bank of america-merrill lynch merger investigation - exibit a
TRANSCRIPT
8/14/2019 Bank of America-Merrill Lynch Merger Investigation - Exibit A
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[ P a g e 1 ]
. . .
IN RE: EXECUTIVE COMPENSATION INVESTIGATION
BANK OF AMERICA - MERRILL LYNCH
E X & ~ I N A T I O N o f KENNETH LEE LEWIS,
t a k e n a t t h e S t a t e o f New York, O f f i c e o f t h e
At to rney G en e ra l , 120 Broadway, New York, New
York, on F eb r ua ry 26, 2009 a t 4 : 3 0 p . m . , b e f o r e
SARA FREUND, a S h o r t h a n d R e p o r t e r and a N o t a r y
P u b l i c o f t h e S t a t e o f New York .
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1 K.L. Lewis
2 Q. When d i d yo u f i r s t c o n s i d e r d o i n g t h a t ?
3 A. I wan t t o make s u r e I g e t t h e d a t e
4 r i g h t . I 'm p r e t t y s u r e i t was December t h e 1 3 t h
5 i f t h a t ' s a Sunday b e c a u s e I was i n New York , and I
6 was a b o u t t o go horne - a nd wha t t r i g g e r e d t h a t was
7 t h a t t h e l o s s e s , t h e p r o j e c t e d l o s s e s , a t M e r r i l l
8 Lynch had a c c e l e r a t e d p r e t t y d r a m a t i c a l l y o v e r a
9 s h o r t p e r i o d o f t i m e , a s I r e c a l l , a b o u t a week o r
10 s o .
11 Q. How d i d you corne t o l e a r n o f t h a t ?
12 A. J o e P r i c e , o u r CFO, c a l l e d me .
13 Q. Take me t h r o u g h wha t Mr. P r i c e
14 communica ted t o yo u on t h a t c a l l .
15 A. He b a s i c a l l y s a i d wha t I j u s t s a i d : The
16 p r o j e c t e d l o s s e s have a c c e l e r a t e d p r e t t y
17 d r a m a t i c a l l y . We e a r l i e r on ha d more days l n t h e
18 month, so t h a t i t was a p o s s i b i l i t y t h a t a t l e a s t
19 some o f t h e marks c o u l d corne back , b u t now we had
20 n o t v e r y many b u s i n e s s days b e c a u s e C h r i s t m a s was
21 corning a nd a l l o f t h a t . So we became c o n c e r n e d
22 j u s t o f t h e a c c e l e r a t i o n o f t h e l o s s e s .
23 Q. What d i d Mr. P r i c e t e l l yo u a b o u t t h e
24 e x t e n t o f t h e l o s s e s , b a s i c a l l y ?
25 A. He j u s t t a l k e d a b o u t t h e amoun t s .
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K. L. L e w i s .
Q. And what were t h e y as o f t h e t ime you
spoke t o Mr. P r i c e ?
MR. LIMAN: To t h e e x t e n t t h a t you
remember.
A. To t h e e x t e n t t h a t I remember, t h e
l o s s e s h ad a c c u m u l a t e d t o a b o u t $1 2 b i l l i o n a f t e r
t a x .
Q. Anyth ing e l s e ?
A. T h a t was t h e whole f o cus .
MR. LAWSKY: Were you g e t t i n g a d a i l y P
and L a t t h e t i m e ?
THE WITNESS: We were g e t t i n g
p r o j e c t i o n s . I was g e t t i n g a P an d L a t Bank
o f America , b u t we were g e t t i n g p r o j e c t i o n s .
I d o n ' t r e c a l l g e t t i n g them e v e r y day, b u t I
was e i t h e r h e a r i n g a b o u t them and i n some
c a s e s I saw them.
MR. LAWSKY: Can you e x p l a i n , when you
s a y a c o n v e r s a t i o n w i t h P r i c e i s what g o t you
t h i n k i n g t h i s way, i f you were g e t t i n g t h e s e
P and L ' s o v e r t i m e , what was i t a b o u t t h e
P r i c e c o n v e r s a t i o n which p u t you o v e r t h e
edge?
THE WITNESS: J u s t t h a t t h a t amount -
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1 K.L. Lewis
2 I 'm n o t s u r e I was g e t t i n g them e v e ry day. I
3 d o n ' t r e c a l l g e t t i n g them eve ry day be c au se
4 t hey were p r o j e c t i o n s , n o t d a i l y P and L ' s .
5 So t h e concern was, we had had a f o r e c a s t on
6 December 5 t h , as I r e c a l l , o f $9 b i l l i o n , b u t v
7 $3 b i l l i o n p r e t a x was a p l o d ( phone t i c ) j u s t
8 f o r c o n s e r v a t i v e r ea sons ; so what you saw was
9 b a s i c a l l y a 7 t o 12 i f you cou ld go t h r ou gh
10 t h e p lod , and t h e n you g e t t o t h e $1 2
11 b i l l i o n . So a s t a g g e r i n g l a r g e p e r c e n t a g e o f
12 t h e o r i g i n a l amount i n a ve ry s h o r t p e r i o d o f
13 t ime .
14 MR. LAWSKY: J u s t so t h e r e c o r d i s
15 c l e a r , I have y o u r c a l e n d a r i n f r o n t o f you,
16 a l t hough you d o n ' t - Counsel p r o d u c e d i t .
17 December 14 was on a Sunday. I t s a y s " d e p a r t
18 t o a r r i v e 3 : 3 0 . " Yo u ' r e i n New York l e a v i n g
19 t h a t day?
20 THE WITNESS: Yes.
21 MR . LAWSKY: So i s t h a t t h e day you have
22 th e m e e t i n g wi th P r i c e ?
23 THE WITNESS: Not a meet ing , a phone
24 c a l l .
25 MR. LAWSKY: So Sunday, December t h e
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1 K.L. Lewis
2 1 4 t h .
3 THE WITNESS: C o r r e c t .
4 Q. I t h i n k you j u s t answered t h e n e x t
5 q u e s t i o n I had, b u t p r i o r t o th e 1 4 t h t h e l a s t t ime
6 you saw a p r o j e c t i o n wa s December 9?
7 A. The l a s t t ime I focused - - r e a l l y
8 focused I 'm n o t s u r e i f I saw some be tween t h a t
9 o r n o t , b e c a u s e I wa s j u s t a s conce rned abou t th e
10 c r e d i t meltdown and a l l o f t h e t h i n g s t h a t were
11 happen ing i n t h e economy a t Bank o f America .
12 MR. LAWSKY: I t hough t you s a i d i t was
13 December 5 .
14 THE WITNESS: I t wa s 5 .
15 MR. MARKOWITZ: I t was my m i s t a k e .
16 MR. LAWSKY: H e ' s p r o b a b l y g o t December
17 9 i n h i s head because on th e 9 th you have a
18 b o a r d meet ing , I t h i n k . Do you r e c a l l t h a t ?
19 THE WITNESS: Yes.
20 MR. LAWSKY: Does t h i s i s s u e come up a t
21 t h a t b o a r d meet ing?
22 THE WITNESS: Yes.
23 MR. LlMAN: What i s s u e i s t h a t ?
24 MR. LAWSKY: The i s s u e r e g a r d i n g th e
25 d e t e r i o r a t i n g h e a l t h o f M e r r i l l .
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THE WITNESS: We gave t h e f o r e c a s t t o
t h e b o a r d . We a l s o t a l k e d a b o u t t h e t h i n g s
t h a t were g o i n g on i n t h e economy and i n o u r
t r a d i n g book an d i n t h e c r e d i t d e t e r i o r a t i o n
i n g e n e r a l , so i t was n o t j u s t a b o u t t h a t .
Q. Did Mr. P r i c e e x p l a i n t o you wha t h i s
u n d e r s t a n d i n g was o f what c a u s e d t h i s d e t e r i o r a t i o n
be tween t h e 5 t h a nd 1 4 t h ?
·
;\ A. I d o n ' t r e c a l l wha t he s a i d . I j u s t
r e c a l l j u s t t h a t s t a g g e r i n g amount o f
d e t e r i o r a t i o n . We h ad s e e n t h e c r e d i t marks
widen ing , so I as sumed t h a t was p a r t o f i t . I
d o n ' t r e c a l l wha t was s a i d a b o u t t h a t p a r t i c u l a r
i s s u e .
Q. Your main c o n c e r n was t h a t t h a t number
i n c r e a s e d , t h a t t h e l o s s i n c r e a s e d .
A. The p a c e o f t h e l o s s i n c r e a s e d so
d r a m a t i c a l l y .
Q. I s t h e r e a n y t h i n g e l s e a b o u t t h e
December 1 4 t h c a l l w i t h Mr . P r i c e t h a t you h a d n ' t
a l r e a d y d e s c r i b e d t o us?
