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From:
Moynihan,Brian
T
<brian.t,moynihan@bankofarnerica.conÈ
Sent:
Monday,
December22,2Q08 3:40
AÙf
(Gltfl)
To:
Lewis, Ken
D
<Ken.D.Lewis@bankofamerica.com>
Cc:
P¡ice,
Joe
<joe.price@bankofaureriea.com>;
Brinkley,Amy
W
<amy.brinkley@bankofamerica.com>
Subject:
talkingpointsfor
Board
Call-Privileged
and
Confidential
Attach:
mllegal.doc
Ken.
Attached
is
a
set of
talldng
po¡ntsthat
we
all
drafled
tr¡
be used
with
he
Boerdcall
tomorrow.
I
know
you
said
you
may
nnke
individual calls inslead
of
the call,pleaselet me
knovv
whal
you
would
like
to do in themomìng
and'
1
can
get
Aliceto
adjusl.
Some
of
the
chalacterizations
ol what
Hank or
Ben
said
are
fromour noles
so
we
maynot
have
the
e¡<acl
thoughts conecüy
sùated butwe
tried
lo
catch
lhe
gistof the
conversations.
Brian
Gonf
identia
I
TreatmentRequested
BAC-ML-HO
sR-502-{¡0000955
Privileged
a
nd
GonfldentialAtlornay Client CommunicetionsTalking Poinlsfor
Board
Call
I
.
Good
afternoon,thepurposeof thiscall
is
to
update
youon
a
seriesofconversationsthat
we
have
had
wilhour
regulabæ
overthe
last
48
hours.
2.
Lel me
begin
with
the
discussionswe havehad, beginning
wilh
a call
I had
with HankPaulson on
Fri&y
aftenpon
after our
last
voluntaryboard meeting.
a.
We dlscussed
a
posslblealtematlve
tansactlon
whereby they were thlnldng
of
additional
brp
prefenedequityand
some
type of ring-fencedasset insurance
or
do'¡vnside
protedion.
This
wassimilar
to
whal
we
hadbrielly discussed the otherevening
in
Washington
b.
l-lank
continued to
indilate
he was
focused onresolvingth¡s
situat¡on
as
¡t
was
the
most importantthing
he
was
uorking
on,
Later
Friday
aflemoonwe hadalargeconferencecall
a.
On
that
call
wetalkedwith Hank Paulson,Ben Bernanke,
Kevin
Warsh,Governor
Krozner
andvarious sleff membersfromthe Federal Reserve
and
Treasury
b.
We
described
lhe
intenlion
to
declarea
tvl¡AC
on
i/þnill.
c.
We
were
met
with strong opposilionandådmonitions frorn the
regulators
ü'¡at
b
declarea
MAG
would
be
defimentalto
the system and to
BAG.
This was
the
viewof
both the
Fed
and theTteasury,
and
was
very
slrongly
stated,
d.
They
asked
whatweneeded to completethelransaclion; wetold the
group
that
r¡'æ
needeclcap¡tal
anddownsideprotectionon the assetsfrorn
Menill.
e.
Theycontinued
to
express
the
poinl
of
viewthat theyneededtime
tolook
al eachoompany individually and
both
companiestogether to analyze the
impæl
b
thecompanies and lhe financialservices
system.
f.
l-lank
talked about bolh the
"financialanalysis'
and"olheranalysis"
-
meaning
-
whal wenton,
how
would weexplainit,
how
t¡ræ
willexplainhow
out
of
syrrcitis
fromGoldman and Morgan Stanley
and
why
il
is
now'under
conüþ|".
g.
As
an outcome of the
call
we
vrære
told
to
follo'r¡
up
with
Treasury representativestoleam moreaboul
the
Citiassel
loss
sharing transaclion.After the
call
Joe, Arny and
Brian follovvedup with
the Treasury to understand
the
outlines of
a
Citi
bss
sharingtransaction.Wealso
have
dellvered lo theRegulatorslhoseassets uponwhich we would
Þelieve
we
would needproteclion,including
bts
of back
up
on
valuations
etc.
lnadditionwe havesupplied otherfinancial inlormaüon
to
the
Regulatcrsregardingcapital, eamingsandother matters for both ourselvesand Menill.
On
Saturday,Joe received
calls
frorntheRichmond
Fed
and
Amy
received
a call
fromthe
FDIC.
lnboth cases
we
indicatedwe felt we had a basis foraMAC but undersloodthe systemicirnplications and that
b
whywe went
to
the regubtors
wtren the
Merrill
Lynch lossæ cont¡nued lo
grovr.
