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FIRST ON CNBC: CNBC TRANSCRIPT: BANK OF AMERICA CEO KENNETH LEWIS SPEAKS WITH CNBC'S "SQUAWK BOX" TODAY

WHEN: TODAY, FRIDAY, MAY 8TH

WHERE: CNBC'S "SQUAWK BOX"

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

All references must be sourced to CNBC.

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QUICK: JOINING US FIRST ON CNBC, BANK OF AMERICA'S CEO KEN LEWIS. MR. LEWIS, GOOD MORNING. THANKS FOR BEING WITH US TODAY.

LEWIS: GOOD MORNING. GOOD BEING WITH YOU.

QUICK: IT'S GOOD TO SEE YOU TOO. THE GOVERNMENT CAME OUT AND SAID THAT YOU NEED $33.9 BILLION OF ADDITIONAL TIER ONE CAPITAL. DO YOU THINK THAT'S FAIR OR TOO AGGRESSIVE?

LEWIS: WELL, WE THINK IT'S PRETTY AGGRESSIVE, BUT I DON'T THINK IT MATTERS WHETHER IT'S FAIR OR NOT. WE'RE GOING TO DO IT. AND WE THINK WE'VE GOT A CLEAR PATH TO DO IT.

QUICK: WHY DON'T YOU TALK US THROUGH THE SERIES OF WAYS YOU'RE GOING TO BE DOING THAT, THROUGH ISSUING NEW EQUITY, SELLING ASSETS. WHY DON'T YOU LAY THAT OUT FOR US.

LEWIS: FIRST, WE WILL, OVER THE COURSE OF THE NEXT FEW WEEKS, RAISE ABOUT $17 BILLION IN COMMON EQUITY. WE HAVE ABOUT $10 BILLION OF SALES OF ASSETS THAT WE ANTICIPATE. WE HAVE TWO THAT WE'VE ACTUALLY TALKED ABOUT. THAT'S COLUMBIA AND FIRST REPUBLIC. AND THEN WE HAVE TWO JOINT VENTURES THAT WE'RE CONSIDERING.THOSE THINGS ARE PRETTY FAR ALONG. SO WE HAVE THIS SOME DEGREE OF CERTAINTY, OR AT LEAST HIGH PROBABILITY OF THOSE THINGS HAPPENING. AND THEN WE HAVE A RUN RATE, A PREPROVISION, PRETAX RUN RATE THAT WE THINK WILL BE HIGHER THAN THE GOVERNMENT ESTIMATED. AND YOU CAN'T USE THOSE ESTIMATES IN 2010, BUT YOU DO GET CREDIT FOR THEM FOR THE SIX MONTHS THAT YOU'RE RAISING YOUR CAPITAL. THOSE ITEMS, WE THINK, WILL GET US TO 33.9.

QUICK: WE'RE WATCHING THE STOCK PRICES THIS MORNING. RIGHT NOW THE BID/ASK SHOWS YOUR STOCK OPENING BY ALMOST $2 ABOVE WHERE IT CLOSED YESTERDAY. DOES THIS CAUSE YOU SURPRISE TO YOU GIVEN THE DILUTION THESE SHAREHOLDERS ARE GOING TO BE FACING

LEWIS: IT DOES SEEM TO BE COUNTERINTUITIVE. I THINK THE ISSUE IS THE ISSUE OF CLARITY, OR CERTAINTY. I SAID, WHEN WE HEARD ABOUT THE STRESS TEST, THE BAD NEWS IS IT WOULD CREATE UNCERTAINTY, BUT THE GOOD NEWS WOULD BE, WHEN IT WAS OVER, YOU HAD THAT CLARITY AND CERTAINTY. I THINK THAT'S NOW SHOWING UP IN THE BANK STOCK PRICES.

QUICK: YOU KNOW, LAST NIGHT ON THE CONFERENCE CALL, YOU SAID THAT YOU ARE LOOKING FOR THE ECONOMY TO IMPROVE SOMETIME LATER THIS YEAR. WHEN DO YOU EXPECT THAT AND BY HOW MUCH?

LEWIS: I WISH I COULD BE THAT SPECIFIC. I REALLY DON'T KNOW. BUT WE THINK SOMETIME IN THE SECOND HALF WE'LL START TO SEE IMPROVEMENT. WHAT WE'RE SEEING NOW ARE MIXED SIGNALS WHICH IS BETTER THAN ALL BAD SIGNALS. WE THINK WE'RE GETTING FAIRLY CLOSE TO THE BOTTOM, AND THEN WE'LL START SEEING SOME INCREASES.WE THINK THE THINGS THAT HAVE BEEN DONE RELATIVE TO TAX CUTS AND THE IMPACT OF THESE REFINANCING WILL HAVE A PRETTY BIG IMPACT ON THE ECONOMY AT SOME POINT.

