×

CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC’S BECKY QUICK SITS DOWN WITH BANK OF AMERICA CEO KEN LEWIS TODAY ON CNBC’S "SQUAWK BOX" AT 7AM ET

WHEN: TODAY, THURSDAY, APRIL 2ND AT 7AM ET

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Bank of America CEO Ken Lewis today on CNBC's "Squawk Box."

All references must be sourced to CNBC

--------------------------------------------------------------

QUINTANILLA: LET'S GO TO COLLEGE STATION, TEXAS, WHERE BECKY IS WITH THE BANK OF AMERICA CHAIRMAN AND CEO KEN LEWIS.BECK.

QUICK: CARL, THANK YOU VERY MUCH.WE HAVE A SPECIAL ONE-HOUR INTERVIEW THIS MORNING.I'M IN COLLEGE STATION, TEXAS, AS YOU MENTIONED, AT THE GEORGE BUSH LIBRARY AND MUSEUM. IT'S ON THE CAMPUS OF TEXT TX A&M, AND KEN LEWIS WILL BE SPEAKING TO SOME OF THE STUDENTS AND FACULTY AT THE MAYS BUSINESSSCHOOL. BEFORE HE DOES, IS HE SPEAKING TO US ON "SQUAWK BOX" FOR A RAREONE-HOUR INTERVIEW AND ONCE AGAIN, KEN LEWIS, THE CHAIRMAN AND CEO OF BANK OF AMERICA. MR. LEWIS, THANK YOU VERY MUCH FOR JOINING US.

LEWIS: GREAT TO BE HERE.

QUICK: WE HAVE A LOT TO TALK ABOUT, AND I QUITE FRANKLY AM NOT EVEN SURE WHERE TO BEGIN WITH THESE THINGS. I KNOW YOU'RE IN TEXAS.PART OF THE REASON IS THIS IS AN AREA WHERE YOU HAVE A MAJOR MARKET SHARE JUST LIKE DO YOU INTHE REST OF THE COUNTRY. I'VE HEARD RECENTLY THAT ONE OUT OF EVERY TWO AMERICANS HAS A BANKING RELATIONSHIP WITH YOU.

LEWIS: EVERY OTHER AMERICAN FAMILY BANKS WITH US, YES.

QUICK: IS THAT BANKING THROUGH ALL OF YOUR DIFFERENT ASSETS AND BRANCHES COUNTRYWIDE, MERRILL LYNCH OR IS THAT JUST AT BANK OF AMERICA ITSELF?

LEWIS: WELL, THAT'S BANK OF AMERICA, AND WE REALLY HAVEN'T REALLY KIND OF ASIMILATED STATISTICALLY THE OTHERS AND IT'S PROBABLY BIGGER THAN 50%. WE JUST SAY EVERY OTHER.

QUICK: JUST TO BE MODEST YOU SAY EVERY OTHER. THAT GIVES YOU A UNIQUE PERSPECTIVE ON WHAT'S HAPPENING RIGHT NOW IN THIS NATION.F ROM YOUR PERSPECTIVE, WHERE DO DO WE STAND IN THIS ECONOMY?

LEWIS: BECKY, I THINK WE'RE AT A POINT WHERE YOU'RE SEEING MIXED SIGNALS. JUST SMALL MIXED SIGNALS.SOME HOUSING SALES ARE BETTER THAN YOU THINK OR CAR SALES NOT BEING QUITE AS BAD AS YOU THINK, AND WHEN YOU SEE THE MIXED SIGNALS, I THINK IT'S SIGNALS THAT YOU ARE GETTING CLOSE TO BOTTOM, AND SO WE WOULD ACTUALLY SHARE THE CONSENSUS THAT IN THE SECOND HALF THINGS MODERATE IN TERMS OF THE DECLINE AND THAT WE HIT BOTTOM IN THE SECOND HALF AND THAT WE START TO COME OUT OF THIS AND IN THE FIRST PART OF NEXT YEAR. YOU CAN'T THROW AS MANY THINGS AS WE'RE THROWING AT IT AND NOT BREAK THE BACK OF THIS THING.

QUICK: YOU'VE BEEN SEEING THESE MIXED SIGNS FOR HOW LONG?

LEWIS: THE LAST FEW MONTHS. THE OTHER THING, TOO, IS DON'T UNDERESTIMATE THE REFIS, AND THAT WILL PUT A LOT OF MONEY IN PEOPLE'S POCKETS, AND WE'VE NEVER SEEN VOLUME SAYS LIKE WE'RE SEEING $5 BILLION A DAY APPLICATION DAYS, AND THAT'S GOING TO PUT -- REDUCE A LOT OF MONTHLY PAYMENTS.

QUICK: YOU OBVIOUSLY HAVE A HUGE INSIGHT TO WHAT'S HAPPENING WITH THE MORTGAGE MARKET THROUGH COUNTRYWIDE AND THROUGH YOUR OTHER OPERATIONS AS WELL. HOW MANY PEOPLE DO YOU HAVE WORKING ON NOT ONLY REFINANCING, BUT ALSO REWORKING OUT MORTGAGE AGREEMENTS FROM THE PAST?

LEWIS: BY THE WAY, ON APRIL 24TH WE CHANGED THE NAME. IT BECOMES BANK OF AMERICA HOME LOANS. THAT'S ABOUT TO HAPPEN.

QUICK: ACTUALLY KNEW THAT BECAUSE YOU OWN MY MORTGAGE, TOO.

LEWIS: 5,000 PEOPLE ARE WORKING ON MODIFYING LOANS AT THE MOMENT.

QUICK: HOW -- WHAT ARE YOU SEEING? WHAT ARE YOU LEARNING IN THOSE LOAN MODIFICATIONS PROCESS?

LEWIS: THAT WE ACTUALLY CAN HAVE A POSITIVE EFFECT AND CAN MAKE A DIFFERENCE IF THE CUSTOMER WILL COME TO US AND TALK TO US AND WORK WITH US. WE CAN MAKE A DIFFERENCE IN THE SENSE THAT THEY DON'T HAVE -- WE DON'T HAVE TO FORECLOSE AND DO ALL THE UGLY THINGS THAT YOU HAVE TO DO WHEN YOU DO FORECLOSE. IT IS HAVING A POSITIVE IMPACT.

QUICK: HOW WILLING ARE YOU TO RENOGOTIATE IN INDIVIDUAL SITUATIONS?

LEWIS: VERY WILLING. WE'RE INCENTED TO, AND NOBODY WANTS TO FORECLOSE. IT'S BAD FOR EVERYBODY. PARTICULARLY DEVASTATING TO COMMUNITIES.

QUICK: YOU KNOW, BANK OF AMERICA AND MANY OF THE OTHER BANKING INSTITUTIONS HAVE BEEN UNDER QUITE A BIT OF PRESSURE THESE DAYS, AND LATELY IT SEEMS LIKE EVERY TIME SOMEBODY MENTIONS BANK OF AMERICA, THEY MENTION CITIGROUP. HOW ARE YOU DIFFERENT THAN CITIGROUP, AND ARE YOU IN THE SAME -- SHOULD YOU BE MENTIONED IN THE SAME BREATH?

LEWIS: I DON'T THINK SO. I HATE TO KICK CITIGROUP, AND I'LL TALK IN BROADER TERMS. WE MADE $4 BILLION AFTER TAX LAST YEAR. WE DIDN'T LOSE TENS OF BILLIONS OF DOLLARS.WE DIDN'T -- OUR DEPOSITS DIDN'T SHRINK. THEY GREW $42 BILLION, WHICH IS A GOOD SIZE BANK IN AND OF ITSELF. OUR PRETAX PREMARGIN NET INCOME APPEARS TO BE ABOUT $45 BILLION AS WE LOOK OUT THIS YEAR. REVENUE IN EXCESS OF $100 MILLION. THE COMPARISON, I THINK, IS ONLY BECAUSE WE TOOK THAT SECOND PIECE OF TARP MONEY AND ASSOCIATED IT WITH MERRILL LYNCH.

QUICK: YOU HAVE $45 BILLION IN TARP MONEY JUST LIKE CITIGROUP.

LEWIS: AND THAT WAS MY MISTAKE WE TOOK MORE THAN WE NEEDED IN ABUNDANCE OF CAUTION, AND I REGRET HAVING TAKEN THAT MUCH AS WE SIT HERE NOW. I MEAN, WE HAVE A TIER ONE CAPITAL RATIO OF 10.6% WITH THE WELL CAPITALIZED RATIO WOULD CAUSE YOU TO BE 6%, SO THAT WAS MY MISTAKE, AND THAT'S WHY I'M SO ANXIOUS TO PAY AT LEAST SOME OF IT BACK.

