to reap. through the acquisition of merrill lynch, we put together what looks to be the preeminent investment bank and brokerage firm in the world, an organization that is already producing substantial profits, not losses for our company. understanding that fact is absolutely critical to understanding why we acquired merrill lynch. we bought really bought two businesses. the first is the world's most productive brokerage force. merrill lynch has more financial advisers listed in the top 100, top 10,000 and top women's advisers than any other firm. the second major business was investment banking and serving institutional investors. the results here are nothing short of remarkable. as of the first quarter of 2009, bank of america-merrill lynch was first in u.s. equity related underwriting, first in underwriting high yield debt, second in jirned writing

investment grade corporate rat dead and fifth in global mna and u.s. mna. in the first quarter bank of america earned $4.2 blt. n the first quarter of 2009 bank of . . $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. businesses. 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 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 isn't it true that you understand the portfolio because it was similar to your own in that it was a portfolio that contain complex structure derivative products? isn't that true? >> it is true. the issue is nobody predicted a meltdown like occurred in the fourth quarter of 2008. >> you were getting weekly reports. you certainly understood merrill because of the similarities in the composition and performance of their portfolio. our investigation found that the fed believed you should have understood the potential for losses at merrill because your

own portfolio was similar. i want you to look at the following from the fed's restricted analysis of bank of america and the merrill lynch merger dated december 21, 2008. "the potential for losses from other risk exposures cited by management, including those coming from leveraged loans and trading in complex structured credit derivative products, which they also call correlation trading, should also have been reasonably well understood, particularly as bank of america itself is also active in these products." mr. lewis, how do you explain the apparent 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 just said. that part of the november losses were causing the projection we were getting in december. they were a factor in the increased projection. >> 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. >> so, today's hearing at least from this member's standpoint is really about whether or not the government asserted either

strong influence that would be outside the ordinary influence one would expect from a neutral party or and whether or not you felt that there was an implied threat, either to yourself or your board or your company, in any of the verbal or written correspondence you had with government officials, including bernanke and paulson? >> well, there was the strong advice that i just mentioned. i do want to put it -- >> i realize you don't want to characterize it as a threat or any one word. but did you feel that you were being pressured to go through with the deal at least as strongly as that salesman trying to sell you the car and get you to close or the insurance salesman. you know the pressure i'm talking about. were they advocating strongly

and using both positive and negative forces to do so in those conversations? >> yes, sir, but i think it was in the context of them thinking was in the best interest of bank of america and the financial system. >> you said the best interest to bank of america and the financial system. i'm not going to quible over their motives on the financial system. but why do you say bank of america? did you believe that they really believed this was a good deal for bank of america, even know you were seeing a change which would have affected your arm's length negotiation of a price? >> well, their concern obviously was from the top and that is for the financial system. but we're so intertwooined with the financial system, they base that off all of this happening and the uncertainty coming back into the financial system, that if fact that would hurt the

system and us. >> when you say and bank of america. you mean the financial system and as a member of financial system you would be affected? >> yes. >> if they went and sold it to somebody else or lowered the price and packaged it up or if merrill lunynch had gone througa bankruptcy, all of those alternatives would have been either better or at least no worse? >> yes, i can't speak to that but those would be options. but i can't speak to whether it would be better or worse. >> my last question and i'll yield to one of other members. if you did not have the government at the table and i know that's hypothetical. if you did not have the government at the table, would you have, a., asserted the clause, and b, either walked away or substantially changed the deal?

>> it didn't happen that way, so it's hard for me to project what i would have ultimately done. but obviously we were strongly considering it. >> so it would be somewhere between possible and likely? >> i don't know how to characterize it. i just -- i'll stick to how i described it, i think. >> thank you. and you're constituent, mr. mchenry will control the balance of my time. >> thank you. mr. lewis, you've been with bank of america and its predecessor companies for how long? >> september would be 40 years. >> 40 years. how many mergers or acquisitions have you personally been involved with in your career? >> i would have to take a few moments and count them up, but obviously probabl more than one, less than 10. >> okay, would this be the largest merger or acquisition

that your company and the predecessor companies have taken? >> no, the nation's bank, bank of america acquisition would have been -- i would have to think back to the market caps and things, that would be the biggest and this would be one of biggest. >> in terms of how you analyzed these deals, do you have a process within your bank to analyzed appropriate growth measures and acquiringther institutions or merging with other institutions? >> we do. >> and did you conduct that same method with this merrill acquisition? >> we, we did. we used the same methodology. my time has expired and i have other questions in that regard later. >> let me yield to the chairman of the subcommittee, mr. kucinich for five minutes. >> mr. chairman, members of the committee, our investigation

also finds fed officials believe that you were potentially libel for violating security laws by withholding material information in your possession from shareholders before the vote to prove the merger with merrill lynch in december 5th, 2008. mr. lewis, please look at the following e-mail from the fed's general council to chairman bernanke on december 23rd 2008. quote, a different question that doesn't seem to be the one lewis is focused on is related to disclosure. management may be exposed if it doesn't properly disclose information that is material to investors. this potential liability here will be whether he knew or reasonably should have known the magnitude of merrill lynch losses when bank of america made its disclosure to get the shareholder vote on a merrill lynch deal in early december. mr. lewis, did bank of america supplement the proxy

solicitation it sent to shareholders with what the company learned in november about the potential for future losses at merrill lynch before the shareholder votes on december 5th? >> congressman, if we take disclosure very, very seriously. if any -- >> were there supplements? >> if anybody in our legal group had suggested we do anything of that nature, we would have done it. >> there were no supplements, isn't that right? >> no suggestions to have a supplement. >> there were no supplements. okay. mr. lewis, look at the following e-mail that circulated on december 23rd, 2008. ", i think he's worried about stockholder suits. knows they did not do a good job of due diligence and issues facing the company are finally hitting home and worried about his own job after cutting loose lots of good people, unquote. mr. lewis, was your decision to tell the government you were considering invoking a mac,

which of course refers to a clause in the merger agreements that allows the to abandon the deal if a material adverse change is said to have occurred. in fact a strategy you deployed to protect yourself from shareholder lawsuits? >>, no, it was not. >> isn't it true, mr. lewis, that during the course of your conversations with chairman bernanke and secretary paulson, you requested a letter from the government saying that the government ordered you to close the deal to acquire merrill? >> no, that was not what i asked for. our board was concerned -- >> your answer is no? are you sure has your answer? >> our board was concerned we had verbal assurances but nothing in writing about getting some assistance. i called chairman bernanke and asked him -- >> you're referring to a different letter. i'm talking about a letter -- you requested a l