KERNEN: KEN, WHEN YOU KEPT TALKING ABOUT PAYING BACK THE T.A.R.P. MONEY IN THE LAST SIX WEEKS OR SO, I THINK THERE WERE TIMES WHEN MARKET PLAYERS THOUGHT THAT THAT WAS PIE IN THE SKY AT BEST OR DISINGENUOUS AT WORST. WHEN IT LOOKED LIKE YOU NEEDED TO RAISE ANOTHER $34 BILLION ON TOP OF THE 45, LOOKED EVEN MORE LIKELY. BUT THIS PUTS YOU WITH THIS OFFERING AND THESE OTHER STEPS. THIS PUTS YOU CLOSE TO BEING ABLE TO DO THAT. WHEN DO YOU THINK YOU'RE GOING TO BE ABLE TO DO THAT?

LEWIS: JOE, OBVIOUSLY, THE 33 SHOULDN'T BE INCREMENTAL. IT SHOULD BE KIND OF A ONE FOR ONE REPLACEMENT OF PREFERRED SO YOU WON'T BE SO TOP HEAVY IN PREFERRED. THAT WOULD BE ONE OF THE CRITERIA FOR BEING ABLE TO PAY BACK THE T.A.R.P., THAT IS, THAT YOU RAISED PRIVATE MONEY. THE WILD CARD NOW, I THINK, IS THE REQUIREMENT TO RAISE SUBSTANTIAL AMOUNTS OF DEBT TO FIVE YEARS OR GREATER DEBT THAT IS UNGUARANTEED BY THE FDIC. I'M JUST NOT QUITE SURE WHAT THE MARKET IS, BUT WE WILL BEGIN TESTING THAT AS OTHER BANKS WILL AS WELL. IF WE CAN GET SOME CLARITY AROUND THE ABILITY TO DO THAT, WE COULD BE PAYING BACK THE T.A.R.P. HOPEFULLY RELATIVELY SOON.

KERNEN: WHAT'S THAT MEAN, THREE MONTHS?

LEWIS: I DON'T KNOW. I DON'T KNOW ENOUGH ABOUT THE RECEPTIVITY OF THE DEBT MARKETS YET.

QUINTANILLA: IT SOUNDS LIKE YOU DONT THINK THE T.A.R.P. IS GOING TO BE GUM ON YOUR SHOE FROM A POLITICAL STANDPOINT.SOUNDS LIKE YOU'RE NOT WORRIED ABOUT SENATORS OR CONGRESS OR ANYONE IN WASHINGTON DEMANDING CERTAIN VARIABLES OTHER THAN YOUR OWN ABILITY TO PAY?

LEWIS: WELL, THE -- WE ARE THE LARGEST LENDER IN THE UNITED STATES, AND THAT WAS ONE OF THE ISSUES WITH THE NUMBERS. IF YOU LOOK AT THE DOCUMENTS, YOU'LL SEE THAT OUR LOSS RATES ARE RELATIVELY THE SAME AS MANY OF OUR PEERS. BUT OUR NUMBERS ARE BIGGER.AND SO EVERY TIME YOU HAVE THE SAME LOSS RATES, YOU LOOK AT THEABSOLUTE NUMBER, AND IT WOULD JUST BE MUCH LARGER. AND SO I THINK WE HAVE A GOOD STORY TO TELL THERE. AND AS LONG AS WE'RE DOING THINGS WITHIN THOSE PARAMETERS, THAT IS, INCREASING LOANS AND MAKING LOANS TO CONSUMERS AND IN CORPORATIONS, THEN WE HAVE A GREAT STORY TO TELL.

QUINTANILLA: LAST TIME YOU WERE ON THE PROGRAM, YOU SAID -- I THINK YOUWERE WITH BECKY IN DALLAS, AND YOU SAID THIS IS BEGINNING TO FEEL -- THE ECONOMY, THAT IS -- WAS BEGIN TO GO FEEL LIKE AN ORDINARY RECESSION AGAIN, WHICH WE TOOK AS GOOD NEWS AT THE TIME.SINCE THEN WE'VE GOTTEN GOOD SIGNALS ON JOBLESS CLAIMS AND Q1GDP.DO YOU FEEL INCREMENTALLY BETTER THAN YOU DID THEN?