QUICK: WHAT DID YOU SEE ON THE BOOKS AT MERRILL LYNCH THAT MADE YOU THINK YOU MIGHT NEED THAT MUCH CAPITAL?

LEWIS: WELL, IT WASN'T SO MUCH -- IT WAS PARTLY MERRILL LYNCH, BUT ALSO HOW BAD WAS IT GOING TO GET, AND SO NOT KNOWING HOW BAD IT WAS GOING TO GET, WE JUST TOOK UP -- WE TOOK MORE THAN WE NEEDED, AND IT DIDN'T GET AS BAD AS WE THOUGHT IT MIGHT.

QUICK: YOU'VE TALKED ABOUT HOW YOU WOULD LIKE TO START PAYING THAT TARP MONEY BACK.W HEN DO YOU THINK YOU COULD PAY THAT TARP MONEY BACK?

LEWIS: I DON'T KNOW. WHEN WE WERE WITH THE PRESIDENT THE OTHER DAY, HE BASICALLY SAID WE NEED TO MAKE SURE -- AND I AGREE WITH THIS. WE NEED TO MAKE SURE THAT THE BANKING SYSTEM IS IN PROPER SHAPE, THAT WE DON'T HAVE A HEAD FAKE HERE AND THAT THINGS GET WORSE AGAIN AND SECONDLY, THAT THE ECONOMY IS, IN FACT, IN GOODSHAPE AS WELL, AND SO I THINK IT'S GOING TO BE SEVERAL QUARTERS BEFORE WE HAVE THE OPPORTUNITY. IF YOU HAD A WINDOW YOU COULD PAY SOME OF IT BACK BUT NOT ALL OF IT, I WOULD LIKE TO DO THAT AT LEAST.

QUICK: WHAT WOULD HAPPEN, IN TERMS OF PAYING BACK, YOU'RE TALKING BLT MONEY AND ALSO THE INTEREST THAT WOULD COME ALONG WITH THAT,AND WHAT ABOUT THE GOVERNMENT WARRANTS AS WELL? WHAT IF THEY EXERCISE THOSE WARRANTS?

LEWIS: WE WOULD LIKE TO PAY ALL OF THAT BACK AND NOT HAVE THAT AS AN ISSUE. WE MADE OUR FIRST PAYMENT JUST AFEW WEEKS AGO $400 MILLION.THIS IS NOT A FREEBY.

QUICK: RIGHT. THIS IS A LOAN, AND THIS IS ALOAN YOU SAID YOU WANT TO PAY BACK SOONER RATHER THAN LATER.

LEWIS: THAT'S CORRECT.

QUICK: LET'S TALK ABOUT THAT MEETINGWITH THE PRESIDENT THE OTHER DAY.WE HEARD SOME OF WHAT WAS SAID IN THE ROOM. A LOT OF PEOPLE SAID THAT THIS WAS BOTH SIDES COMING TO THE TABLE AND TRYING TO GET SOME AGREEMENTS. I'VE HEARD THAT YOU WERE THE LAST CEO TO SPEAK.PEOPLE WENT AROUND THE ROOM, AND IT WAS, AGAIN, A VERY BACK AND FORTH WORKING SCENARIO, BUT I ALSO HEARD THE FIRST WORDS OUT OF YOUR MOUTH WERE, MR. PRESIDENT, I'M NOT GOING TO SUCK UP TO MR. GEITHNER AND SUMMERS LIKE MY FELLOW CEOS. DID YOU SAY THAT?

LEWIS: I WAS TRYING TO LIGHTEN IT UPA LITTLE BIT, AND I DID SAY THAT.

QUICK: AND WHAT WAS THE MOOD BACK AND FORTH WHEN YOU SAID THAT?

LEWIS: IT WAS -- THEY TOOK IT AS I WAS KIDDING. I MEAN, I KNOW BOTH OF THEM AND HAVE A HIGH DEGREE OF RESPECT FOR THEM, SO IT WAS JUST TRYING TO LIGHTEN THINGS UP, AND THE PRESIDENT SMILED AND I'M SURE TIM AND LARRY TOOK IT IN THE RIGHT WAY.

QUICK: WHAT DO YOU THINK OF THE PLANS THAT HAVE BEEN LAID DOWN BY THIS ADMINISTRATION SO FAR? FIRST, YOU HAVE THE TARP MONEY THAT CAME IN, AND THEN THINGS STARTED CHANGING VERY RAPIDLY. WE'VE SEEN CONGRESS JUMP INTO THE ACT TOO. WHAT DO YOU THINK OF WHAT CONGRESS HAS BEEN SAYING ABOUT RETROACTIVELY CHANGING SOME OF THESE RULES?

LEWIS: NOT MUCH IN TERMS OF WHAT I THINK OF IT. YOU ARE GETTING INTO DANGEROUS TERRITORY CHANGING CONTRACTS, GOING BACK ON WORDS OF OTHERS AND GOVERNMENT LACK OF CONTINUITY, AND I THINK IT'S VERY DANGEROUS. HOPEFULLY AS WE STEP BACK AND BECOME A LITTLE MORE THOUGHTFUL AND CLEARER HEADS WILL PREVAIL AND WE'LL GET THIS THING IN THE RIGHT DIRECTION. I SAID IN SEPTEMBER OF LAST YEAR THAT THE GOLDEN ERA OF INCOME IN BANKING WAS OVER AND THAT STARTING WITH BANK CEOS, WE'RE GOING TO MAKE LESS, AND I THINK ALSO, YOU'RE GOING TO GET A CHANGE IN COMPOSITION OF EARNINGS, SALARIES, AND BONUSES,AND SO THE SALARIES WILL BE HIGHER, AND THE INCENTIVES WILL BE LOWER. WE'RE LOOKING AT THAT AS WE SPEAK.

QUICK: OKAY.JOE, I KNOW YOU HAVE A QUESTION AS WELL.

KERNEN: I DO.THANKS, BECK. MR. LEWIS, YOU JUST SAID THAT THE GOLDEN ERA IS OVER, BUT THINK ABOUT, YOU KNOW, A GLOBAL PRESENCE FOR A BANK LIKE YOURS. AND YOU BOUGHT -- YOU GOT COUNTRYWIDE, ONE OF THE BIGGEST MORTGAGE LENDERS.YOU BOUGHT THE BIGGEST BROKERAGE FIRM.GO BACK THREE YEARS AND PUT THOSE ASSETS TOGETHER WITH BANK AMERICA AND THINK ABOUT A NUMBER OF WHAT THAT WOULD HAVE BEEN WORTH IN THE MARKET. NOW, LET'S ASSUME SOMEDAY THAT THINGS GET -- RETURN TO SOME DEGREE OF NORMALCY. YOU ARE A $7 STOCK. WHAT DO YOU THINK YOU COULD BE WORTH AND WHAT IS THE MARKET MISSING IN YOUR VIEW? THERE'S GOT TO BE SOMETHING THERE LOOMING THAT THE MARKET JUST DOESN'T SEE. OR THAT YOU DON'T SEE THAT THE MARKET DOES SEE.

LEWIS: I THINK IT'S WHAT I SEE THAT THE MARKET DOESN'T SEE. HERE'S THE WAY I RECONCILE IT, JOE, TO ANSWER YOUR QUESTION. IF YOU GO BACK AND LOOK AT COUNTRYWIDE, THEY MADE SOMEWHERE BETWEEN $2 BILLION TO $2.7 BILLION PRETTY CONSISTENTLY AFTER TAX, AND MERRILL LYNCH MADE SOMETHING LIKE $4 MILLION TO $7 MILLION DURING THOSE PERIODS OF TIME. THIS IS PRE-2006, 2007.YOU KNOW, IN MORE NORMAL TIMES. IF YOU TAKE THOSE NUMBERS, BANK OF AMERICA IN THAT TIME FRAME MADE SOMEWHERE BETWEEN $18 BILLION AND $21 BILLION AFTER TAX. IF YOU PUT SOMETHING IN BETWEEN THAT AND YOU PUT THE COST SAVINGS THAT WE'RE GETTING IN COUNTRYWIDE AND MERRILL LYNCH, YOU GET TO A NUMBER OF ABOUT $30 BILLION WHEN YOU ADD ALL OF THOSE UP, AND WE HAVE A LITTLE OVER $6 BILLION IN SHARES, AND SO THAT'S WHAT YOU GET EARNINGS PER SHARE, AND YOU PUT WHATEVER MULTIPLE YOU WANT ON IT, AND YOU GET THE STOCK PRICE.

