When then-Bank of America general counsel Tim Mayopoulos learned last Dec. 9 that losses at Merrill Lynch & Co., Inc. were almost twice what he was originally told, Mayopoulos asked to speak with the chief financial officer about it immediately. Instead, he was told to wait until the next day.
"We never met," Mayopoulos says, in remarks prepared for delivery to Congress today. That's because a little before noon the next day, Dec.10, Mayopoulos was pulled from a legal department meeting and told that he was fired on the spot, without notice and without reason.
The opening remarks by Mayopoulos cover a range of actions by the bank last fall during its controversial merger with Merrill, which closed on Jan. 1, 2009. Mayopoulos was summoned to appear by the House Committee on Oversight and Government Reform at its fourth hearing on the merger, after the bank agreed to a request to waive its attorney-client privilege.
One of the more interesting points in Mayopoulos's remarks concerned Merrill's eventual $15.3 billion fourth quarter loss. Now general counsel at Fannie Mae, Mayopoulos recalls that around Nov. 12, 2008, he received a written forecast projecting Merrill's fourth-quarter loss at about $5 billion.
He recalls several conversations over several days with outside counsel Ed Herlihy and Nick Demmo, partners at Wachtell Lipton Rosen & Katz, and with Teresa Brenner, a veteran in-house lawyer, about whether the $5 billion projected loss should be disclosed.
Because the amount was similar to Merrill's previous losses, and because the bank had indicated it expected losses to remain nearly the same, all the lawyers concluded in a conference call on Nov. 20 "that disclosure was not warranted."
According to Mayopoulos, "No one on the November 20 conference call disagreed with that conclusion."
But then the estimated losses grew to $7 billion, and then $9 billion. Mayopoulos learned of the $9 billion figure when CFO Price reported it at a board of directors meeting on Dec. 9, four days after shareholders had voted to approve the merger.
Mayopoulos tells Congress, "I have read that the $9 billion projected loss included an additional $2 billion after-tax 'plug' figure, referred to as 'WAG' -- which reportedly stood for 'Wild Ass Guess.'"
Mayopoulos continues, "If a big part of it was a 'Wild Ass Guess,' I believe my legal advice would have been that such a guess was not an appropriate basis for a public disclosure. The law is clear that public disclosures to shareholders must be based on information that is reasonably reliable."
He says he was also concerned that the earlier $5 billion estimates might be guesses. "It is obvious in hindsight that, if any of the estimates had been publicly disclosed to shareholders at the time, shareholders would have been misled ... and would have likely sued the Company," he adds.
So with those worries on his mind, Mayopoulos asked to see Price after the meeting. "I was advised that Mr. Price was not available," he recounts. "I decided to try to meet with him the next day." But the firing of Mayopoulos ended the discussion.
No one, including Brian Moynihan, who temporarily replaced him as general counsel, "ever contacted me to discuss what I had been working on," Mayopoulos says. He was fired after spending five years on the job, receiving outstanding performance evaluations, and being assured he would be the general counsel for the newly merged company.
"Nearly a year later, I still do not know why I was terminated, who was involved in the decision to do so, or what their reasons or motivations were," Mayopoulos says.
On other matters, Mayopoulos recounts the highly controversial Merrill bonus pool, and a meeting to discuss an escape clause in the merger deal.
He says he played no role in negotiating the Merrill bonus pool of $5.6 billion, and that he did not take part in drafting the merger agreement and proxy materials that indicated there would be no bonuses. The Securities and Exchange Commission has sued the bank for failing to disclose the bonus pool in its proxy materials.
Mayopoulos also recalls being asked on Dec. 1 about the "material adverse change" provisions of the merger agreement, which could provide an escape clause for the bank to cancel the deal.
He says CFO Price and Greg Curl, then the bank's head of corporate strategy, asked him to review with them the terms of the agreement. "I do not recall why they asked for this briefing (or whether they provided me with a reason at the time). Neither of them suggested to me that they thought a material adverse change had occurred," Mayopoulos says.
Mayopoulos explained to Price and Curl why, based on the facts he knew, there was no legal basis to declare that a material adverse change had occurred. Later, in mid-December, the bank would insist to federal regulators that one had indeed occurred and that it was considering canceling the deal.
The threat earned the bank another $20 billion in federal bailout funds, and led to the congressional hearings. Others scheduled to testify today are Moynihan, and two bank directors, Charles "Chad" Gifford and Thomas May.