A. I t o l d you wha t I r e c a l l .
Q. Now, I b e l i e v e w e ' v e been d i s c u s s i n g
t h i s i n t h e c o n t e x t o f when you s t a r t e d c o n s i d e r i n g
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1 K.L. Lewis
2 M e r r i l l Lynch?
3 THE WITNESS: I d o n ' t r e c a l l t h a t i s s u e .
4 MR. LAWSKY: You d o n ' t r e c a l l whethe r
5 you were aware , o r you d o n ' t
6 THE WITNESS: No . I d o n ' t r e c a l l - i f
7 I h ad been made aware , I d o n ' t r e c a l l b e i n g
8 made aware .
9 Q. So on t h e 1 7 t h , what happens w i t h
10 r e s p e c t t o
11 MR. LAWSKY: L a s t q u e s t i o n we do t h i s
12 a l o t , so i t ' s go ing t o b e annoy ing
13 l o o k i n g back on i t , do you t h i n k you s h o u l d
14 have been made aware g i v e n t h e t y p e o f l o s s e s
15t h e y were hav ing
i nOctober and
November?
16 THE WITNESS: In t h e c o n t e x t o f what was
17 go ing on i n t h e m a r k e t p l a c e ; what we were
18 s e e i n g ; t h e rumors we were h e a r i n g a b o u t
19 o t h e r i n v e s t m e n t banks and l o s s e s , I d o n ' t
20 t h i n k a la rms b e l l s would h a v e gone o f f and
21 n e c e s s a r i l y somebody would have t h o u g h t t h e y
22 needed t o make me aware . Bu t , a g a i n , I ma y
23 have s e e n someth ing , I j u s t may n o t r e c a l l
24 i t .
25 Q. On t h e 1 7 t h , you c a l l S e c r e t a r y Pau l son .
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D e s c r i b e t h a t c a l l , p l e a s e .
A. I t o l d him t h a t we were s t r o n g l y
c o n s i d e r i n g t h e MAC and t h o u g h t we a c t u a l l y ha d
o n e . He s a i d , "We p r o b a b l y s h o u l d t a l k , " and he
s a i d , "Could you be h e r e by 6 o ' c l o c k , " - - I t h i n k
i t was; g i v e me l i c e n s e on t h a t , I t h i r tk i t was
a r o u n d 6 o ' c l o c k - - "on t h e 1 7 t h , and I ' l l have a
m e e t i n g a r r a n g e d w i t h me and t h e Feds , Ben
Bernanke . " So we d i d t h a t .
Q. So when d i d you c a l l him on t h e 1 7 t h ,
a b o u t what t ime?
A. I d o n ' t remember.
MR. LAWSKY: L e t me show you a c a l e n d a r ,
i f i t h e l p s . Does t h a t s a y "Leave a t 3"?
THE WITNESS: Yes.
MR. LAWSKY: An d you have "Hur ley a t
noon . "
THE WITNESS: My b e s t r e c o l l e c t i o n i s
t h a t i t was mid-morn ing , b u t I d o n ' t remember
t a l k i n g I d o n ' t p u t t h i n g s l i k e t h a t on my
c a l e n d a r .
MR. LAWSKY: Does t h a t sa y "Gone t o
D.C. " ?
THE WITNESS: C o r r e c t . So somet ime
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1 K.L. Lewis
2 b e f o r e t h e n , o b v i o u s l y, and my b e s t
3 r e c o l l e c t i o n i s i t was mid-morn ing . I ' m n o t
4 s u r e .
5 ( E x h i b i t 1 was marked f o r
6 i d e n t i f i c a t i o n . )
7 MR. LlMAN: I t would a l s o h e l p t o - and
8 I a p o l o g i z e we d i d n ' t b r i n g c o p i e s - b u t i f
9 you have c o p i e s o f t h e m i n u t e s . Those a l s o
10 mark t h e sequence o f e v e n t s .
11 Q. E x h i b i t 1 i s a copy o f a c a l e n d a r which
12 c o u n s e l produced t o us t oday, and you can keep
13 E x h i b i t 1 i n f r o n t of you t o h e l p r e f r e s h y o u r
14 memory.
15 MR. LAWSKY: I s t h i s y o u r h a n d w r i t i n g i n
16 t h e c a l e n d a r ?
17 THE WITNESS: L et me make s u r e . Yes.
18 T h a t ' s my h a n d w r i t i n g .
19 MR. LAWSKY: I s t h i s t h e o n l y c a l e n d a r
20 you keep? You d o n ' t have an e l e c t r o n i c
21 c a l e n d a r ?
22 THE WITNESS: No. T h i s i s t h e o n l y one
23 I keep .
24 MR. LAWSKY: Does a s e c r e t a r y o r an
25 a s s i s t a n t o r anyone e l s e keep a c a l e n d a r f o r
I,
fJ
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K.L. Lewis
you?
THE WITNESS: Yes . I t h i n k h e r c a l e n d a r
i s b a s i c a l l y l i k e mine , and sh e u p d a t e s i t .
MR. LAWSKY: T h e r e a r e days where you
have n o t h i n g on t h e r e , which , I assume,
y o u ' r e d o i n g s t u f f .
THE WITNESS: Dur ing t h i s t ime , we
a g r e e d t h a t w e ' r e g o i n g t o keep o u r c a l e n d a r s
f a i r l y open b e c a u s e we go b a c k and f o r t h so
much and t h e r e ' s so much h a p p e n i n g . So i t ' s
n o t - - we d i d n ' t wan t a s t r u c t u r e d
e n v i r o n m e n t where we were i n m e e t i n g s a l l t h e
t ime and we c o u l d n ' t g e t t o e a c h o t h e r .
T h a t ' s n o t o n l y a b o u t M e r r i l l Lynch; i t was
a b o u t e v e r y t h i n g g o i n g o n .
MR. LAWSKY: So t h i s c a l e n d a r r e f l e c t s ,
b a s i c a l l y , e v e r y t h i n g you were do ing d u r i n g
t h i s p e r i o d o f t i m e . I t ' s n o t l i k e t h e r e i s
some o t h e r c a l e n d a r somewhere e l s e w h e r e t h a t
h as more .
THE WITNESS: No.
Q. So a t some p o i n t e a r l i e r i n t h e day you
a c o n v e r s a t i o n w i t h Mr. P a u l s o n . Dur ing t h i s
does Mr. P a u l s o n a s k wh y do you t h i n k you
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have a MAC?
A. I d o n ' t r e c a l l him s a y i n g t h a t .
O b v i o u s l y, when we g o t t o t h e m e e t i n g , eve rybody
d i d , b u t I r e c a l l t h a t a s b e i n g more o f , L e t ' s g e t
t o g e t h e r and a d d r e s s t h i s .
Q. Why d o n ' t you d e s c r i b e t h a t meet ing?
Yo u ' r e t a l k i n g a b o u t t h e phone c a l l now?
MR. MARKOWITZ: Yes. I wan t t o make
s u r e we have t h e phone c a l l down, and w e ' l l
g e t t o t h e m e e t i n g l a t e r i n t h e day.
Q. Was t h e r e any d i s c u s s i o n a b o u t wh y t h e
MAC on t h e c a l l w i t h Pau l son?
A. I d o n ' t r e c a l l a n y t h i n g b u t g e t t i n g t h e
l o g i s t i c s done and g e t t i n g up t h e r e . We ma y have ,
b u t I d o n ' t remember.
Q. D id you s a y a n y t h i n g a l o n g t h e l i n e o f ,
,-I T h e r e ' s s e v e r a l b i l l i o n d o l l a r s i n a d d i t i o n a l
l o s s e s ?
A. I d o n ' t remember. I remember s a y i n g ,
"We t h i n k w e ' v e g o t a MAC." T h a t ' s a l l I remember
o f t h a t c o n v e r s a t i o n - - and t h e f a c t t h a t he was
g o i n g t o s e t up t h e m e e t i n g .
Q. Where does t h e m e e t i n g t a k e p l a c e ?
A. At t h e F e d e r a l R e s e r v e .
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2 Q. And wh o a t t e n d s t h e m e e t i n g ?
3 A. Wel l , t h e tw o m ain p l a y e r s - - e x c u s e
4 me - - J o e P r i c e an d B r i a n Moynihan . And Bernanke
5 was t h e r e ; P a u l sonwas t h e r e ; A l v a r e z , h i s c h i e f
6 c o u n s e l , a nd a c a s t o f a l o t o f o t h e r s t h a t I
7 d i d n ' t r e c o g n i z e .
8 Q. The " o t h e r s " wer e T r e a s u r y an d F ed
9 o f f i c i a l s ?
10 A. Yes .
11 Q. Was t h e r e any a t t e n d a n c e l i s t t a k e n a t
12 t h e m e e t i n g ?
13 A. Not t o my kno wledge , b u t t h e r e c o u l d
14 h a v e b e e n .
15 Q. No one p a s s e d a r o u n d a l i s t o r s o m e t h i n g
16 l i k e t h a t ?
