Thank you Chairman Towns, Chairman Kucinich, and Ranking Member Issa for working together to hold today’s important hearing on the merger between Bank of America and Merrill Lynch, and the $45 billion in direct Federal assistance Bank of America has received since September 2008.  This hearing is the third in a series which has revealed troubling insights into the negotiations that resulted in a private acquisition becoming a federal bailout.

After hearing testimony from Bank of America CEO Kenneth Lewis and Federal Reserve Chairman Ben Bernanke, questions remain as to the role the government played in the negotiations and the adequacy of Bank of America’s due diligence process.

Just nine days after Bank of America’s shareholders voted to approve the merger, Lewis claims he learned of $12 billion in accelerated losses so severe that he was considering invoking the Material Adverse Change (MAC) clause to back out of the deal. 

Lewis alleges that he was then coerced into consummating the merger by federal officials, including today’s witness Former Treasury Secretary Henry Paulson, because of the perceived systemic risk Merrill Lynch’s demise could pose to the global economy.   Lewis contends that Secretary Paulson threatened that if Bank of America did decide to invoke the MAC the Federal Reserve would consider using their supervisory powers to remove Bank of America’s Board and management.

Ultimately, the merger was completed as planned on January 1st, while the $12 billion in losses that had troubled Lewis were revealed publically on January 16th along with the announcement of $20 billion in TARP funds and $118 billion in federal guarantees.

Since the merger Bank of America’s fiduciary standing has improved, and they are now trying to avoid paying billions in dollars in fees to U.S. taxpayers for the federal guarantees given to protect against the losses at Merrill Lynch.  Bank of America claims they never used the guarantees and that the agreement which granted them was never signed, but investor knowledge that the $118 billion government guarantee existed has played a key role in Bank of America’s recovery.  The taxpayer’s deserve this return on their investment because as a financial backstop the guarantees served their purpose regardless of whether they were drawn-down or not.

I look forward to hearing from Secretary Paulson how the acquisition transformed from a private deal to a public bailout, how the government assistance was negotiated, and the enforcement mechanisms put in place by the federal government to protect the taxpayers’ investment. 

With the unemployment rate at 9.5% nationally and 11.4% in my district in Los Angeles it is crucial that the decisions that were made to provide assistance to the banks whose unsustainable financial practices directly contributed to the economic turmoil are thoroughly scrutinized, and that steps are taken to re-pay the taxpayers’ investment in their recovery.

Thank you Mr. Chairman and I yield back my time.