OnSunday
I
had subsequent conversationswith Hank
Paulson.
lnthose oonventoliorìs,t ralayed lhat while
we
still believed
a
MAC
has
occt¡rredthat
We
would
be
willing to notdeclare tlìe MAC, and completethe lransaction
if
the
Fed
and Treasury and relatedentilies
put
together
a
pad<age
thatwould
consist
of
$238
of
preferredstock(includingthe$108of
the
TARP
prefenedwewere already scheduled toreceive),and
a
loss
4
5
Gonfidential
Treabnenl
Requested
BAC
-ML-H
O
G
R-502
{Xt000956
shâring
on
about$1508
of
assets,induding
about
91008
ofcash
assets and lherestderivatives.
a,
Hank responded
by
saying for
us to
declare
a
MAC
against
the direction of
the
regulatorscouldresult
in
the remorralofthe
Board
and Management.
He
saidthat
uras
his view
and
that
ol
the
Fed.
b.
l-l¡ank
made
it
clear that theTreasuryand the
Fed
were
prepared
to
deliver
anass¡stenoe
package
llst
would
indutþ
equity and
lossprotect¡on.
c.
Hankmade
it
clear that
Treawry
would
not
beprcparedto dothis
bebre
theclosing
but
that
it
would occur
by our
release
of
ouream¡ngs.
d.
Hank made
it
clear that
he l¡ad
the concurrence
of
the
Fed
and
Tim
Geithner
andothers.
e.
Hank,consistentwith
ourpast
conversations,reiterated lhat
hebelieved
this
uras
anissue
focused
on
Menillend
its
surprisinglylarge lossesand that
he
wouldhelp
us
lo
insurethat
he
focus
remahed
on
that.
L
Aftertalkingto Hank, I had
a
subsequent
corìyersat¡on
with
Ben Bernanke.
a.
Again
I
stated thatwe
belier¡e
we
had
a
MAC,but
that
Bank
of
Americawould
be
willingtogofonrrard
in
the
lransadion
on
the condition
that
we
getaninfusionofcapilal and
þss
sharing
on Menillassets.
b.
Benrelayed that
hewas
committed
also
b
a
transaction that wouldwork for
us
afler lhe closing but before
our
earninç
announcement.
c.
Ben
alsostated thatGeilhnerand,
in
addition, Larry Surnmers, were both
onboard
with the bansaction.
d.
Ben reilerated
hat
wehad stepped
up in
thepastincluding in the Countrywide
_EiBnsadlen,a
change
in
lone from
our
earlier
discussions.
Healso
noted
that
-they
would
be
flexible
to
insure that
this is
seen as a Merrill issue.
e.
l-le indicatecl
heplannedto talk
to
John
Duganof
the
OGG
an<l
Shelia
Bair
of
the
FDIC lateryeslerday.
f.
He indicated that
they
wouldbe flexible
and
work
hard
to achieve thetransaction
we
discussed.
9.
Where does
lhat
leave us?
a.
We recognize
lhat
thistransaction
is
extremelyimportant to financial systemandthat
is
why
we
slarted our
diabgue
with
the
Fed
and Treasury as soon
as
ì^¡e
becameaware
of
thernagnitudeof
llte
problem.
b.
I
recommend that we
go
fonrard
with
the lransaction on the currentterms based
on
thestrongstatementsthat
will
receive
support fromthegovemmentfor
both
capital and assetprotection.
c'
Wedonotþd¡eveexercising the
MAG
andlltigatingtheissue,perhaps
aga¡nst
ourregulator
as
conservator
for
Menill
or
owrìeÌ ofMenill
r¡rould
be
wise forourcompany.
d.
We believethatthe combinationof lhe
capitaland
assetprotectionwouldput
us
in
a
positionthat we canrecognize the benefiE of the merger,
yel
not
sufferdamagefromthe capilal
loss
due
to
the
poorresults.
e.
We
need
to
be
aware that
as
cunently contemplaled this üansactiondoes
not
help our comrnon
equþ
ratiosand
that
we may have
to
consider furtherdividendacl¡on
to
save
câpital.
we
have not undertaken
to
the
Regulators
to do
thatyet,
but
it
may
be
coming
aswe
conünueto
develop our dialogue.
f.
We
have
studiedthe resulB
from
Merrill,
lhe numbers arc
honible,
but
with theprotectionandcapital, and
a
large restrucluringoftheplatrorm,
r,rre
believe
wecan absorb the
risk
going
forward.
We
mþht
not be recommending
a
change
of
oourse
fromdeclaring aMAC inabsence
of
thegovemmentassislance.
Gonf
idenlia!TreatmentReguested
BAC-ML-HOGR-502-00000957
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