17 A . No.
18 Q. I f you c a n t a k e me t h r o u g h t h a t m e e t i n g .
19 A. Wel l , we d e s c r i b e d - - J o e , b a s i c a l l y
20 f i r s t o f a l l , I t a l k e d a l i t t l e b i t a b o u t o u r
21 c u r r e n t s i t u a t i o n w i t h t h e m a r k e t d e t e r i o r a t i o n . I
22 t o l d him t h a t we p r o b a b l y wou ld h a v e a l o s s , which
23 would b e t h e f i r s t q u a r t e r l y l o s s i n 17 y e a r s .
24 Q. L e t me jump i n . Yo u k i c k e d o f f t h e
25 m e e t i n g y o u r s e l f ?
~
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2 A. Yes .
3 Q. An d you s t a r t e d by t a l k i n g a b o u t Bank o f
4 Amer i ca r e s u l t s ?
5 A. Ye s .
6 MR. CORNGOLD: I s u g g e s t we t a k e a
7 f i v e - m i n u t e b r e a k t o l e t u s a l l l o o k a t t h e
8 m i n u t e s we g o t i n t h i s a f t e r n o o n . I t h i n k i t
9 would b e more u s e f u l t h a t we do t h a t .
10 (Reces s was t a k e n . )
11 Q. B e f o r e we t o o k t h e s h o r t b r e a k we were
12 t a l k i n g a b o u t t h e m e e t i n g , I t h i n k t h a t ' s t h e
13 m e e t i n g t h a t you h a d a t t h e F ed on t h e 1 7 t h . I
14 b e l i e v e you s t a r t e d o f f by t a l k i n g a b o u t Bank o f
15 A m e r i c a ' s p o s i t i o n . I f y ou c a n p i c k up -
16 A. J u s t a q u i c k u p d a t e on u s , an d I d o n ' t
17 remember i f I s a i d much e l s e o r n o t , b u t t h e n J o e
18 w a l k e d t h r o u g h some o f t h e numbers on t h e
19 a c c e l e r a t i o n .
20 Q. So J o e P r i c e i s t h e p e r s o n wh o d e t a i l e d
21 w h a t h a p p e n e d w i t h r e s p e c t t o M e r r i l l a n d M e r r i l l ' s
22 w o r s e n i n g f i n a n c i a l c o n d i t i o n ?
23 A. Yes . I may have s a i d a few t h i n g s , b u t
24 my b e s t r e c o l l e c t i o n i s t h a t J o e c a r r i e d t h a t
25 c o n v e r s a t i o n .
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Q. An d i n t e r m s o f j u s t t o g e t t h e f u l l
p i c t u r e , you spoke an d t h e n J o e spoke?
A. Yes.
Q. What happened a f t e r t h a t ?
A. The m e e t i n g s a r e going t o ru n t o g e t h e r
on me . At some p o i n t , t h e r e was s t r o n g a d v i c e
a g a i n s t t h e MAC. We h ad t o have t a l k e d a b o u t -
d o n ' t remember which m e e t i n g which, b u t t h e main
t h i n g we were c o n c e r n e d a b o u t was t h e v e r y l a r g e
h o l e t h a t would have b e e n c r e a t e d by t h a t l o s s .
Q. An d what was t h e h o l e t h a t was going t o
be c r e a t e d by t h e l o s s ?
A. At t h a t p o i n t , we t h o u g h t i t was r o u g h l y
$1 2 b i l l i o n .
Q. And what was t h a t g o i n g t o do t o t h e
combined e n t i t y ? D id you d e t a i l , f o r example , a t
t h e m e e t i n g t h e harm t h a t would c a u s e t o Bank o f
America?
A. I d o n ' t know i f we g o t i n t o r a t i o s o r
n o t , b u t we s a i d i t was going t o h u r t o u r t a n g i b l e
cornmon r a t i o and i t was going t o h u r t o u r
t w o - a n d - o n e r a t i o . I d o n ' t r e c a l l h av ing h a nd ou t s .
Q. What happened nex t ?
A. Wel l , t h e r e was d i s c u s s i o n a b o u t MACs
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2 b e i n g v e r y d i f f i c u l t and , a g a i n , t h e meet ings
3 a r e r u n n i n g t o g e t h e r on me - - I d o n ' t know wha t
4
would be t h e remedy - - I know a t t h e end we were
5 b a s i c a l l y t o l d t o s t a n d down, l e t them go on b o a r d s f
6 and s e e wha t t h e y t h o u g h t , and we l e f t . I t
7 w a s n ' t - - as I r e c a l l , i t w a s n ' t a two-hour meet ing
8 o r someth ing . I c a n ' t remember ho w l ong i t was,
9 b u t i t w a s n ' t some m a r a t h o n .
10 Q. Who a t t h e meet ing wa s e x p r e s s i n g t h a t
11 MACs a r e t ough t o q u a l i f y f o r ?
12 A. I c a n ' t remember, b u t somebody d i d , a s I
13 r e c a l l .
14 Q. Would i t e i t h e r have been - - l e t me p u t
15 i t t h i s way. Who d i d t h e s p e a k i n g f o r t h e Tr e a s u r y
16 and t h e Fed a t t h e meet ing?
17 A. Main ly Hank an Ben, b u t I t h i n k Alvarez
18 s a i d a few t h i n g s , t o o .
19 Q. By t h e way, was anyone from Wa c h t e l l a t
20 t h e meet ing?
21A.
N o .
22 MR. CORNGOLD: Were you t o l d i n t h a t
23 meet ing t h a t i f you e x e r c i s e t h e MAC c l a u s e
24 t h a t t h e y would s e e k t o remove you a n d / o r
25 Bank o f A m e r i c a ' s boa rd?
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2 THE WITNESS: No. T h a t was n o t t h e n .
3 They h a d n ' t worked t hemse lves up t o t h a t y e t .
4 Q. So you mee t w i t h t h e f e d e r a l r e g u l a t o r s .
5 I d i d n ' t q u i t e u n d e r s t a n d wha t you s a i d . What were
6 t h e y g o i n g t o do? They a s k e d you t o do someth ing?
7 A. They s a i d s t a n d down and t h e n l e t ' s t a l k
8 t h e y b a s i c a l l y s a i d d o n ' t do a n y t h i n g by s a y i n g
9 " s t a n d down," and t h e n " l e t ' s t a l k a g a i n . " I d o n ' t
10 remember i f we a r r a n g e d a n y t h i n g o r n o t , b u t ,
11 o b v i o u s l y, t h e y needed t o p u t t h e i r h e a d s t o g e t h e r .
12 An d we l e f t .
13 Q. D id you, a t t h a t meet ing , a g r e e when you
14 would t a l k a g a i n ?
15 A. I d o n ' t remember.
16 Q. When d i d you t a l k a g a i n ?
17 A. I d o n ' t remember t h e d a t e . There was a
18 l o t o f d i s c u s s i o n s a f t e r t h a t w i t h J o e . I do
19 remember a t e l e p h o n i c meet ing a f t e r t h a t , t h a t we
20 h ad a number o f p e o p l e t o g e t h e r t a l k i n g a b o u t t h e
21MAC, and I r e c a l l t h e r e b e i n g s t r o n g c o n s e n s u s - I
22 t h i n k a t t h a t meet ing somebody f rom New York Fed,
23 t h e Washington Fed and Richmond Fed was on t h e
24 l i n e , and t h e n t h e r e was somebody - I t h i n k i t was
25 a l a w y e r from t h e New York Fed wh o s t r o n g l y
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2 Q. Was t h e r e a n y t h i n g e l s e o f s u b s t a n c e
3 d i s c u s s e d on t h e c a l l t h a t t o o k p l a c e t h a t you were
4 d i s c u s s i n g t h a t you h a v e n ' t d i s c u s s e d so f a r ?
5 A. I d o n ' t r e c o l l e c t a n y t h i n g e l s e .
6 Q. What i s t h e n e x t t h i n g t h a t happened
7 a f t e r t h i s c o n f e r e n c e c a l l ?
8 A. I d o n ' t r e c a l l t h e d a t e , b u t -
9 Q. L et me i n t e r r u p t y o u .
10 MR. MARKOWITZ: C o u n s e l , do you have
11 a n y t h i n g on y o u r end t h a t h e l p s p i n p o i n t t h e
12 d a t e any b e t t e r ?
13 MR . LIMAN: I t h i n k i f y ou p u t t h e
14 m i n u t e s i n f r o n t o f him -
15 MR. CORNGOLD: There was a b o a r d m e e t i n g
16 on December 22nd, Monday, a t 4 p .m.
17 MR. LIMAN: B ut t h e c o n t e n t s o f t h e
18 m i n u t e s go t h r o u g h t h e s e q u e n c e o f e v e n t s , s o
19 i f yo u p u t t h o s e i n f r o n t o f him i t ma y h e l p
20 r e f r e s h h i s r e c o l l e c t i o n .