KERNEN: SOMETHING IS NOT RIGHT AT $7.IS IT COMMERCIAL REAL ESTATE? IS IT FEAR? IS IT, YOU KNOW, THAT NO FINANCIAL FIRM WILL EVER MAKE MONEY AGAIN, OR IS THERE A LOT OF TOXIC STUFF THAT IS EITHER THERE OR THAT PEOPLE THINK IT S THERE?

LEWIS: YOU KNOW, ACTUALLY, IN TERMS OF TOXIC, ABOUT $700 BILLION OF OUR CALL IT $2.4 TRILLION ASSETS ARE ACTUALLY MARKET TO MARKET AND MARKED PRETTY SEVERELY. I THINK IT'S ONE OF THOSE THINGSYOU JUST MENTIONED, JOE .IT'S THE FEAR OF THE UNKNOWN. HOW BAD IS THE ECONOMY GOING TO GET. ALL THE OTHER BAD FURTHER WRITE-DOWNS, AND HOW LONG IS THIS ECONOMY GOING TO DETERIORATE? I DON'T THINK IT'S A FOREVER QUESTION. I THINK THAT'S FAIRLY UNKNOWN AS THINGS START TO CHANGE, CHANGES AS WELL, AND THEN WE'LL START SEEING OUR STOCK AND BANK STOCKS IN GENERAL COMING BACK.

KERNEN: IT'S $45 BILLION MARKET CAP.I MEAN, IT'S STUPID FOR ME TO ASK YOU WHAT YOU THINK IT'S WORTH, BUT --

LEWIS: A LOT MORE.

KERNEN: A LOT MORE.IT SEEMS LIKE IF YOU WERE TO JUST TRY TO EARN YOUR WAY OUT OF THIS OR BUY SOME TIME, WHICH TIME HEALS EVERYTHING, DO YOU SEE THE OTHER SIDE OF THIS AND THAT MAYBE ALL THOSE ACQUISITIONS YOU WERE SO SUCCESSFUL WITH IN THE PAST, DO YOU REALLY BELIEVE THAT MERRILL AND COUNTRYWIDE LOOKING BACK THAT YOU'LL LOOK GOOD SOMEDAY?

LEWIS: YEAH .I THINK THIS IS GOING TO BE A TOUGH YEAR FOR ALL INSTITUTIONS.YOU'LL START TO SEE THE BEGINNING -- YOU'LL START TO -- YOU'LL SEE EVEN THIS YEAR WHEN YOU LOOK AT PRETAX, PREPROVISIONY OU'LL SEE THE EARNING POWER OF THIS MACHINE, AND THEN YOU'LL SEE IT REALLY START TO COME TO FRUITION IN 2010, AND IN 2011 ITSHOULD BE THE YEAR THAT YOU GET A LOT OF THIS BEHIND YOU AND SEE THE FULL EARNINGS POWER OF BANK OF AMERICA AND BOTH OF THE -- THOSE ACQUISITIONS IN COUNTRYWIDE AND MERRILL LYNCH WILL PROVE TO BE TWO OF THE BEST ACQUISITIONS WE'VE EVER MADE, IF YOU JUDGE US OVER TWO OR THREE YEARS RATHER THAN TWO OR THREE MONTHS.

QUINTANILLA: MR. LEWIS, LET'S -- LET'S MOVE FROM TWO OR THREE MONTHS TO TWO OR THREE HOURS. ONE OF THE REASONS THE FUTURES ARE UP TODAY IS BECAUSE PEOPLE THINK WE'RE GOING TO GET SOME SORT OF NEW MARKET TO MARKET GUIDELINES. SOME ANALYSTS THINK THAT COULD EFFECT BANK EARNINGS UP TO 20% TO THE UP SIDE. IT COULD MAKE THE DIFFERENCE BETWEEN WHETHER A BANK MAKES MONEY OR LOSES MONEY IN A QUARTER. DOES THAT -- DO THOSE NUMBERS SEEM REASONABLE TO YOU, AND IF WE GET IT, WILL THAT DISINCENTIVIZE YOU TO SELL ANY KIND OF SECURITIES OR LOANS?

LEWIS: CARL, I DON'T -- I THINK YOU WILL BE ABLE TO SEE SOME OF THE EFFECTS, BUT THE 20% SOUNDS -- DOES SOUND HIGH TO ME. I HAVEN'T ANALYZED EACH ASSET TO SEE WHAT MIGHT CHANGE, BUT GENERALLY SPEAKING, WE THINK YOU'LL BE ABLE TO SEE A PENNY OR TWO -- BUT NOT 20% OF THINGS OF THAT NATURE. I THINK IT'S BEEN AT LEAST IN OUR CASE MAYBE A LITTLE OVERBLOWN AND NOT QUITE AS BIG A DEAL AS SOME WOULD THINK. AND I DON'T THINK IT WOULD EFFECT TO A GREAT DEGREE HOW WE WOULD LOOK AT ASSET SALES. I THINK THAT'S JUST A MATTER OF WHAT THE PRICING MECHANISM IS GOING TO BE.

QUICK: ALL RIGHT.WE'RE GOING TO HAVE MORE WITH MR. LEWIS.AGAIN, HE WILL BE SITTING DOWN WITH US FOR THIS ENTIRE HOUR.AND, JOE, WE HAVE A LOT MORE OF THAT AFTER THIS.

QUICK: WELCOME BACK TO THE SPECIAL HOUR OF "SQUAWK BOX" WHERE WE ARE TALKING ABOUT BANKING ON AMERICA. I'M BECKY QUICK. I'M IN COLLEGE STATION, TEXAS, AND WE ARE SPEAKING WITH BANK OF AMERICA CHAIRMAN AND CEO KEN LEWIS. MR. LEWIS, THANK YOU, AGAIN, FOR JOINING US.WHAT ONE OF THE THINGS PEOPLE HAVE BEEN TALKING ABOUT LATELY ARE THE STRESS TESTS, THAT ALL THE BANKS ARE UNDERGOING RIGHT NOW. DICK KOVOSIVICH, OVER AT WELLS FARGO, RECENTLY CALLED IT ASSANINE. WHAT DO YOU THINK ABOUT THE STRESS TEST?

LEWIS: MY FIRST REACTION IS WHAT DO YOU THINK WE'RE UNDER AT THE MOMENT? ACTUALLY, I SAID THIS IN -- TO PRESIDENT.T HE BAD NEWS IS THERE'S A LOT OF UNCERTAINTY, BUT THE GOOD NEWS IS WE WILL GET THROUGH IT NOW AND HAVE IT BEHIND US AND HOPEFULLY GET THAT UNCERTAINTY OVER AND SO WE'LL GET SOME CLOSURE. I DON'T THINK IT'S BEEN -- IT WILL END UP BEING A BAD THING. I THINK IT'S BEEN A DIFFICULT TIME IN THE INTERIM, AND WE'VE ALREADY SUBMITTED ALL OF OUR INFORMATION AND SO WE'RE GOING BACK AND FORTH ON ASSUMPTIONS, ET CETERA, BUT WE'RE NOT FAR AWAY FROM GETTING THAT -- GETTING THIS RESOLVED.

QUICK: DO YOU THINK THERE'S ANY CHANCE THAT THE GOVERNMENT WOULD COME BACK AND SAY THEY THINK YOU NEED TO RAISE MORE CAPITAL?

LEWIS: I DON'T THINK SO BY ANY STANDARD THAT WE'VE SEEN BEFORE, AND SO I HAVE -- I HAVE NO REASON TO BELIEVE THAT, BUT, YOU KNOW, WE'LL HAVE TO SEE.

QUICK: CARL.

QUINTANILLA: MR. LEWIS, YOU KNOW, WE'VE TALKED ABOUT PAYING BACK THE TARP MONEY AND YOU'RE IN A SITUATION THAT YOU HAVE BEEN LUCKY ENOUGH OR SMART ENOUGH TO BE WHERE YOU CAN START TO PAY THAT BACK. DO YOU THINK -- I MEAN, THE FEAR IS THAT THERE WILL BE OTHER BANKS WHO CAN'T AFFORD TO DO IT, BUT FEEL THAT THEY HAVE TO BECAUSE THEY DON'T WANT TO BE LUMPED IN WITH THE BAD CROWD. WHAT HAPPENS IF HALF OF THESE BANKS PAY BACK THE TARP? IS THAT GOING TO UNDO THE GOOD THAT THE PROGRAM INTENDS TO DO?

