, as you said before, you don't have to win it. this deal needs to stop and then i think the weight of all of the forces that play there with lehman and everything else, were in some pretty deep trouble. so what i'm asking you is, was that your strategy here? did you use this mac as leverage to force bernanke and paulson to come in with taxpayer support. and i want to note your own firm was in pretty tough shape at the time. everyone seems to think you were the white knight and strong party, as mr. kucinich has indicated, you know, bank of america had its problems too at this time. but tell me what your strategy was and your negotiations there and what was the motivating force behind your decision to

put forth this mac? >> thank you, and thanks for reminding us about -- we were in the middle of a pretty bad financial crisis and we had people of good intentions despite what they've said about me. the -- we grew more and more convinced that there was a distinct possibility that we had a mac as a result of these accelerated losses. >> you didn't disclose that to your shareholders though? >> but the acceleration really took place about a week after -- that's when you saw massive acceleration, not necessarily those days but as a result of the forecast increasing and. so there was -- there was not some wild bluff. we thought we had the real possibility of a mac.

>> okay. >> mr. chairman, i yield back. >> the chair recognizes mr. mchenry. >> thank you, mr. chairman. were there specific details that the federal reserve and treasury told you not to disclose to your shareholders? >> no, sir, neither secretary paulson nor the chairman of the federal reserve, mr. bernanke, ever told me not to disclose something that we thought should be publicly disclosed. >> okay. mr. kucinich referenced e-mails and i wanted to get on the record, have you seen -- have you seen the e-mails before today? >> no. >> and i want to make sure we got inthat on the record, mr. chairman, with all due respect to you. as i asked earlier, you've been

involved in a number of merger and acquisitions, your institution has been involved in dozens upon dozens over your career with the bank. to your knowledge have there been material adverse change clauses included in previous deals of this sort? >> virtually every acquisition would involve some material adverse change clause and not totally uncommon to have them invoked. >> has your institution invoked this clause before? >> yes, sir, we invoked it on a deal with sallie mae. >> all right. >> looking at the list of federal reserve regulators who are second guessing your decision or your raising the issue of the material adverse change clause, it's possibly fair to say you've done@@@@@@@@

is it safe to say that you have done more deals that include this clause, then the bureaucrats who were second- guessing the decision? >> i do not know the background. >> i understand that these are still regulated institutions. there is no need to hit on the federal reserve and the staff there, but there have been some reports, to go to another subject matter, there have been reports about the efforts of the banks to raise capital in the wake of the stress test. what is the status of these efforts? >> we were required to raise $33.9 billion. required to raise $33.9 billion and i'm pleased to say that we have raised that amount and we will raise more than that.

that should be completed sometime toward the end of this month. >> okay. my constituents are concerned about access to credit. we have a mortgage foreclosure issue that's widespread across this country. can you tell me about -- bank of america's actions as it relates to foreclosure mitigation and helping those folks that are facing the loss of their homes? >> one of the issues with the loan modification issue was that initially the banks were just not staffed up to handle that kind of volume and the different type things that were being asked. since then we've -- we have 7,200 associates that just focus on loan modifications. since july of 2008, so less than a year, we actually have already modified 311,000 loans. >> there's been a discussion

about access to credit and whether or not institutions are lending. with the down turn in the economy, certainly institutions have a more difficult time in a down economy to finds credit worthy individuals and make loans. can you discuss the loans that you've made over the last two or three quarters? >> well, it's -- it's a great question and it's also the key to us getting this country back on track. because the financial system doesn't make loans then we've got an sue. first, i would say i'm very proud that bank of america is the largest lender in the united states. i'm very proud of that. secondly, i can assure that we're making every good loan that we can make. simply put, banks take deposits and make loans. that's how we make money. it's in our enlightened

self-interest to do that. if we don't, we don't openty miz our profits. in a recession this deep and this prolonged, you do get an issue with demand. people start cutting back and spend less an companies expand less. i can't assure that that the loan increases will continue because of loan demand. what i can assure you is we're going to make every good loan there is to be made. >> thank you. >> the gentleman's time is expired. >> the chair recognizes mr. quigley. >> thank you, mr. chairman. good morning. there's been discussion of a new stress test as it relates to our financial institution. i guess the question comes, was the current test good enough, do we need a new one and would

either this kind of stress test helped us understand or prevent these issues when all of these issues took place with your acquisition? >> i do think the stress test was a good one and i think the fact that they probably used higher standards in terms of things getting worse than hopefully they will was helpful too because those things can happen. and so i would -- i thing it's -- i know it's caused us to look at our -- to look forward with a greater sense of possess mix, higher buffers of capital and that will show up in our internal objectives going forward. so i do think it was a very good thing. i don't see any evidence particularly as we talk about

there being some signs of economy may be improving somewhat to put another stress test on top of that. if you think about the last two years, the industry had gone through a significant stress test in actualalty and then getting a stress test on top of that. i think that's enough. >> but, you know what the stress test was that we just went through. if merrill had gone through that stress test and you had gotten the results prior to the board's vote, would it have affected what your board did? >> i don't know if the stress test, of course came after the fact of all of this happening, what we didn't project and what nobody that i know projected was the severity of the credit crunch 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, rr