21 A. I t h i n k t h a t ' s t h e Sunday o v e r t h a t
22 weekend . I t h i n k t h a t ' s t h e t i m e I t a l k e d t o
23 P a u l s o n , and we g o t i n t o t h e s u b j e c t you w e r e
24 t a l k i n g a b o u t b e f o r e .
25 MR. LIMAN: I f you g i v e him t h e m i n u t e s
Ii:
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i t migh t t r i g g e r some r e c o l l e c t i o n .
A. I t h i n k I g o t i t now. I remember, f o r
some r e a s o n , we wanted t o fo l low up and s e e i f any
p r o g r e s s - - a s I r e c a l l , we , a c t u a l l y , had n o t
a g r e e d n o t t o c a l l a MAC a f t e r t h e c o n v e r s a t i o n
t h a t we had , and so I t r i e d t o g e t i n t ouch w i t h
Hank, and , a s I r e c a l l , I g o t a number t h a t was
somebody a t t h e Tr e a s u r y k i n d o f g u a r d - l i k e t h i n g .
He had a number f o r Hank, and Hank was o u t , I
t h i n k , on h i s b i k e , and he - - t h i s i s vague ; I
w o n ' t g e t t h e words e x a c t l y r i g h t - - and he s a i d ,
"I 'm go ing t o b e v e r y b l u n t , w e ' r e v e r y s u p p o r t i v e
:± o f Bank o f America and we want t o be o f h e l p , bu t"
I r e c a l l him s a y i n g " t h e government , " b u t t h a t
m a y o r may n o t be t h e c a s e - - "does n o t f e e l i t ' s
i n your b e s t i n t e r e s t f o r you t o c a l l a MAC, and
t h a t we f e e l s o s t r o n g l y , " - - I c a n ' t r e c a l l i f he
s a i d "we would remove t h e b o a r d and management i f
you c a l l e d i t " o r i f h e s a i d "we would do i t i f you
i n t e n d e d t o . " I d o n ' t remember which one i t was,
b e f o r e o r a f t e r , and I s a i d , "Hank, l e t ' s
d e e s c a l a t e t h i s f o r a w h i l e . L et me t a l k t o o u r
b o a r d . " And t h e b o a r d ' s r e a c t i o n was one o f "That
t h r e a t , okay, do i t . Tha t would b e s y s t e m i c r i s k . "
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2 MR. CORNGOLD: You s a i d t h e b o a r d ' s
3 r e a c t i o n t o t h a t . D id you have c o n v e r s a t i o n s
4 w i t h t h e board , so you knew what t h e i r
5 r e a c t i o n was?
6 THE WITNESS: I s t h a t Monday?
7 MR. CORNGOLD: December 22 i s a Monday.
8 THE WITNESS: Yes. So t h a t would b e
9 t h a t day. I t o l d them o f t h e c o n v e r s a t i o n .
10 MR. CORNGOLD: We' re now t a l k i n g a b o u t
11 t h a t c o n v e r s a t i o n .
12 THE WITNESS: C o r r e c t .
13 MR. CORNGOLD: So i n t h a t c o n v e r s a t i o n ,
14 d i d you sa y what t h e b o a r d ' s r e a c t i o n i s ?
15 THE WITNESS: I 'm s o r r y. I had a
16 c o n v e r s a t i o n w i t h Hank, and t h e n I h ad t h e
17 c o n v e r s a t i o n w i t h t h e b o a r d .
18 MR . CORNGOLD: An d t h e n you had a n o t h e r
19 c o n v e r s a t i o n ?
20 THE WITNESS: Yes.
21 Q. The c o n v e r s a t i o n w i t h Hank on t h e b i k e ,
22 t h a t ' s a l s o on Monday?
23 A. No. T h a t was on Sunday - I 'm p r e t t y
24 s u r e t h a t was Sunday. I j u s t r e c a l l i t w a s n ' t a
25 weekday, and t h a t he wa s o u t o f p o c k e t .
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2 Q. So I t h i n k you s a i d , " L e t ' s d e e s c a l a t e
3 t h i s . " How does he r e s p o n d t o t h a t ?
4 A. He s a i d , "Good." I t h i n k I r e c a l l him
5 s a y i n g - I 'm n o t p o s i t i v e a b o u t t h i s - I t h i n k he
6 s a i d , " I ' l l c a l l Ben and t e l l him t h a t . "
7 MR . CORNGOLD: B e f o r e we do t h a t , d i d
8 you have an u n d e r s t a n d i n g o f what powers t h e
9 Tr e a s u r y Depar tmen t h ad t o remove t h e b o a r d
10 a n d / o r t h e management o f t h e bank?
11 THE WITNESS: I t was my u n d e r s t a n d i n g he
12 s a i d i t - t h a t ' s wh y I s a i d I t h i n k he s a i d
13 t h e gove rnmen t . I t h i n k - my i m p r e s s i o n i s ,
14 t h a t was t h e l anguage t h e Fed u s e d t o u s e i n
15 Te x a s , b a s i c a l l y s a y i n g , D o n ' t do s o m e t h i n g .
16 MR. CORNGOLD: You h a d a n u n d e r s t a n d i n g
17 t h a t t h e Fed c o u l d remove t h e b o a r d a n d / o r
18 t h e management o f a bank t h a t i t r e g u l a t e d i f
19 i t found c e r t a i n t h i n g s .
20 THE WITNESS: Yes.
21 MR. LAWSKY: Do you know wha t i t h as t o
22 f i n d ?
23 THE WITNESS: They h a d been so s t r o n g
24 a b o u t t h e f a c t t h a t t h e y s t r o n g l y a d v i s e d us
25 n o t t o do i t t h a t i t would c a u s e harm t o t h e
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bank an d t h e s y s t e m , a nd t h e s y s t e m w o u l d n ' t
b e goo d f o r u s , e i t h e r - - t h a t i t would
damage t h e s y s t e m . T h a t ' s k i n d o f how i t was
b e i n g p o r t r a y e d .
MR. CORNGOLD: Was t h i s t h e f i r s t you
h e a r d a b o u t t h e gove rnmen t - - t o u s e y o u r
t e rm - - was c o n s i d e r i n g t h a t t h r e a t ?
THE WITNESS: Yes . I d o n ' t know when
t h e y w e r e g o i n g t o p l a y t h a t , a n d t h a t k i n d
o f f o r c e d i t by c a l l i n g h im o u t .
Q . D id you a s k him, "B y t h e way, wha t do
you mean by t h a t " - - I 'm s o r r y , t h e comment a b o u t
'. , t h e r emova l?
A. No. I t was p r e t t y c l e a r .
Q. An d a t t h a t t i m e , d i d you s o r t o f have
t h a t p r e e x i s t i n g u n d e r s t a n d i n g o f t h e Texas Fed way
o f communica t ing?
A. I h ad h e a r d t h a t a t some p o i n t . I d o n ' t
know why t h a t ' s i n my mind, b u t I ' v e h e a r d o f t h a t
b e f o r e t h a t t h a t ' s a way o f t e l l i n g you n o t t o do
s o m e t h i n g .
Q. Have you h e a r d any k i n d o f communica t i on
l i k e t h a t f rom a f e d e r a l o f f i c i a l t o y ou b e f o r e ?
A. No .
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2 Q. An d d i d you v iew i t a t as a t h r e a t ?
3 A. I v iewed i t - - a c t u a l l y , I v iewed i t as
4 j u s t ho w s t r o n g l y t h e y f e l t a b o u t t h e i s s u e . I
5 a l s o v iewed i t t h a t i t w a s n ' t j u s t a b o u t u s ; t h a t
6 he w o u l d n ' t s a y someth ing t h a t s t r o n g i f he d i d n ' t
7 f e e l l i k e i t was a s y s t e m i c r i s k , a s w e l l .
8 MR . CORNGOLD: B ut i f you p l a y e d i t o u t ,
9 i t meant t h a t Bank o f America c o u l d n o t
10 i n v o k e t h e MAC c l a u s e ; i s t h a t c o r r e c t ?
11 THE WITNESS: T h a t ' s where I 'm a l i t t l e
12 f u z z y on. I d o n ' t r e c a l l t h e word ing was i f
13 "Befo re you d i d i t we would , " o r " I f you d i d
14 i t we would . "
15 MR. CORNGOLD: B ut i f you h ad done i t -
16 t o p l a y o u t t h e h y p o t h e t i c a l a nd t h e y
17 removed t h e b o a r d and p l a c e d i n a b o a r d , i t
18 c o u l d have undone whateve r i t i s t h a t y ou ha d
19 done .
20 MR . LIMAN: I g u e s s t h a t p r e s u p p o s e s a
21 whole bunch o f s t u f f .
22 THE WITNESS: They s a i d management and
23 t h e b o a r d .
24 MR . LAWSKY: At t h i s p o i n t , h a d you
25 r e c e i v e d TARP funds?