LEWIS: WELL, I THINK THAT'S EXACTLY WHAT THE PRESIDENT WAS -- YOU JUST MENTIONED, CARL, EXACTLY WHAT HE WAS TALKING ABOUT, AND THEY'RE GOING TO BE VERY CAREFUL ABOUT NOT LETTING ANYBODY PAY IT BACK IN THE WAY IT WAS KIND OF RELAYED TO US UNTIL THERE'S CONFIDENCE THAT THE SCENARIO YOU JUST OUTLINED WOULD NOT HAPPEN.

QUICK: MR. LEWIS LET'S TALK A LITTLE BIT ABOUT WHAT'S BEEN HAPPENING ON THE NATION AS A WHOLE .THE SAME DAY THAT YOU WERE MEETING WITH THE PRESIDENT, YOU AND THE OTHER BANK CEOS, STEVEN RATNER WAS MEETING WITH RICK WAGONER IN WASHINGTON AND TELLING HIM THAT THEY WOULD LIKE TO SEE HIM LEAVE HIS POSITION. THAT KICKED OFF A HUGE ROUND OF SPECULATION. PEOPLE WONDERING IF THE FINANCIAL COMPANIES WOULD BE PUT IN THAT SAME PLACE. IF THE GOVERNMENT WOULD COME ANDSTART SAYING THAT THEY WANTED TO REMOVE CEOS IN YOUR POSITION. WHAT DO YOU THINK ABOUT WHAT HAPPENED WITH RICK WAGONER, AND DO YOU THINK IT WILL COME FOR THAT WITH THE BANKS?

LEWIS: I DON'T THINK SO.IF YOU -- I'LL JUST USE US AS AN ILLUSTRATION.WE WENT TO -- BY THE WAY, WE MADE $4 BILLION LAST YEAR, $15 BILLION IT IS YEAR BEFORE. WE DIDN'T LOSE MONEY, SO THAT'S THE FIRST THING THAT I WOULD SAY. SECONDLY, WHEN WE WENT IN SEPTEMBER OR OCTOBER OF LAST YEAR, WE WERE ASKED TO TAKE THE MONEY. WE DIDN'T GO HAT IN HAND. WE WERE ASKED TO TAKE IT. THEN THE SECOND ROUND WHEN WE TALKED ABOUT THE MERRILL LYNCH TRANSACTION, THAT WAS A COOPERATIVE EFFORT BETWEEN US AND THE FED AND THE TREASURY AND IT WAS ALL ALONG SAID THAT WE DID NOT WANT TO BE PUNITIVE IN THIS. WE JUST WANT TO FACILITATE THIS TRANSACTION .IT'S AN ENTIRELY DIFFERENT SITUATION AND HOW YOU CAN MAKE THE COROLARY IS BEYOND ME.

QUICK: DO YOU GET FRUSTRATED WITH THE SENSE THAT -- DO YOU FEEL LIKE YOU WERE PUSHED INTO TAKING THAT MERRILL LYNCH ACQUISITION IS? IS THAT SOMETHING YOU FEEL FROM THE GOVERNMENT?

LEWIS: NO WE HAD VERY STRONG ADVICE FROM THE GOVERNMENT THAT IT WAS IN OUR BEST INTEREST TO CONTINUE ALONG THE PATH THAT WE WERE ON AND, OF COURSE, THAT DID WEIGH ON US BECAUSE YOU HAVE TO MAKE THAT A VERY IMPORTANT PART OF YOUR DECISION, BUT AT THE END OFTHE DAY WE DECIDED THAT IT WAS THE RIGHT THING TO DO FOR BANK OF AMERICA. IT HAPPENED TO ALSO BE THE RIGHT THING TO DO FOR THE AMERICAN FINANCIAL SYSTEM AND BECAUSE OF WHO WE ARE AND OUR RELATIONSHIP WITH THE FINANCIAL SYSTEM, OUR DESTINIES ARE KIND OF INTERTWINED.

QUICK: DID THE GOVERNMENT PROMISE YOU DON'T WORRY, WE'LL MAKE SURETHIS GOES SMOOTHLY, WE'LL MAKE SURE YOU HAVE THE MONEY YOU NEED?

LEWIS: YES.

QUICK: YES. JOE.

KERNEN: THANKS, BECK. KEN, TOMORROW WE'RE GOING TO GET AN EMPLOYMENT REPORT.SOME PEOPLE SAY 8.5, SOME SAY 8.7.SOME PEOPLE SAY WE COULD GET TO DOUBLE DIGITS. THE POINT IN TIME WHERE YOU ARE RIGHT NOW, LET'S SAY IT GETS SIGNIFICANTLY WORSE, 10% PLUS, WHAT ABOUT CREDIT CARDS, WHAT ABOUT REAL ESTATE? WOULD IT BE PRUDENT TO PAY BACK THE TARP IF IT DECLINES TO THAT AMOUNT? WOULDN'T YOUR CAPITAL BE EFFECTED BY NUMBERS LIKE THAT?

LEWIS: YEAH, JOE.YOU'VE JUST BASICALLY OUTLINED THE STRESS TEST. AND SO WE KNOW WHAT WOULD HAPPEN TO OUR NUMBERS AND TO OUR RATIOS IF THAT WERE TO HAPPEN, AND IT DOES PUT FURTHER STRAIN, BUT PARTICULARLY ON THE TIER ONE CAPITAL WHICH IS THE MOST IMPORTANT TO REGULATORS WE'RE SO TOP HEAVY WITH PREFERRED IT STILL GIVES US A HUGE CUSHION EVEN WHEN YOU OUTLINE THAT MORE DIRE SCENARIO THAT YOU JUST MENTIONED BECAUSE WHEN YOU START OUT AT 10.6%, YOU HAVE A HUGE CUSHION. REMEMBER, THAT $45 BILLION IN PRETAX PREPOSITION NET INCOME ASSUMING THAT HAPPENS, THAT'S A NICE FRONTLINE DEFENSE BEFORE YOU GET TO THE EATING UP ANY CAPITAL.

KERNEN: I HAVE ONE FOLLOW-UP QUICKLY,AND THEN I'LL GET TO CARL. ONE OF THE REASONS I THINK YOU AND OTHERS WANT TO PAY BACK THE TARP QUICKLY IS BECAUSE OF MAYBE CHAFING A LITTLE UNDER THE THINGS THAT THE GOVERNMENT HAS DONE OR IT'S POSSIBLE THAT THEY'RE GOING TO DO IN THE FUTURE. WHEN YOU MET WITH PRESIDENT OBAMA, DID HE GIVE YOU -- DID HE TELL YOU THAT NOTHING LIKE A RETROACTIVE PUNITIVE TAX ON THINGS, THAT THAT IS NOT GOING TO HAPPEN UNDER HIS WATCH? DID HE TELL YOU THAT?

LEWIS: NO. WE DIDN'T GET INTO SPECIFICS. HE BASICALLY SAID YOU HAVE TO ACKNOWLEDGE THINGS HAVE CHANGED AND THAT BEHAVIOR WILL HAVE TO CHANGE AND YOU'LL HAVE TO HAVE SOME PATIENCE WITH THIS, BUT NOTHING SPECIFIC.

QUINTANILLA: MR. LEWIS, ONE QUICK QUESTIONJUST ON THE PAST COUPLE OF MONTHS.YOU KNOW, IN JANUARY AND FEBRUARY THE COMMENTS COMING FROM THE LIKES OF VICK PANDIT AND JAMIE DIMON WERE THAT THE FIRST COUPLE OF MONTHS MUCH THE QUARTER WERE PRETTY GOOD, AND THEN JAMIE DIMON CAME ON OUR ETWORK A FEW WEEKS AGO AND HE SAID THAT MARCH WAS A LITTLE TOUGH. I'M WONDERING IF YOU THINK THE QUARTER WAS DIVIDED INTO THAT KIND OF DYNAMIC, THE FIRST TWO MONTHS GOOD, THE LAST MONTH BAD AND IF SO, WHAT ACCOUNTS FOR THE CHANGE?

LEWIS: WELL, I HAD MADE SOME COMMENTS, TOO, CARL, ABOUT SIMILAR TO WHAT WAS SAID, AND THEN RECENTLY AFTER THAT SAID THAT THE TRADING RESULTS THROUGH ABOUT, I GUESS, THREE-QUARTERS OF MARCH HAD BEEN LESS THAN THE FIRST TWO, BUT THE DEPOSIT GROWTH HAD BEEN GOOD, AND BECAUSE WHERE HE HAVE CLOSED THE QUARTER AND KIND OF DONE BLACKOUT, I CAN'T SAY MUCH MORE, BUT I COULD SAY THAT I'M NOT HERE TO CHANGE ANYTHING THAT I HAVE SAID PREVIOUSLY.