LEWIS: ACTUALLY, I DO, BUT THIS THING HAS GONE ON SO LONG WE'RE ALMOST GETTING TO A TWO-YEAR POINT IN TERMS OF DISRUPTIONS. I HOPE IT'S NOT WISHFUL THINKING. IT SEEMS TO ME THERE ARE TOO MANY THINGS THAT ARE NOW TURNINGOR SEEM TO BE BOTTOMING THAT CONVENTIONAL WISDOM OR JUST COMMON SENSE WOULD SAY YOU'RE GETTING PRETTY CLOSE TO THIS THING TURNING.

KERNEN: YOU KNOW BETTER THAN ANYBODY.HOW'S YOUR COUNTRYWIDE BUSINESS RIGHT NOW?

LEWIS: IT'S ON FIRE IN A POSITIVE SENSE. IT'S REALLY BOOMING.THAT WAS ONE OF THEIR KEY ATTRIBUTES IN TERMS OF BEING ABLE TO HANDLE THE REFI VOLUME, AND WE COULDN'T BE MORE PLEASED WITH HOW THAT'S GOING.

KERNEN: HOW ABOUT TRADING AT MERRILL?

LEWIS: TRADING IS FINE, AND BUSINESS IS GOOD AT MERRILL.THE INVESTMENT BANKING BUSINESS IN TERMS OF SOME EQUITY OFFERINGS AND ALSO DEBT PLACEMENTS, WE'VE HAD A TERRIFIC TWO OR THREE WEEKS OVER THE LASTTWO OR THREE WEEKS.

QUICK: WHAT ABOUT CREDIT CARDS AND THE NUMBER OF DELINQUENT CREDIT CARDS? HOW'S THAT LOOK?

LEWIS: THAT HAS NOT -- WE DON'T SEE THAT DETERIORATING ANYMORE IN TERMS OF PAST DUES, THINGS OF THAT NATURE. BUT THAT'S THE -- FOR ANYBODY WHO HAS A CREDIT CARD PORTFOLIO, UNTIL WE CAN SEE UNEMPLOYMENT RATES PEAK AND THEN BEGIN TO DECLINE, THAT'S GOING TO BE THE ISSUE PROBABLY MORE THAN ANY OTHER PRODUCT LINE.

QUINTANILLA: SOME OF YOUR CRITICS HAVE BEEN AFTER YOU FOR, I GUESS, YEARS, ACCUSING YOU OF BEING AN EMPIRE BUILDER, MAKING THIS THING BIGGER THAN IT NEEDS TO BE, AND SOME OTHERS STILL SAY THE STRESS TESTS ARE GOING TO BEUSED AS A PRECURSOR TO GET B OF A TO SOMEHOW BREAK UP. YOUR RESPONSE TO THAT?

LEWIS: I THINK THE BREAKUP CALLS ARE ABSURD.WE THINK DIVERSITY OF REVENUE, THE ABILITY TO GET SCALE AND DRIVE DOWN COSTS, THE ABILITY TO INTEGRATE YOUR BUSINESSES AND PROVIDE A BROAD RANGE OF PRODUCTS AND SOLUTIONS FOR YOUR CLIENTS IS, IN FACT, THE WAY TO GO. AND, YES, WE'VE GONE THROUGH A VERY DIFFICULT TIME BECAUSE OF THE ECONOMY, BUT WE WILL PROVE, AND OTHERS WILL PROVE, THAT THIS CAN BE A VERY SUCCESSFUL WAY TO RUN A COMPANY.

KERNEN: THE PPIP AND TOXIC ASSETS, WHY AREN'T WE TALKING ABOUT THATANYMORE? DO YOU STILL HAVE A LOT OF STUFF YOU'D LIKE TO GET OFF YOUR BALANCE SHEET, KEN?

LEWIS: WELL, WE DO, BUT NOT AT ANY PRICE BECAUSE, AS YOU KNOW, SINCE JULY OF 2007, WE'VE BEEN WRITING THESE THINGS DOWN.

THERE COMES TO BE A POINT THAT THEY ARE, IN FACT, AT FAIR VALUE EVEN IN A DOWN MARKET.AND WE THINK WE'RE JUST ABOUT THERE.

KERNEN: AND AS WE SEE THESE OTHER THINGS BEING MARKED UP LIKE BANK STOCKS ACROSS THE BOARD, IT MAKES YOU WONDER IF COUNTRYWIDE'S BUSINESS IS GOING A LITTLE BIT BETTER, WHETHER SOME OF THOSE TOXIC ASSETS STARTTO LOOSEN UP THEMSELVES, IF THE ECONOMY STARTS TO IMPROVE. IS THAT POSSIBLE?