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2 THE WITNESS: We had. Yes. Tha t was i n
3 September when we c a l l e d Washington.
4 MR. LAWSKY: That wa s th e i n i t i a l
5 t r a n c h e t h a t you g o t .
6 THE WITNESS: Yes.
7 Q. Did you c o n n e c t t h e r e c e i p t o f th e TARP
8 funds t o t h e s t a t e m e n t t h a t i f you i nvoked t h e MAC
9 t h a t your b o a r d would be removed?
10 A. No . I d i d n o t t a k e any c o n n e c t i o n to
1 1 t h a t a t a l l . I took t h i s a s , a c t u a l l y, i n good
12 f a i t h t h a t t h a t ' s what t h e y f e l t .
13 MR. LAWSKY: At t h e i n i t i a l meet ing w i t h
14 Pau l son when you f l ew t h e r e i n th e even ing o f
15 t h e 1 7 t h , does th e f a c t t h a t y o u ' r e a TARP
16 r e c i p i e n t come up i n t h e meet ing a t a l l ?
17 THE WITNESS: I d o n ' t r e c a l l t h a t e v e r
18 coming up. Remember, a t t h a t p o i n t , we had
19 n o t sough t any funds . We were t a k i n g 15 a t
20 th e r e q u e s t of Hank and o t h e r s .
21 MR. CORNGOLD: By th e way, t h e TARP
22 funds had an e f f e c t on t h e s h a r e h o l d e r s ; i s
23 t h a t c o r r e c t ? The p r o c e s s o f t h e t r a n s a c t i o n
24 by which you r e c e i v e d TARP funds had - d i d
25 t h e y have a d i l u t i v e e f f e c t on t h e
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s h a r e h o l d e r s ' e q u i t y ?
THE WITNESS: They had a d i l u t i v e e f f e c t
i n th e s e n s e t h a t you had p r e f e r r e d d i v i d e n d s
t h a t t o o k away from comp e q u i t y - - an d took
away from n e t income a v a i l a b l e t o
s h a r e h o l d e r s . Yes.
MR. CORNGOLD: A t t h i s p o i n t , d i d you
want t o i nvoke th e MAC, i f you cou ld?
THE WITNESS: Yes. I t h i n k t h a t ' s wh y
g o t t h e s t r o n g r e a c t i o n from Hank b e c a u s e we
l e f t t h e o t h e r meet ing t h a t I ment ioned n o t
hav ing r e s o l v e d i t .
MR. CORNGOLD: D id you c o n t e m p l a t e u s i n g
t h e t h r e a t o f i n v o k i n g th e MAC c l a u s e a s a
wa y t o g e t something o f v a l u e from t h e
f e d e r a l government , a t t h i s t ime?
THE WITNESS: You mean -
MR. CORNGOLD: What I mean t o sa y i s ,
had you c o n t e m p l a t e d t h e n e g o t i a t i o n p o s i t i o n
t h a t i t p u t you i n v i s - a - v i s t h e f e d e r a l
governmen t , knowing t h a t t h e f e d e r a l
government d i d n o t want you t o i nvoke t h e MAC
c l a u s e ?
THE WITNESS: I c a n ' t remember my s t a t e
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2 o f mind. U n t i l we h ad t h a t h e a t e d I guess
3 you would c a l l i t - from Pau l son / we were
4 s t i l l i n t h e mode t h a t t h e MAC wa s t h e b e s t
5
6 MR. CORNGOLD: B e f o r e t h e c a l l w i t h
7 Pau l son on Sunday/ had you s a i d t o anyone o r
8 had anyone s a i d t o you i n words o r s u b s t a n c e /
9 Maybe we can g e t someth ing o u t o f t h e
10 government?
11 THE WITNESS: I t h i n k eve rybody a g r e e d
12 w i t h - I g u e s s / I d o n ' t know i f we s a i d
13 t h i s / o r i t was subconsc ious o r whateve r / we
14 knew t h a t i t would be v e r y dangerous t o do
15 t h a t d e a l w i t h o u t some h e l p / and so I t h i n k
16 t h a t wa s t h e m i n d s e t .
17 MR. LIMAN: T h a t ' s t o th e sys t em/ a s
18 w e l l / r i g h t ?
19 THE WITNESS: Yes.
20 MR. CORNGOLD: An d you s a i d t h a t i n y o u r
21 c o n v e r s a t i o n s t o members o f t h e f e d e r a l
22 government / i n c l u d i n g t h e Feds .
23 THE WITNESS: I ' m n o t s u r e when t h e
24 c o n v e r s a t i o n s began / b u t / a t some p o i n t / t h e
25 c o n v e r s a t i o n s began a round wha t c o u l d we do
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2 t o h e l p you w i t h t h i s . B ut I c a n ' t t i m e i t .
3 MR. CORNGOLD: An d had you c o n s i d e r e d
4 p r i o r up t o t h i s Sunday c o n v e r s a t i o n u s i n g
5 t h e p o t e n t i a l i n v o c a t i o n o f t h e MAC c l a u s e as
6 a way t o e x t r a c t some changes from M e r r i l l ,
7 whether i t b e p r i c e changes o r c o n d u c t
8 changes?
9 THE WITNESS: T h i s was a b o u t j u s t a
10 s h e a r m a g n i t u d e o f l o s s , and e i t h e r you do i t
11 o r you d o n ' t . B e h a v i o r a l changes , o r
12 w h a t e v e r, w o u l d n ' t f i l l t h a t h o l e what we
13 t h o u g h t was $12 b i l l i o n , which t u r n e d o u t t o
14 b e $15 b i l l i o n .
15 Q. D id Paulson e v e r sa y t o you d u r i n g t h i s
16 t ime p e r i o d - o r Bernanke , o r p e o p l e who work w i t h
17 them - "Have you t o l d T h a i n o r M e r r i l l w h a t ' s
18 going on he re ?"
19 A. I t h i n k , a t some p o i n t - - T h a i n u s e d t o
20 work f o r Hank. I va g u e ly r e c a l l h e a s k e d me i f h e
21 knew, and I s a i d "No." I s a i d , "We had n o t t a l k e d
22 t o M e r r i l l . "
23 MR. LAWSKY: Did you have a v iew, a t
24 t h i s t ime , about what i nv o k in g t h e MAC and
25 b a c k i n g o u t o f t h e d e a l would do t o M e r r i l l ?
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t ook p l a c e w i t h e i t h e r Hank o r o t h e r o f f i c i a l s from
t h e Tr e a s u r y o r Fed?
A. I d o n ' t remember any, b u t t h a t d o e s n ' t
mean t h a t t h e r e w e r e n ' t any.
Q. Were you t h e p r i m a r y c o n t a c t from Bank
o f America w i t h t h e Fed and Tr e a s u r y d u r i n g t h i s
t ime p e r i o d ?
A. I was t h e p r i m a r y c o n t a c t , b u t Jo e was
i n v o l v e d , a s w e l l .
Q. B e s i d e s you and J o e , anyone e l s e from
Bank o f America t h a t p a r t i c i p a t e d ?
A. B r i a n Moynihan had c o n v e r s a t i o n s .
Q. Tha t would be i t , t h e t h r e e o f you?
A. As b e s t as I can r e c o l l e c t , t h o s e were
t h e t h r e e .
Q. F o u r t h , "The Fed and Tr e a s u r y s t a t e d
t h a t t h e i n v e s t m e n t and a s s e t p r o t e c t i o n p r o m i s e d
c o u l d n o t be p r o v i d e d o r comple ted by t h e s c h e d u l e d
c l o s i n g d a t e o f t h e merger, J a n u a r y 1 , 2009. T h a t
t h e merge r s h o u l d c l o s e a s s c h e d u l e d , and t h a t t h e
c o r p o r a t i o n can r e l y on t h e Fed and Tr e a s u r y t o
comple te and d e l i v e r t h e p r o m i s e by J a n u a r y 2 0 . "
t h i n k t h a t ' s what we were j u s t t a l k i n g a b o u t . B ut
you , b a s i c a l l y , had t o go on f a i t h t h a t t h e Fed and
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2 T r e a s u r y were g o i n g t o d e l i v e r .
3 A. C o r r e c t .
4 Q. D id you a s k f o r any a g r e e m e n t from them?
5 A. T h e r e was a p o i n t a f t e r t h a t t h a t t h e
6 b o a r d b r o u g h t up t h e f a c t t h a t w e ' r e r e l y i n g on
7 words t h a t o b v i o u s l y h as some v e r y p r o m i n e n t p e o p l e
8 an d h o n o r a b l e p e o p l e , b u t , boy, wha t i f t h e y d o n ' t
9 come t h r o u g h ? So I c a l l e d Bernanke - I d o n ' t know
10 wh y I c a l l e d him v e r s u s Hank - an d s a i d , "Would
11 you b e w i l l i n g t o p u t someth ing i n w r i t i n g ? " An d
12 h e s a i d , "Le t me t h i n k a b o u t i t . " As I r e c a l l , he
13 d i d n ' t c a l l me b a c k , b u t Hank c a l l e d me b a c k . An d
14 Hank s a i d tw o t h i n g s : He s a i d , " F i r s t , i t wo ul d b e
15 so w a t e r e d down, i t w o u l d n ' t b e a s s t r o n g a s wha t
16 we were g o i n g t o s a y t o you v e r b a l l y , an d s e c o n d l y,
17 t h i s would b e a d i s c l o s a b l e e v e n t and we do n o t
18 w a n t a d i s c l o s a b l e e v e n t . "
19 MR. CORNGOLD: When was t h a t
20 c o n v e r s a t i o n ?