QUINTANILLA: WELL, WE HAVE THAT TO HANG OUR HAT ON.

QUICK: ALL RIGHT.WE WILL HAVE MORE WITH KEN LEWISIN JUST A MOMENT.CARL.

QUICK: CARL, THANK YOU VERY MUCH.YOU WERE JUST TALKING ABOUT MARKET TO MARKET AND EVERYTHING THAT'S BEEN HAPPENING THERE. MR. LEWIS, YOU MENTIONED WHAT YOU THOUGHT ABOUT MARKET TO MARKET, BUT YOU ALSO THINK THEREARE SOME OTHER BIG ISSUES OUT THERE, INCLUDING RESERVES.

LEWIS: IN FACT, BECKY, JOHN DUGAN WHO CONTROLS THE CURRENCY ACTUALLY GAVE A SPEECH ABOUT THE ISSUE, BUT IT'S THE PRO-CYCLICAL NATURE OF LOAN LOSS RESERVE, AND PARTICULARLY AROUND CONSUMERS LOANS WHERE WE LOOK OUT 12 MONTHS, AND IT'S, IN ESSENCE, BETTER THAN SAVING FOR A RAINY DAY. IT'S SAVING FOR A SUNNY DAY BECAUSE YOU END UP HAVING THE RESERVE BUILT DURING BAD TIMES, AND YOU RELEASE SOME DURING GOODTIMES. IT MAKES NO COMMONSENSE AT ALL, AND IT PUTS A HUGE STRAIN ON BANKS BECAUSE THEY ARE -- THEY LOOK EVEN WORSE DURING BAD TIMES BECAUSE THEY'RE BUILDING THEIR RESERVES, AND WHY SOMEBODY DOESN'T HAVE MORE OF A SENSE OF URGENCY AROUND THAT ISSUE IS BEYOND ME, BUT THERE'S TENS OF BILLIONS OF DOLLARS OF CAPITAL TIED UP IN THESE CONSUMER LOAN LOSS RESERVES THAT IN MY OPINION DOESN'T NEED TO BE, SO YOU COULDACTUALLY CREATE HUGE AMOUNTS OF EQUITY BY JUST LETTING THE BANKS USE THEIR RESERVES.

QUICK: HAVE YOU SPOKEN TO ANYONE IN WASHINGTON ABOUT IT.

LEWIS: I HAVE, AND IT MUST BE A VERY THORNY ISSUE IN TERMS OF PEOPLE HAVING TO BE INVOLVED, BUT I KNOW THE REGULATORS IN GENERAL WOULD AGREE WITH ME, BUT I THINKYOU HAVE THE -- I GUESS IT GOT FASBE -- HAVE YOU THE S.E.C., AND YOU HAVE THE REGULATORS, BUT EVEN IF NOTHING IS DONE NOW, I WOULD HOPE THAT THAT WOULD BE LOOKED AT OVER TIME IN A MORE SENSIBLE APPROACH TO IT TAKEN IN THE FUTURE.

QUICK: OKAY.JOE.

KERNEN: THANKS, BECK.FOR YEARS MR. LEWIS, YOU LOOKED AT MERRILL LYNCH AND THE THUNDERING HERD AND THOUGHT, WOW, THAT'S AN ATTRACTIVE -- THAT'S AN ATTRACTIVE GROUP OF FINANCIAL CONSULTANTS, AND IT WOULD FIT IN WELL WITH BANK AMERICA. THEN IT HAPPENED. TELL ME ABOUT THE MORALE AT MERRILL RIGHT NOW.YOU'VE LOST SOME SENIOR GUYS AND SOME ANALYSTS, BUT THE THUNDERING HERD ITSELF, HAVE YOU LOST A LOT OF THOSE GUYS, AND HOW IS MORALE?

LEWIS: WE HAVE LOST SOME, BUT IF YOU -- AND SOME THAT WE WOULD ORDINARILY BE ASKING TO GO BECAUSE OF PRODUCTION OR WHATEVER, AND THEN SOME THAT WE DIDN'T WANT TO LOSE, SO IT'S BEEN MIXED. WE BROUGHT IN SOME REALLY GOOD PEOPLE. HOWEVER -- AND ARE DOING FINE WITH OUR PLAN, ET CETERA. I THINK THE MORALE -- THERE'S ALWAYS THE ISSUE OF JUST THE GENERAL MALAISE IN THE ECONOMY AND -- BUT WHAT'S HAPPENING IS WE'RE GIVING THEM, THEM BEING THE THUNDERING HERD, BANKING PRODUCTS TO SELL THAT THEY DIDN'T HAVE TO SELL BEFORE, AND SO THAT HAS HELPED MORALE QUITE A BIT BECAUSE THEY HAVE KIND OF MORE ERRORS IN THEIR QUIVER, AND SO I THINK IN GENERAL MORALE IS PRETTY GOOD. YOU COULD FIND SPOTS MAYBE THAT'S NOT, BUT IN GENERAL THINGS ARE GOING QUITE WELL, AND WHEN WE HAVE GIVEN NEW PRODUCTS, THEY HAVE SOLD THEM VERY WELL.THAT IS QUITE A SALES FORCE.

QUINTANILLA: MR. LEWIS, IT IS -- WE TALKBSH YOU TALK ABOUT CREDIT BEING EXTENDED, YOU KNOW, BANKS ACTUALLY LENDING THESE DAYS, WHICH MUST BE A TOUGH MESSAGE TO GET CONSUMERS TO BELIEVE .THERE'S A WHOLE HOST OF CRITICS OUT THERE WHO SAY, YEAH, THERE IS LENDING GOING ON, BUT IT'S REFIS THAT ARE GETTING ALL THE LOVE. WHAT DO YOU SAY TO THOSE PEOPLE?

LEWIS: WELL, WE PUBLICLY SAID $115 BILLION IN LOANS IN THE FOURTH QUARTER. $48 MILLION IN JANUARY.I HAVEN'T SEEN THE FEBRUARY NUMBERS YET.THE NUMBERS ARE PRETTY GOOD. WE WERE BE THE SINGLE LARGEST ISSUER OF CREDIT IN THE COUNTRY IN THE FIRST QUARTER, SO WE'RE MAKING EVERY GOOD LOAN WE CAN MAKE. I MEAN, IN ITS SIMPLEST FORM, A COMMERCIAL BANK TAKES DEPOSITS AND MAKES LOANS, AND WE WILL NOT OPTIMIZE OUR PROFITS UNLESS WE DO THAT, SO IT'S IN THE LIGHT OF SELF-INTEREST FOR US TO DO IT, AND EVERYONE WE CAN FIND WE'RE MAKING. BY THE WAY, THE PERCENTAGE OF PURCHASE VOLUME IN THIS REFI BOOM WAS ABOUT 20%.IT'S SLOWLY RISING. THE LAST TIME I SAW IT WAS ACTUALLY 28%, SO THAT'S BEEN ENCOURAGING AS WELL.

QUICK: IS THAT THE KEY, THOUGH, WHERE YOU ARE MAKING EVERY GOOD LOAN YOU CAN THAT --

LEWIS: IF YOU HAVE UNEMPLOYMENT RATES GOING UP, THEN THE PIE SHRINKS BECAUSE YOU HAVE LEGACY QUALIFIED BORROWERS, AND THIS REFI, THESE APPLICATIONS, THEY ACTUALLY LOOK VERY GOOD.WE'RE APPROVING A VERY HIGH PERCENTAGE OF THEM. GOOD LOAN TO VALUES RATIOS AND GOOD FICO SCORES.

QUICK: FANNIE MAE AND FREDDIE MAC SAID THE DELINQUENCY RATES SKYROCKETED. HAVE YOU SEEN THAT SAME SORT OF THING THAT'S HAPPENED?

LEWIS: WE'VE SEEN DELINQUENCY RATES ACROSS THE BOARD IN CONSUMER LOANS GO UP AND CONTINUE TO GO UP. WE'VE SEEN SOME SMATERRING IN SOME PRODUCTS OF EARLY DELINQUENCY ACTUALLY STARTING TO ABATE AND YOU CAN'T CALL IT A TREND YET, BUT, BOY, WE SAW A FEW MONTHS OF THAT, THEN THAT WOULD BE VERY ENCOURAGING .IT'S JUST A LITTLE EARLY.