LEWIS: WE ACTUALLY HAVE -- AND I DON'T WANT TO OVERDO THIS. WE ACTUALLY HAVE BEEN ABLE TO SELL SOME ONE-OFF SO-CALLED TOXIC ASSETS, AND ACTUALLY AT REASONABLE PRICES WHERE WE'RE EITHER BREAKING EVEN OR MAKING A LITTLE MONEY. AND, AGAIN, I DON'T WANT TO OVERDO THAT BECAUSE IT'S NOT IN MASS AMOUNTS, BUT THE ICE IS BEGINNING TO THAW, IT SEEMS.

QUICK: DOES THAT MEAN YOU'RE SELLING THINGS AT 30 CENTS, 40 CENTS, 50 CENTS ON THE DOLLAR, STUFF YOU'VE ALREADY MARKED DOWN?

LEWIS: YES, EXACTLY.

QUICK: SO THAT'S THE FAIR RANGE, 30 CENTS TO 50 CENTS?

LEWIS: WELL, AGAIN, THAT WOULD BE A REASONABLE RANGE, YES.

QUICK: MR. LEWIS, YOU TALKED A LITTLE BIT -- AND CARL WAS JUST ASKING ABOUT THE BUSINESS MODEL,THE CALLS FROM PEOPLE WHO SAY TOO BIG TO FAIL IS TOO BIG TO EXIST. I KNOW YOU SAID LAST NIGHT ON CONFERENCE CALL THAT YOUR BUSINESS MODEL WORKS. WHAT ABOUT CRITICS WHO SAY WE CAN'T WIND UP IN A SITUATION LIKE THIS AGAIN WHERE THE GOVERNMENT HAS TO STEP IN?

LEWIS: THE -- WE'RE NOT SURE, WHEN THE GOVERNMENT DID STEP IN, THAT, FOR INSTANCE, WE NEEDED THAT INITIAL ROUND OF PREFERRED.

WE GOT -- WE SUBSEQUENTLY DID SOME PREFERRED BECAUSE OF THE MERRILL TRANSACTION, BUT I DON'T KNOW THAT BANKS WERE SO POORLY CAPITALIZED AT THE TIME THAT IN GENERAL ALL OF THEM NEEDED. I UNDERSTAND THE NEED TO DO WHAT WAS DONE BECAUSE OF THE FRAGILITY OF THE ECONOMY, BUT TO ASSUME THAT EVERYBODY NEEDED ASSISTANCE AT THE TIME, I THINK, IS GOING A BIT TOO FAR.

KERNEN: AND IT HASN'T BEEN A GREAT EXPERIENCE, I DON'T THINK, FOR ANY OF THE BANKS AT THIS POINT. I THINK YOU ACKNOWLEDGE THAT.WE HAD PEOPLE ON YESTERDAY SAYING, BUT NOTHING HAS CHANGED.WE'RE GOING TO DO IT AGAIN. DO YOU FEEL THAT YOU AS A CEO AND OTHER BANK CEOs, THAT THEY ARE NEVER GOING TO WANT TO HAVE GOVERNMENT INVOLVEMENT AGAIN AT THIS POINT? THEY'RE GOING TO CHANGE SOME OF THE THINGS THAT GOT US INTO THIS MESS?

LEWIS: WELL, I DO. I THINK THERE WOULD BE MORE RELUCTANCE TO ACCEPT MONEY GOINGFORWARD.

KERNEN: WHAT ABOUT LEVERAGING 30 TO 1THAT CAUSES YOU TO BE IN A POSITION WHERE YOU NEED IT?

LEWIS: RIGHT.IT'S GOING TO BE A MUCH SIMPLER WORLD.IT'S GOING TO BE A MORE CONSERVATIVE WORLD.AND THERE WILL BE A LOT LESS LEVERAGE.THAT APPLIES FOR BUSINESSES, BANKS, AND, IN FACT, CONSUMERS.

QUINTANILLA: NOT JUST DEALING WITH THE GOVERNMENT EXPLICITLY, BUT IMPLICITLY THROUGH VARIOUS SENIOR LEVELS OF THE CAPITAL STRUCTURE, PEOPLE ARE TAKING THE PRESIDENT TO TASK FOR REVERSING PART OF THE STRUCTURE THAT INVOLVED CHRYSLER AND THEIR DEBT.I WONDER IF YOU THINK THAT'S A FAIR ARGUMENT.