21 THEWITNESS: I t h i n k we c a n f i n d
i t
22 t h r o u g h t h e m i n u t e s , b u t i t was a f t e r t h i s
23 and i t was g e t t i n g t o w a r d t h e end o f t h e
24 y e a r .
25 MR. CORNGOLD: When y ou s a y " d i s c l o s a b l e
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2 e v e n t , " h e means a d i s c l o s a b l e e v e n t f o r t h e
3 c o r p o r a t i o n .
4 THE WITNESS: C o r r e c t - w e l l , y e s .
5 MR. CORNGOLD: Did he mean t h a t ? What
6 d i d he mean?
7 THE WITNESS: I t h i n k he meant t h e y
8 would have t o d i s c l o s e i t . Tha t was my
9 i m p r e s s i o n , t h a t t h e government would have t o
10 d i s c l o s e i t .
11 MR. CORNGOLD: Tha t i f t h e y p u t i t i n
12 w r i t i n g , t h e y h ad a governmenta l o b l i g a t i o n
13 t o d i s c l o s e i t .
14 THE WITNESS: Tha t was my i m p r e s s i o n .
15 MR. CORNGOLD: D id you c o n s i d e r when he
16 s a i d t h a t , whethe r i f i t wa s i n w r i t i n g you
17 had an o b l i g a t i o n t o d i s c l o s e i t ?
18 THE WITNESS: We h a d n ' t g o t t e n t h a t f a r
19 y e t b e c a u s e a t t h e end we d i d n ' t g e t i t , and
20 t h e p r e m i s e wa s you wanted t o have e v e r y t h i n g
21 done i n p l a c e so t h a t you d i d n ' t s e t o f f
22 a la rms i n a t r a g i c economy.
23 MR. CORNGOLD: Who i s th e "you" h e r e ?
24 THE WITNESS: They d id n o t want , and
25 t h e y d i d n ' t t h i n k i t was i n ou r b e s t
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i n t e r e s t , t o have a n y t h i n g announced u n t i l
you can announce th e whole t h i n g , and t h e
promise was to g e t i t announced b e f o r e o r
d u r i n g t h a t e a r n i n g s .
MR. CORNGOLD: They d i d n ' t t h i n k i t was
i n t h e b e s t i n t e r e s t i f you announced t o y o u r
s h a r e h o l d e r s what you were n e g o t i a t i n g ?
THE WITNESS: No. They t h o u g h t i t was
i n o u r b e s t i n t e r e s t f o r t h e d e a l t o be
completed and t o be a b l e t o s ay "Th i s i s what
we h a v e , " a s opposed to p r o s p e c t i v e l y .
MR. LIMAN: I t h i n k you a l s o s a i d t h a t
t h e y t hough t i t wa s i n t h e c o u n t r y ' s b e s t
i n t e r e s t .
THE WITNESS: I t ' s k i n d o f a c i r c u l a r
b e c a u s e i t ' s k i n d o f s y s t e m i c .
:p MR. CORNGOLD: But i t ' s your o b l i g a t i o n ,
do you a g r e e , t o c o n s i d e r w h a t ' s i n your
s h a r e h o l d e r s ' b e s t i n t e r e s t ; i s t h a t t r u e ?
THE WITNESS: Yes.
MR. CORNGOLD: And t h a t ' s y o u r b o a r d ' s
o b l i g a t i o n , t o o .
THE WITNESS: Yes. And somet imes ,
because o f who we a r e , t h e y i n t e r t w i n e .
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2 MR . CORNGOLD: Do t h e y some t imes ,
3 b e c a u s e o f who you a r e , do t h e y c o n t r a d i c t ?
4 THE WITNESS: I d o n ' t know what you
5 mean.
6 MR . CORNGOLD: I s i t a lways t h e c a s e
7 t h a t w h a t ' s i n t h e c o u n t r y ' s b e s t i n t e r e s t i s
8 i n Bank o f A m e r i c a ' s s h a r e h o l d e r s ' b e s t
9 i n t e r e s t ?
10 MR . LIMAN: Yo u mean e v e r i n h i s t o r y ?
11 MR . CORNGOLD: Yo u made t h e p o i n t t h a t
12 somet imes t h e y i n t e r t w i n e . P r e g n a n t i n t h a t
13 i s , somet imes t h e y d o n ' t i n t e r t w i n e . T h a t ' s
14 wh y I ' m a s k i n g you i f t h a t ' s what you mean t ,
15 o r do you mean t h a t t h e y a lways i n t e r t w i n e .
16 THE WITNESS: I mean t h a t i n t h i s
17 p a r t i c u l a r c a s e t h e y i n t e r t w i n e i s a
18 b e t t e r way o f s a y i n g i t .
19 Q. At t h e p o i n t i n t ime o f t h i s b o a r d
20 m e e t i n g , t hough , you were r e l a t i n g t o t h e b o a r d
21 t h a t you f e l t you ha d a commitment f rom t h e Fed and
22 t h e Tr e a s u r y t o make good on w h a t e v e r harm i s
23 c a u s e d by t h e i n c r e a s e d l o s s e s a t M e r r i l l Lynch; i s
24 t h a t r i g h t ?
25 A. I had v e r b a l commitments f rom Ben
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10
15
20
25
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2 Bernanke an d Hank Pau l son t h a t t h e y were go ing t o
3 s e e t h i s t h rough , t o f i l l t h a t h o l e , and have th e
4 marke t p e r c e i v e t h i s a s a good d e a l .
MR. CORNGOLD: I s n ' t t h e o n l y way t o
6 f i l l t h a t h o l e , t hough , t o g i v e you money,
7 n o t t o g i v e you money t h a t you would have t o
8 pay back a t some i n t e r e s t r a t e w i t h some
9 p o t e n t i a l e q u i t y i n t e r e s t , t oo?
THE WITNESS: No . I t h i n k you have t o
11 s e p a r a t e th e f a c t t h a t , y e s , t h e r e i s s t i l l
12 some s h o r t - t e r m p a y i n g - i t ' s more
13 s h o r t - t e r m p a y i n g no w t h a n we would have had
14 had a l l t h i s n o t happened, b u t l o n g e r te rm we
s t i l l s e e a s t r a t e g i c b e n e f i t . So we saw i t
16 a s a s h o r t te rm v e r s u s a l ong te rm impac t on
17 t h e company.
18 MR. CORNGOLD; When you e n t e r e d i n t o t h e
19 i n i t i a l c o n t r a c t w i t h M e r r i l l Lynch d i d you
g e t a f a i r n e s s o p i n i o n a b o u t t h e t r a n s a c t i o n ?
21 THE WITNESS: Yes.
22 MR. CORNGOLD: From whom?
23 THE WITNESS; C h r i s Flowers someth ing .
24 MR. CORNGOLD: An d d i d you g e t a
f a i r n e s s o p i n i o n from anyone a b o u t th e
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t r a n s a c t i o n t h a t you e n t e r e d i n t o w i t h t h e
f e d e r a l gove rnmen t a nd t h e Fed?
THE WITNESS: No.
MR. CORNGOLD: D id you c o n s i d e r w h e t h e r
you h ad a l e g a l o b l i g a t i o n t o do t h a t ?
THE WITNESS: I wou ld r e l y on t h e a d v i c e
o f t h e g e n e r a l c o u n s e l f o r t h a t .
MR. CORNGOLD: B ut when you s a y t h a t ,
does t h a t mean t h a t you a s k e d and g o t a d v i c e ,
o r t h a t you d i d n ' t a s k b u t r e l i e d
THE WITNESS: I wou ld r e l y on somebody
b r i n g i n g t h a t q u e s t i o n f o r t h , and nob ody d i d .
Q. D id you a s k anyone t o l o o k i n t o w h e t h e r
t h e o r a l , v e r b a l commitments f rom t h e F ed a nd
T r e a s u r y were e n f o r c e a b l e ?
A. No. I was g o i n g on t h e word o f tw o v e r y
r e s p e c t e d i n d i v i d u a l s h i g h up i n t h e American
gove rnmen t .
Q. Wa s n ' t Mr. P a u l s o n , by h i s i n s t r u c t i o n ,
r e a l l y a s k i n g Bank o f America s h a r e h o l d e r s t o t a k e
a good p a r t o f t h e h i t o f t h e M e r r i l l l o s s e s ?