QUICK: HOW LONG ARE YOU SEEN THAT GOING ON?

LEWIS: LAST TWO MONTHS, IN CERTAIN PRODUCTS, INCLUDING CARD, THOUGH.

QUICK: INCLUDING CARS?

LEWIS: INCLUDING CARD.CREDIT CARD, YEAH.

QUINTANILLA: MR. LEWIS, YOU ARE TALKING ABOUT THESE FIVE-DAY DELINQUENCY, RIGHT?

LEWIS: YES.

QUINTANILLA: THAT IS A GOOD SIGN.

LEWIS: SO -- YEAH, IT IS, BUT, YOU KNOW, IT'S NOT IN ALL PRODUCTS AND IT'S TOO EARLY TO CALL IT A TREND CARL BUT --MAYBE I'M GRASPING AT STRAWS.

QUINTANILLA: RIGHT .THERE ARE SOME OUT THERE WHO AREON THE LOOKOUT, THOUGH, FOR ANOTHER BIG SYSTEMIC EVENT THAT WOULD DISRUPT THE HEALING THAT MIGHT BE HAPPENING IN CREDIT, SOME POINT TO A GM BANKRUPTCY. OTHERS SAY THAT THAT'S MORE OF A REARVIEW ISSUE RIGHT NOW. WOULD THAT BE AS DISRUPTIVE AS SOME PEOPLE FEAR?

LEWIS: NO, I DON'T THINK SO, WITH ALL THE PUBLICITY.YOU SAID GM, I THINK.I DON'T THINK THAT WOULD BE AS BIG A DEAL AS SOME THINGS THAT COULD HAPPEN.I GUESS LATE LAST YEAR WHEN THEY WERE UNEXPECTED, THE PUBLICITY AROUND GM IS SUCH THAT I THINK WE CAN GET THROUGH WITH THAT FAIRLY WELL WITHOUT CREATING SOME SYSTEMIC PROBLEM AGAIN.

QUINTANILLA: ONE QUESTION THAT WE'RE IN THIS MORNING.THE TREASURY IS ASKING FOR NEW POWERS TO REGULATE THE NONBANK FINANCIALS, INSURERS, AND HEDGE FUNDS.WOULD THAT MAKE YOU MORE COMFORTABLE ABOUT THE SAFETY OF THE OVERALL MARKETS, OR WOULD THAT MAKE YOU WORRY ABOUT MORE GOVERNMENT INTERVENTION DOWN THE ROAD?

LEWIS: NO.I THINK THERE HAS TO BE AN OVERARCHING REGULATOR. IT'S JUST -- IT'S JUST TOO IMPORTANT THAT WE HAVE SOMETHING LIKE THAT, SO WE DON'T HAVE A MELTDOWN THAT WE'VE HAD -- THAT WE'VE SEEN IN THE PAST. OBVIOUSLY, THAT IS EASY TO SAY. IT'S GREAT IN THEORY. THEN THE DEVIL IS IN THE DETAILS, AND WHO DO YOU GET TO DO IT?W HAT POWERS DO THEY HAVE? YOU ARE GOING TO SEE OTHER REGULATORY BODIES WANTING SOME PIECE OF THE ACTION, AND SO IT'S NOT GOING TO BE PRETTY AS WE GET THEM THE DETAILS. I ASSURE YOU.

QUICK: MR. LEWIS, A LOT OF WHAT YOU ARE SAYING THIS MORNING IS VERY REASSURING BUT WE HAVE OTHER PEOPLE THAT COME ON, A NOURIEL ROUBINI WHO SAY THE BANKS ARE INSOLVENT. YOU SAW PAUL CRUGMAN SAYING THE BANKS NEED TO BE NATIONALIZED. WHO SHOULD WE BELIEVE?H OW CAN WE LISTEN TO ALL OF THESE THINGS AND MAKE SENSE OF IT AS VIEWERS?

LEWIS: WELL, I'VE BEEN THROUGH THINGS LIKE THIS BEFORE. NOT AS BAD AND NOT AS FAR, BUT THIS IS BEGINNING TO FEEL LIKE AN OLD-FASHIONED RECESSION. YOU KNOW, LAST YEAR WE HAD THE MARKS AND WE HAD THE CREDIT MELTDOWN OF EPIC PROPORTIONS IN THE FOURTH QUARTER.T HAT PIECE DOESN'T SEEM TO BE AS SEVERE NOW AS IT WAS THEN, AND SO YOU ARE NOW JUST DEALING WITH THE ISSUE THAT BANKS HAVE DEALT WITH BEFORE, AND BANKS ARE NOT A MARK TO MARKET INDUSTRY. WE MAKE A LOAN TO HOLD IT TO MATURITY, AND SO IF WE GET OFF THIS AND TRY TO TAKE COMMERCIAL BANKS TOTAL ASSET BANK AND MARKET IT TO MARKET, ON THAT BASIS, YEAH, I MEAN, EVERY SYSTEM IN THE WORLD WOULD BE, BECAUSE WE DON'T -- THAT'S NOT THE WAY WE UTILIZE OUR ASSETS .SO LOOK AT US AS A -- ON A BIG PIECE OF OUR BUSINESS AS MAKING LOANS TO GET PAID AT MATURITY, AND YOU GET A DIFFERENT ANSWER.

KERNEN: MR. LEWIS, POPULOUS RAGE RAGING CONGRESS ABOUT COMPENSATION.TWO SIDES. ONE SAYS, BOY, WE'RE GOING TO LOSE PEOPLE BECAUSE WE CAN'T -- WE CAN'T PAY THEM FOR WHAT THEY'RE WORTH. OTHER PEOPLE SAY THEY HAVE NOWHERE TO GO IN THIS ENVIRONMENT ANYWAY. HAVE YOU LOST PEOPLE THAT YOU WISH YOU COULD HAVE KEPT BECAUSE OF THIS ISSUE, OR HAVE YOU BEEN UNABLE TO RECRUIT PEOPLE BECAUSE OF THIS ISSUE AT BANK OF AMERICA?

LEWIS: IT'S MORE HAVING LOST SOME THAT WE WANTED TO HAVE KEPT.I N BOTH CASES WE'VE SEEN SOME LOSSES IT'S BEEN TO FOREIGN BANKS. IT IS ABSOLUTELY NOT TRUE THAT THE BEST PEOPLE CAN'T GO ANYWHERE. THERE'S ALWAYS A PLACE FOR SOMEBODY WHO PRODUCES HIGH AMOUNTS OF REVENUE, AND IT IS WORRISOME.

KERNEN: WOULD YOU INCREASE SALARY? SORRY, BECK.IS THAT SOMETHING THAT -- DO YOU HAVE A COMPENSATION COMMITTEE LOOKING AT WAYS OF GETTING AROUND SOME OF THESE RULES?

LEWIS: ACTUALLY NOT GETTING AROUND, JOE, BUT WE HAVE ACTUALLY BEGUN TO THINK ABOUT A DIFFERENT WAY TO COMPENSATE THAT IS CHANGING THE COMPENSATION TO A LITTLE HIGHER PERCENTAGE OF SALARY AND THEN LESS INCENTIVE ON THE GROUNDS THAT DID THAT, IN FACT. THE OTHER WAY WE DID IT ENCOURAGED TOO MUCH RISK TAKING, AND I THINK THE REGULATORS IN PARTICULAR WOULD LIKE FOR US TO BE LOOKING AT THINGS LIKE THAT, AND WE ARE, BUT HAVE IT MADE ANY ACROSS THE BOARD DECISIONS YET.

QUICK: MR. LEWIS, WE'VE ALSO BEEN GETTING PLENTY OF VIEWER EMAILS,TOO.WHY DON'T WE BRING UP A FEW OF THOSE.F IRST, WE HAVE ONE FROM ELAINE WHO WRITES IN. SHE SAYS WITH ALL THE BAILOUT MONEY THAT'S BEING GIVEN TO THE BANKS, WHY ARE INTEREST RATES BEING INCREASED? I BELIEVE SHE PROBABLY MEANS THE RATES ON CREDIT CARDS. THERE'S SO MUCH MONEY GOING TO BIG BUSINESS. HOW ABOUT THE COMMON PEOPLE? HOW CAN WE STIMULATE THE ECONOMY IF WE ARE BEING TAXED INCREASINGLY AND HAVE NO MONEY TO MAKE THE PURCHASES?A GAIN, I THINK SHE'S TALKING ABOUT CREDIT CARD RATES THERE.