A. What he was d o i n g was t r y i n g t o s t em a
f i n a n c i a l d i s a s t e r i n t h e f i n a n c i a l m a r k e t s , from
h i s p e r s p e c t i v e .
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2 Q. From y o u r p e r s p e c t i v e , w a s n ' t t h a t one
3 o f t h e e f f e c t s o f wha t he was do ing?
4 A. Over t h e s h o r t t e rm, y e s , b u t we s t i l l
5 t h o u g h t we h ad an e n t i t y t h a t f i l l e d two b i g
6 s t r a t e g i c h o l e s f o r u s and o v e r l o n g t e rm would
7 s t i l l b e an i n t e r e s t t o t h e s h a r e h o l d e r s .
8 Q. What do you mean by " s h o r t t e rm"?
9 A. Two t o t h r e e y e a r s .
10 Q. So i s n ' t t h a t s o m e t h i n g t h a t any
11 s h a r e h o l d e r a t Bank o f America who h ad l e s s t h a n a
12 t h r e e - y e a r t ime h o r i z o n would want t o know?
13 A. The s i t u a t i o n was t h a t e v e r y o n e f e l t
14 l i k e t h e d e a l n e e d e d t o b e c o m p l e t e d and t o b e a b l e
15t o s a y t h a t , o r t h a t t h e y would impose
ab i g r i s k
16 t o t h e f i n a n c i a l sys tem i f i t would n o t .
17 MR. LAWSKY: When you s a y "eve ryone , "
18 wha t do you mean?
19 THE WITNESS: The p e o p l e t h a t I was
20 t a l k i n g t o , Bernanke and P a u l s o n .
21 MR . LAWSKY: Ha d i t been up t o you would
22 you made t h e d i s c l o s u r e ?
23 THE WITNESS: I t w a s n ' t up t o me .
24 MR. LAWSKY: Had i t b e e n up t o you .
25 THE WITNESS: I t w a s n ' t .
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2 MR. CORNGOLD: Why do you s a y i t w a s n ' t
3 up t o you? Were you i n s t r u c t e d n o t t o t e l l
4 y o u r s h a r e h o l d e r s wha t t h e t r a n s a c t i o n was
5 g o i n g t o b e?
6 THE WITNESS: I was i n s t r u c t e d t h a t "We
7 do n o t want a p u b l i c d i s c l o s u r e . "
8 MR. CORNGOLD: Who s a i d t h a t t o you?
9 TH E WITNESS: P a u l s o n .
10 MR. CORNGOLD: When d i d h e s a y t h a t t o
11 you?
12 TH E WITNESS; Sometime a f t e r I a s k e d Ben
13 Bernanke f o r someth ing i n w r i t i n g .
14 Q. When d i d t h a t o c c u r ?
15 A. Which one?
16 Q. When d i d Mr. P a u l s o n s t a t e t h a t he d i d
17 n o t wan t a p u b l i c d i s c l o s u r e ?
18 A. I t was somet ime l a t e i n t h e y e a r . I
19 t h i n k i t ' s a c t u a l l y i n t h e m i n u t e s .
20 MR. LIMAN: I f yo u have t h e n e x t s e t o f
21 m i n u t e s i t m i g h t h e l p t h e w i t n e s s .
22 Q. W h a t ' s y o u r b e s t r e c o l l e c t i o n o f wha t
23 Mr. P a u l s o n s a i d t o you on t h a t p o i n t ?
24 A. T h a t was t h e c o n v e r s a t i o n t h a t I
25 ment ioned t h a t I went t o Bernanke t o a s k t h e
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q u e s t i o n , an d h e d i d n ' t c a l l me back b u t Hank d i d .
The r e q u e s t was f o r a l e t t e r s t a t i n g wha t t h e y
would do , a n d h e had t h o s e two e l e m e n t s i n t h e r e .
B ut t h e t h i n g t h a t w e ' r e t a l k i n g a b o u t i s t h a t h e
s a i d "We do n o t w a n t a p u b l i c d i s c l o s u r e . "
Q. A p u b l i c d i s c l o s u r e o f wha t ?
A. Of w ha t t h e y were g o i n g t o b e d o i n g f o r
u s u n t i l i t was c o m p l e t e d .
Q. How a b o u t o f M e r r i ll f o u r t h - q u a r t e r
l o s s e s ?
A. T h a t w a s n ' t an i s s u e t h a t was b e i n g
e x c h a n g e d .
Q. D id anyone c o n s i d e r t h a t t h e o r a l
a g r e e m e n t was a commitment f o r f i n a n c i n g , s o u n d e r
SEC r u l e s t h e r e h ad t o b e a d i s c l o s u r e ?
A. I d i d n o t . T h a t ' s a l l I c a n t e l l y o u .
MR. CORNGOLD: B e t w e e n December 12 an d
t h e 1 s t o f t h e y e a r , d i d you h a v e a n y
c o n v e r s a t i o n s w i t h a n y o n e a t Bank o f A m er i ca
o r r e p r e s e n t i n g Bank o f Amer i ca , c o n c e r n i n g
w h e t h e r Bank o f A mer i ca h a d a n o b l i g a t i o n t o
make an y d i s c l o s u r e ?
THE WITNESS: I do n o t r e c a l l h a v i n g
a n y.
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2 MR. CORNGOLD: Were you a w a r e o f o t h e r
3 p e o p l e h a v i n g t h o s e c o n v e r s a t i o n s ?
4 THE WITNESS: I d o n ' t r e c a l l t h e
5 c o n v e r s a t i o n .
6 Q. D id you c o n s i d e r t h e i s s u e ?
7 A. Of d i s c l o s u r e ?
8 MR . LIMAN: Of t h e o r a l s t a t e m e n t s o f
9 Bernanke and P a u l s o n .
10 MR. CORNGOLD: T h e r e were a number o f -
11 n o t h i n g was d i s c l o s e d , b u t o f e i t h e r t h e
12 l o s s e s t h a t you l e a r n e d a b o u t a t M e r r i l l
13 Lynch - l e t ' s do i t one a t a t i m e . Have you
14 h ad c o n v e r s a t i o n s , o r were you a w a r e o f any
15 c o n v e r s a t i o n s , be tween December 12 an d t h e
16 end o f t h e y e a r ?
17 THE WITNESS: I was n o t aware o f any
18 c o n v e r s a t i o n s , b u t t h a t ' s n o t t o s a y t h e r e
19 w e r e n ' t . I t ' s j u s t I was n o t .
20 MR . CORNGOLD: Are you aware o f any
21 c o n v e r s a t i o n s be tween December 12 a n d t h e end
22 o f t h e y e a r a b o u t w h e t h e r t h e r e was an
23 o b l i g a t i o n t o d i s c l o s e a n y t h i n g a b o u t y o u r
24 n e g o t i a t i o n s w i t h t h e Fed a n d / o r t h e T r e a s u r y
25 Depar tmen t?
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2 THE WITNESS: I was n o t aware - I d o n ' t
3 r e c a l l any and d o n ' t r e c a l l b e i n g aware o f
4 any.
5 Q. So when y o u ' r e h a v i n y o u r c o n v e r s a t i o n s
6 w i t h t h e Fed and t h e Tr e a s u r y, a t any p o i n t , do you
7 s a y, " l need an a d j u s t m e n t on t h e p u r c h a s e p r i c e ;
8 j u s t g i v e me t h a t " ?
9 A. We were t o l d t h a t t h e d e a l needed t o
10 c l o s e on t ime under t h e d e a l t h a t h ad been made.
11 MR. CORNGOLD: Yo u ' r e u s i n g p a s s i v e
12 v o i c e ; I want t o know a c t i v e v o i c e , who t o l d
13 you?
14 THE WITNESS: I d o n ' t remember which
15 one , b u t i t was e i t h e r Bernanke o r Pau l son .
16 MR. CORNGOLD: Was t h a t i n r e s p o n s e t o a
17 q u e s t i o n a b o u t whethe r t h e t e rms o f t h e
18 t r a n s a c t i o n c o u l d b e changed?
19 THE WITNESS: No. A c t u a l l y , I d o n ' t
20 remember e x a c t l y, b u t i t c o u l d have been when
21 he had made t h e s t r o n g s t a t e m e n t a b o u t
22 management and s t u f f . I d o n ' t remember t h a t ,
23 b u t i t was a p r e t t y s t r o n g s t a t e m e n t -
24 MR. CORNGOLD: Yo u ' r e do ing t h i s
25 t r a n s a c t i o n a t t h e t ime you were supposed t o
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1 K.L. Lewis
2 gove rnmen t wanted t o happen .
3 Q. D id you f e e l l i k e you h a d a c h o i c e i n
4 t h e m a t t e r ?
5 A. No.
6 Q. Were you a n g r y a b o u t t h a t - - o r some
7 o t h e r emot ion? I d o n ' t want t o p u t words i n y o u r
8 mouth .