LEWIS: AGAIN, IT WASN'T GIVEN. IT WAS LENT.WE'RE PAYING SOME PRETTY HEFTY AFTER TAX RATES ON THIS MONEY BUT GENERALLY BECAUSE THE LOSSES HAVE GONE UP SO HIGHLY, SO MUCH, THAT JUST TO EVEN TRY TO KEEP TO BREAK EVEN IN CERTAIN CATEGORIES, HAVE YOU TO INCREASE YOUR RATES, AND IT'S JUST A FUNCTION OF TRYING TO KEEP THE PORTFOLIO PROFITABLE SO YOU CAN DO ANYTHING.

QUICK: YOU DO HEAR FROM A LOT OF CONSUMERS WHO PUSH BACK BECAUSE WE GET PEOPLE WHO WRITE INTO US,TOO.

LEWIS: WE DO.

QUICK: IS THERE ANYTHING YOU CAN TELL THEM BESIDE THAT?

LEWIS: NO, OTHER THAN AS CYCLE GETS BETTER, WE HAVE A CHANCE TO BRING IT BACK DOWN.

QUICK: WHEN WILL COUNTRYWIDE HAVE A PROGRAM TO RESET PRINCIPAL AND INTEREST RATES ON MY MORTGAGE? MY HOUSE HAS DECLINED IN VALUE BY THE 25% IN THE THREE YEARS THAT I HAVE OWNED IT, AND MY MARKET VALUE IS NOW EQUAL TO MY MORTGAGE BALANCING. I'M RETIRED ON A FIXED INCOME WITH INCREASING MEDICAL BILLS.A GAIN, THAT'S MERCEDES FROM OHIO.

LEWIS: YOU SHOULD CALL THE COUNTRYWIDE NUMBER, SOON BANK OFAMERICA HOME LOAN NUMBER. I DON'T HAVE IT, BUT IT SHOULD BE IN THE TELEPHONE BOOK OF YOUR CITY.THAT WOULD BE A SITUATION WE PROBABLY COULD WORK WITH AND GET RELIEF ON.

QUICK: WE WILL GET THAT NUMBER BEFORE THE END OF THE SHOW, AND MERCEDES, WE'LL MAKE SURE TO REPEAT THAT AFTER THIS NEXT COMMERCIAL BREAK. PETE WRITES IN FROM VIRGINIA, HES AYS AFTER BEING COUNTRYWIDE YOU WERE WIDELY CRITICIZED BUT NOW THAT THE GOVERNMENT IS FUNDING A REFINANCING BOOM, HOW WILL COUNTRYWIDE BENEFIT BANK OF AMERICA? IF YOU WERE READY TO RETURN ALL OF YOUR TARP MONEY AND THE GOVERNMENT WOULD NOT LET YOU, WHAT WOULD YOU DO?

LEWIS: WE DID NOT BUY COUNTRYWIDE AT THE PEAK.IT WAS CLOSE TO THE BOTTOM. NOT AT THE BOTTOM, BUT CERTAINLY NOT AT THE PEAK.THEIR MARKET CAP HAD GONE FROM 25 BILLION TO $30 BILLIONTO $2 BILLION.IT WASN'T AT THE PEAK.IT IF THE -- WE ARE SEEING THE BENEFIT OF COUNTRYWIDE BECAUSE OF THE REFI BOON, AND THAT'S THE SWEET SPOT.WE ACTUALLY AS WE SPEAK ARE SEEING BENEFITS THERE. WITH REGARD TO THE TARP MONEY, WE PROBABLY WOULDN'T ASK TO REPAY IT BACK IF WE DIDN'T KNOW WE COULD. WE WOULD HAVE A FEW CONVERSATIONS BEFORE WE FORMALLY MADE THE REQUEST.

QUICK: WE WOULD LIKE TO READ AN E-MAIL. WE ARE IN THE GEORGE BUSH PRESIDENTIAL LIBRARY, AND HE WANTED TO SEND THIS E-MAIL INTO YOU.HE SAID I'M GLAD THAT "SQUAWK BOX" AND BECKY QUICK CAME TO MY BELOVED TEXAS A&M UNIVERSITY. I WISH I COULD BE THERE WITH YOU, BUT MAYBE IT'S BETTER THAT I'M NOT .I COULD NOT KEEP UP WITH MY GOOD AND RESPECTED FRIEND KEN LEWIS WHO KNOWS MUCH MORE ABOUT CURRENT AFFAIRS THAN I DO AT AGE 84 5/8.I AM HAPPILY ON THE SIDELINES.ANYWAY, I'M GLAD YOU BROUGHT YOUR SHOW AND KEN LEWIS TO MY LIBRARY, AND I'M HAPPILY WATCHING FROM HOUSTON.WELCOME TO TEXAS.THAT'S FROM -- HE SIGNS IT GB 41. GEORGE BUSH 41.

LEWIS: WHAT A WONDERFUL PERSON.

QUICK: HE JUST WANTED TO WRITE IN AND MAKE SURE YOU GOT THAT TODAYAS WELL.ALSO, CARL HAS A QUESTION FROM WASHINGTON RIGHT NOW.

QUINTANILLA: OH, THANKS, BECK.I GUESS, YOU KNOW, I WONDER, MR. LEWIS, AS WE LISTEN TO YOU AND SOME OF THE HEADLINES ARE RUNNING ON OUR SCREENS AND ON THE WIRE, ANY FEAR THAT YOU ARE MAYBE NOT BEING CONSERVATIVE ENOUGH, NOT CAUTIOUS ENOUGH EVENA S YOU GRASP FOR STRAWS AS YOU PUT IT EARLIER IN THE HOUR?

LEWIS: WELL, WE DO STRESS TESTING TOO, AND SO WE HAVE GAME PLANS IF THINGS GO AS I OUTLINE THEM, AND YOU GO TO THOSE GAME PLANS IF WE -- IF WE NEEDED TO, BUT I'M GIVING YOU THE BEST ASSESSMENT I CAN GIVE YOU GIVEN THE FACTS AS I SEE THEM, BUT CLEARLY, THERE ARE MORE DIRE SCENARIOS OUT THERE AND PEOPLE WHO THINK THAT WOULD BE THE CASE. I JUST DON'T THINK -- I THINK WE'RE UNDERESTIMATING THE COMBINED EFFECT OF THE TAX CUTS AND THEN ON TOP OF THAT THESE MONTHLY PAYMENTS BEING REDUCED WITH ALL THESE REFIS, AND YOU HAVEN'T REALLY SEEN THE EFFECT OF THAT YET, BECAUSE THEY HAVEN'T BEEN APPROVED AND FUNDED, AND ALL THAT WILL HAPPEN ALMOST AT ONE TIME. I THINK IT'S GOING TO HAVE AN EFFECT.

KERNEN: YOU KNOW, WE'VE COVERED A LOT OF STUFF, MR. LEWIS.I WANT TO GO BACK. I THINK YOU WERE BANKER OF THE YEAR. WHEN WAS THAT, LAST YEAR OR THE YEAR BEFORE?

LEWIS: IT WAS TWICE, BUT THE LAST ONE WAS LAST YEAR, YES.

KERNEN: NEXT THING YOU KNOW YOU'RE SITTING IN A ROW IN FRONT OF CONGRESS, AND YOU ARE ASKING WHETHER YOU FLEW IN ON A PRIVATEJET AND YOU HAD TO RAISE YOUR HAND, AND I'M JUST WONDERING HOW DO YOU DESCRIBE THE LAST 18 MONTHS? I MEAN, AT SOME POINT, WHAT ARE YOU IN THIS FOR AT THIS POINT? YOU HAVE ENOUGH MONEY. WHAT'S MOTIVATING YOU TO -- DESCRIBE WHAT IT'S BEEN LIKE TO BE KEN LEWIS FOR THE LAST YEAR AND A HALF.

LEWIS: IT'S A GREAT DESCRIPTION OF LIFE THAT YOU ARE JUST GOING TO HAVE UPS AND DOWNS NO MATTER WHAT YOU DO, AND CERTAINLY IN THAT 18-MONTH PERIOD I HAVE HAD UPS AND DOWNS.THE THING THAT HAS HAD ME REALLY FOCUSED IS NUMBER ONE, PAYING BACK THE TARP MONEY. AND, TWO, STARTING TO SEE THIS -- THE BEAUTY OF THE THING THAT WE CREATED OVER SOME PERIOD OF TIME. I HAVE SPENT ALMOST 40 YEARS OF MY LIFE AT ONE COMPANY, IS & SO ALMOST TWO-THIRDS OF MY EXISTENCE HAS BEEN WITH BANK OF AMERICA OR PREDECESSORS, AND I DEEPLY WANT TO SEE THIS COMPANY TURNED AROUND AS THE ECONOMY TURNSAROUND AND SO THAT WE CAN SEE THAT EVERYTHING THAT WE'VE DONE PRODUCED THE BEST FINANCIAL MODEL IN THE WORLD.

QUICK: LET'S TALK ABOUT WHERE WE AREOVER THOSE LAST 18 MONTHS.JUST HOW DO YOU FEEL IN TERMS OF HOW OPTIMISTIC OR PESSIMISTIC.I KNOW YOU SAID YOU HAVE SEEN SOME SIGNS OF LIFE OUT THERE, BUT HOW WOULD YOU GRADE IT? HOW WOULD YOU RATE THINGS?

LEWIS: THIS STARTED -- THE DOWN TURN AND THE CRISIS FOR, YOU STARTED AUGUST OF 2007. IF YOU WOULD TOLD ME THEN THAT WE WOULD HAVE STILL BE TALKING ABOUT IT AND WOULD BE IN THE SITUATION THAT WE ARE NOW, I WOULD HAVE PROBABLY SAID THAT THE ECONOMY COULDN'T STAND THAT S=DEEP OF RECESSION FOR THAT LONG. IT SHOWS YOU THE RESILIENCE OF THE AMERICAN ECONOMY TO WITH STOOD SOMETHING OF THAT. I'M TIRED BECAUSE IT JUST NEVER SEEMS TO WANT TO END, AND SO I CAN UNDERSTAND PEOPLE SAYING, WELL, HE'S BEING OPTIMISTIC BECAUSE OF THAT. HE IS GRASPING FOR STRAWS, AND IHOPE NOT. I AM OPTIMISTIC THAT WE'RE GETTING CLOSE TO THE BOTTOM AND THAT WE'LL BE SEEING SIGNS OF RECOVERY.NOW THE BAD NEWS IS DURING THAT TIME UNEMPLOYMENT RATES STILL GO UP BECAUSE IT'S A LAGGING INDICATOR, AND THAT'S BOTHERSOME, BUT I THINK WE WILL SEE IMPROVEMENT, AND I DO HAVE OPTIMISM ABOUT THE NEXT SIX MONTHS. IN FACT, I HAVE SO MUCH OPTIMISTIC -- THAT IWOULD SAY THAT IT'S GOING TO BE A GUT-WRENCHING TIME IN A POSITIVE SENSE THAT THERE ARE GOING TO BE ENOUGH SIGNS THAT TRICKLE OUT THAT YOU ARE GOING TO -- BUSINESSES ARE GOING TO HAVE TO SAY DID I START INVESTING, DOING MY INVENTORIES AGAINST AND DO DID INVESTORS GET INTO THE MARKET AND SO THAT'S MY PREDICTION TODAY THE NEXT SIX MONTHS?

QUICK: THE NEXT SIX MONTHS WILL BE GUT-WRENCHING FROM -- FROM THE POSITIVE SENSE.PEOPLE SAYING IS IT TIME TO JUMPBACK IN, BUT I'M STILL AFRAID?

LEWIS: CORRECT.

QUINTANILLA: MR. LEWIS, YOU'RE PUTTING YOUR FINGER ON SOMETHING THAT I THINK A LOT OF ECONOMISTS ARE LOOKING AT TOO. THEY'RE LOOKING AT ISM, PUTTING TOGETHER THREE STRAIGHT MONTHS OF IMPROVEMENT. YOU KNOW,RETAIL SALES. I MEAN, A LOT OF THE DATA IS BEGINNING TO LOOK REALLY GOOD, BUT WE'RE GOING TO HAVE TO -- WE'RE GOING TO HAVE TO TRY TO BELIEVE IN THAT EVEN AS THE EMPLOYMENT DATA GIVES UP A LOT OF DEBT, RIGHT? THAT'S GOING TO BE THE DYNAMIC FOR THE NEXT THREE TO SIX MONTHS.

LEWIS: EXACTLY .THE SIGN -- THE GOOD NEWS IS THAT ALL THE SIGNS AREN'T BAD, AND SO WHEN YOU GET TOWARD THE BOTTOM, YOU START SEEING MIXED SIGNALS, BUT CLEARLY, UNEMPLOYMENT IS A LAGGING INDICATOR, AND IT'S NOT GOING TO BE PRETTY.

QUICK: WHAT DO YOU THINK -- OH, GO AHEAD, CARL.

QUINTANILLA: WAS GOING TO ASK, IF PEOPLE ARE LOOKING -- PEOPLE ARE LOOKING TO BRAM A LOT OF PEOPLE, MR. LEWIS, WHETHER IT'S THE BANKERS, REGULATORS, BORROWERS THEMSELVES. ARE THERE ONE OR TWO PEOPLE OUT THERE WHO YOU THINK ARE THE HEROES IN TRYING TO FIX ALL THIS?

LEWIS: WELLI THINK A LOT OF PEOPLE HAVE BEEN WELL INTENDED IN TRYING TO FIX IT. IT MAY -- WE'LL HAVE TO, I THINK, GIVE THIS A LONGER TIME AND LOOK BACK AND SEE, BUT I THINK AS -- IF WE HAVE ANOTHER YEAR AND YOU LOOK BACK, WE'LL SEE SOME HEROES, BECAUSE THEY HAVE BEEN WELL INTENDED PEOPLE, AND THE FED HAS DONE A GOOD JOB IN MY OPINION OF -- PROVIDING LIQUIDITY AND IF THEY HAD NOT DONE SOME OFTHE THINGS THEY'VE DONE, WE WOULD REALLY BE IN BAD SHAPE, AND DON'T UNDERESTIMATE, AS I SAID BEFORE, THIS LOWERING OF MORTGAGE RATES, WHICH THEY HAVE -- WHICH THEY EFFECTED, AND THAT'S BEEN A VERY POSITIVE THING.

QUICK: WHEN YOU LOOK AT WASHINGTON AND THE PEOPLE THAT ARE FIGHTING THERE, WHO DO YOU THINK HAS BEEN DOING THE BEST JOB OUTSIDE OF JUST THE FED? THE FEDS HAS BEEN CONTINUOUS. WHAT HAS THAT DONE TO DISRUPT THINGS?

LEWIS: WELL, THERE HAS BEEN A LACK OF CONTINUITY WHERE THERE'S A WHOLE NEW THRUST, AND IT'S HARD TO QUANTIFY THAT, BUT THE UNCERTAINTY, THE ALMOST EMOTIONAL REACTIONS TO THINGS AS OPPOSED TO MORE THOUGHTFUL THINGS HAS NOT BEEN GOOD.

QUICK: BUT ARE YOU CONFIDENT WHERE THE GOVERNMENT AND THE ADMINISTRATION IS HEADING NOW

LEWIS: YES I ACTUALLY THINK THAT PEOPLE ARE STEPPING BACK NOW AND REALIZING THAT SOME OF THE THINGS THAT HAVE BEEN DONE WE DONE IN WAY TOO MUCH HASTE AND THAT COOLER HEADS ARE PREVEILING.

QUICK: WHERE DO YOU THINK WE'LL BE ONE YEAR FROM NOW?

LEWIS: ONE YEAR FROM NOW WE WILL BE COMING OUT OF THIS AND THE BANKS -- YOU'LL BE ABLE TO SEE A LOT OF THE EARNINGS POWER OF FINANCIAL INSTITUTIONS AND UNEMPLOYMENT RATES SHOULD AT LEAST BE HOLDING STEADY IF NOT STARTING TO IMPROVE SLIGHTLY.

QUICK: MR. LEWIS, WE WANT TO THANK YOU FOR BEING SO GENEROUS WITH YOUR TIME TODAY AND FOR SITTING DOWN WITH US. WE GREATLY APPRECIATE YOUR TIME.

LEWIS: GREAT BEING WITH ALL OF YOU.



About CNBC:
CNBC is the recognized world leader in business news, providing real-time financial market coverage and business information to more than 340 million homes worldwide, including more than 95 million households in the United States and Canada. The network's Business Day programming (weekdays from 5:00 a.m.-7:00 p.m. ET) is produced at CNBC's headquarters in Englewood Cliffs, N.J., and also includes reports from CNBC news bureaus worldwide. Additionally, CNBC viewers can manage their individual investment portfolios and gain additional in-depth information from on-air reports by accessing http://www.cnbc.com.

Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://nbcumv.com/cnbc/.