9 A. Yes . I t h i n k I was a l i t t l e s h o c k e d .
10 E v e r y t h i n g g o t back t o t h e f a c t t h a t I was shocked
11 a t ho w s t r o n g l y t h e y f e l t a b o u t t h e c o n s e q u e n c e s ,
12 an d so i t was more t h a t a l i t t l e a n g e r . I t h i n k
13 t h e y were d o i n g i t i n good f a i t h . They t h o u g h t
14 e v e r y t h i n g t h e y s a i d was t r u e .
15 MR. CORNGOLD: But you u n d e r s t o o d
16 t e l l me i f t h i s i s a f a i r p r e s e n t a t i o n o f
17 y o u r t e s t i m o n y - wha t t h e y were t e l l i n g you
18 t o do was n o t i n t h e o n e - t o - t h r e e y e a r
19 i n t e r e s t o f y o u r s h a r e h o l d e r s .
20 TH E WITNESS: I t h o u g h t a b o u t i n t e rms
21 o f i t was i n t h e b e s t i n t e r e s t l o n g t e rm, and
22 i t was t h e o n l y way t o go u n d e r t h e
23 c i r c u m s t a n c e s .
24 MR. CORNGOLD: We l l , t h e r e were o t h e r
25 ways t o go , w e r e n ' t t h e r e ? You c o u l d have
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K.L. Lewis
s a i d no , c o u l d n ' t you?
THE WITNESS: I d i d n o t - - a t t h a t t ime ,
o r somet ime, I became c o n v i n c e d t h a t t h e y
were r i g h t and t h a t
MR. CORNGOLD: They were r i g h t - - I 'm
s o r r y f o r i n t e r r u p t i n g .
THE WITNESS: - - t h e y were r i g h t i n t h e
s e n s e t h a t i t was n o t i n t h e b e s t i n t e r e s t o f
Bank o f America , and t h e y had s t r o n g l y
a d v i s e d us o f t h a t , and t h e i r i n t e n s i t y w i t h
which t h e y s a i d i t and t h e t h i n g s a r o u n d t h a t
conv inced me t h a t t h e y were s i n c e r e i n s a y i n g
t h a t .
MR. CORNGOLD: But you c o u l d have s a i d
no and r e s i g n e d , c o r r e c t ?
THE WITNESS: I c o u l d have s a i d no and
r e s i g n e d . Yes .
MR. CORNGOLD: D id you e v e r c o n s i d e r
t h a t from December 12 t o December 3 1 s t ?
THE WITNESS: No , I d i d n ' t . I t h o u g h t
i t was i n t h e b e s t i n t e r e s t t o go fo rward a s
had been i n s t r u c t e d and -
Q. During t h e b o a r d m e e t i n g t h a t t ook p l a c e
on t h e 22nd - - o r , f o r t h a t m a t t e r , any t i m e
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[ P age 98J
K.L. Lewis
l e a d i n g up t o t h a t m e e t i n g - d i d any o f t h e b o a r d
members s a y a n y t h i n g a l o n g t h e l i n e s o r i n
s u b s t a n c e , Hey, o u r s h a r e h o l d e r s a r e g e t t i n g h u r t
by t h i s ?
A. I d o n ' t r e c a l l t h e e x a c t words , b u t we
knew t h a t we h ad p u t o f f t h e t i m e t a b l e t h a t s h o u l d
g e t you a norma l i n c r e t i o n , e t c . b e c a u s e o f t h e
p r e f e r r e d .
Q. D id a ny o f t h e b o a r d members s a y, Hey,
we n e e d t o do someth ing a b o u t t h i s ?
A. We l l , we were g o i n g t o c a l l t h e MAC.
Q. R i g h t . D id t h e y s a y, I n l i e u o f c a l l i n g
t h e MAC i s t h e r e a n y t h i n g we s h o u l d do?
A. No. I t wen t from c a l l i n g t h e MAC t o
s t r o n g a d m o n i t i o n t h a t we s h o u l d n ' t .
Q. And, a t t h a t p o i n t , i s t h e r e any
d i s c u s s i o n a b o u t d i s c l o s u r e t o s h a r e h o l d e r s ?
A.
Q.
I d o n ' t r e c a l l i t .
Did any b o a r d member s u g g e s t t h a t t h e
a n s w e r t o Mr . P a u l s o n - w e l l , n o t t h e answer -
t h a t Bank o f America s h o u l d go a h e a d and invoke t h e
MAC?
A. NO, n o t a t t h a t p o i n t . I t h i n k
eve rybody - I c a n ' t s p e a k f o r t h e b o a r d , b u t t h e r e
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1 K.L. Lewis
2 was some - my impress ion was t h a t most people
3 thought t h a t the s e v e r i t y o f the r e a c t i o n meant
4 t h a t t hey f i rmly be l i eved i t wa s systemic r i s k .
5 Q. So on the 22nd the board gives th e
6 go-ahead to con t inue w i th the M e r r i l l Lynch
7 t r a n s a c t i o n .
8 A. Yes.
9 Q. Ca n you desc r ibe what happens between
10 the 22nd and the end o f th e y e a r i n terms o f t h a t
11 process?
12 MR. LIMAN: You j u s t s a i d th e board
13 dec ides t o go ahead with th e t r a n s a c t i o n . I
14 j u s t want to make su re about what the board
15 dec ided .
16 THE WITNESS: Yes. Not to exe rc i se the
17 MAC and pursue i t .
18 Q. Go forward with the dea l as scheduled on
19 th e 22nd. And between the 22nd and th e end o f the
20 yea r, i f you can t ake me through what happened a t
21 t h a t p o i n t .
22 A. S t i l l a l o t o f i n t e n s i t y wi th Jo e and
23 o the r s about the amounts and the forms o f the TARP
24 money and the wrap, so j u s t a l o t o f t h a t . Then,
25 as I mentioned, I had - I d o n ' t know i f many, i t
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K.L. Lewis
coup le o f months . Tha t would have l e d t o
c o n s i d e r a b l e u n c e r t a i n t y . " Do you s e e t h a t ?
MR . LIMAN: An d i t goes on " i t c o u l d
w e l l h a v e c o s t more t h a n t h e r e p r i c i n g would
have s a v e d . "
MR. MARKOWITZ: Yes.
Q. An d i n a n s w e r i n g t h i s q u e s t i o n , d i d you
c o n s i d e r w h e t h e r you s h o u l d a l s o p u t i n t h e
r e s p o n s e a b o u t Mr. P a u l s o n ' s communica t ion t o you
t h a t i f you d i d i n v o k e t h e MAC h e would r e p l a c e t h e
management and t h e board?
A. No . Because t h a t was n o t t h e r e a s o n
t h a t we went ahead w i t h t h e d e a l . As I s a i d , t h e
t h r e a t w a s n ' t as mean ingfu l t o us o r t o me and t h e
b o a r d a s t h e s e v e r i t y o f i t . Meaning, t h a t i f t h e y
f e l t t h a t s t r o n g l y , t h a t t h a t s h o u l d b e a s t r o n g
c o n s i d e r a t i o n f o r us t o t a k e i n t o a c c o u n t .
Q. So t h e communica t ion t h a t Mr. P a u l s o n
made was , i n f a c t , t h e t u r n i n g p o i n t f o r you i n
t e rms o f your dec i s io r i -mak ing?
A. The s e r i o u s n e s s o f t h e s t a t e m e n t more
t h a n t h e t h r e a t i t s e l f .
MR. LIMAN: What do you mean by " t h e
s e r i o u s n e s s o f t h e s t a t e m e n t " ?
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2 THE WITNESS: The f a c t t h a t somebody
3 would s a y t h a t t o th e CEO o f Bank o f America
4 a t a t i m e t h a t i t was i n good s t a n d i n g j u s t
5 showed t o me t h a t t h e y had a deep b e l i e f t h a t
6 we s h o u l d n o t c a l l t h e MAC.
7 MR. LAWSKY: I 'm go ing t o jump back t o
8 th e bonuses a g a i n . I f M e r r i l l Lynch h a d
9 w a i t e d and n o t p a i d t h e bonuses o u t e a r l y ,
10 c o u l d you t e l l us ho w t h a t would have worked?
11 Would i t have been Bank o f A m e r i c a ' s Comp
12 Commit tee , and , l e t ' s s a y, i n J a n u a r y i t
13 would have p a i d o u t t h o s e bonuses?
14 THE WITNESS: L e g a l l y, I d o n ' t know. I
15would presume . I d o n ' t know what l e g a l
16 r i g h t s you would have t o o v e r r i d e what was
17 done by a p u b l i c company 's compensa t ion
18 commit tee .
19 MR. LAWSKY: You t e s t i f i e d e a r l i e r , I
20 b e l i e v e , t h a t S t e e l e Alph in and Andrea Smith
21 were u rg i n g Tha in t o w a i t on award ing bonuses
22 t i l l t h e ne w y e a r.
23 THE WITNESS: R i g h t .