LEWIS: IT'S A VERY DIFFICULT SITUATION. TO JUDGE ON THAT PARTICULAR ONE IS BEYOND ME. I'LL STICK TO THE BANKING BUSINESS.

QUINTANILLA: THE BETTER QUESTION WOULD BE THEN DO YOU THINK THERE WOULD BE -- IS THERE A POSSIBLE -- IS THERE POTENTIAL FOR FALLOUT IN WHICH INVESTORS ARE AFRAID TO GET IN AT CERTAIN LEVELS BECAUSEOF THE FEAR THAT THE GOVERNMENT COULD COME IN AND CHANGE THE RULES AT SOME POINT?

LEWIS: YES, I DO. I THINK, WHEN I TALK TO INVESTORS, IT'S JUST CLEAR, GET THE GOVERNMENT OUT OF YOUR BUSINESS AS FAST AS YOU CAN. I MEAN, THAT'S JUST A COMMON THEME FROM INSTITUTIONAL INVESTORS.

KERNEN: HEY, KEN, THE OTHER DAY, WHEN "THE NEW YORK TIMES" GOT THAT PIECE ABOUT THE $34 BILLION, "THE NEW YORK TIMES" CITED A BANK OF AMERICA OFFICIAL. OTHER LEAKS CAME FROM THE GOVERNMENT. WAS THERE KIND OF A CONCERTED --DID YOU GUYS TALK ABOUT HOW TO GET THIS OUT, CONCERTED LEAKS? HOW DID THAT HAPPEN?

LEWIS: JOE, I DON'T KNOW. IT'S CLEAR THAT IT WAS LEAKING.IT SEEMS LIKE EVERYBODY, WHEN YOU WOULD HAVE A CONVERSATION -- WHEN THE GOVERNMENT WOULD HAVE A CONVERSATION WITH THE BANK, IT WOULD SEEM THEN TO LEAK AFTER THE CONVERSATIONS. I DON'T KNOW WHAT THE PURPOSE WAS

KERNEN: IT WORKED

LEWIS: IN FACT, DID WORK, AND IT SEEMED TO BE VERY METHODICAL.

KERNEN: THERE WAS A TIME WHEN YOU SAYTHAT YOU -- THEY TALK ABOUT WHETHER YOU'RE GOING TO STAY A CEO AND HOW LONG IT'S GOING TO BE. I KNOW YOU'VE SEEN ALL THE CONJECTURE, KEN. YOU SAY YOU WANTED TO AT LEAST STAY LONG ENOUGH TO GET OUT FROM UNDER THE GOVERNMENT INVOLVEMENT. IF THAT COULD BE THREE MONTHS, DOES THAT MEAN YOU'RE ONLY GOINGTO STAY FOR THREE MONTHS? IT WAS THREE YEARS BEFORE.

LEWIS: THE RANGE SEEMS TO BE THAT I'M 62.SO 65 IS WHEN WE USUALLY LEAVE THE COMPANY AS CEO. AND THEN YOU'VE GOT THIS ISSUE OF GETTING OUT OF THE TARP SOMEWHERE IN THAT RANGE IS WHEN I WOULD LIKE TO GO. THE EASY WAY OUT WOULD BE TO WALK OUT NOW AND LET SOMEBODY ELSE HAVE THIS PROBLEM. I OWE IT TO MY TEAMMATES TO SEE THROUGH THIS.

QUICK: YOU MENTIONED LAST NIGHT ON THE CONFERENCE CALL THAT THE VOTE FROM THE SHAREHOLDERS THAT TOOK THE CHAIRMAN TITLE AWAY FROM YOU. YOU CALLED IT A HUMBLING EXPERIENCE.

LEWIS: THE FACT THAT I WOULD HAVE NEVER EXPECTED TO HAVE HAD THAT VOTE. AND ACTUALLY, WITH, YOU KNOW, A 50.3% IN FAVOR AT A 49.7% AGAINST, EVEN IF IT HAD BEEN REVERSED, THAT'S CLOSE ENOUGH TO STEP BACK AND SAY, HEY, THE STOCKHOLDERS ARE SPEAKING ON AN ISSUE. AND WE HAD ABOUT ALMOST 40% THE YEAR BEFORE WHEN THERE WASN'T THE CONTROVERSY AROUND MERRILL. SO IT SEEMS TO BE A GROWING TREND, AND PART OF IT WAS ANGER AT ME BECAUSE OF THE MERRILL TRANSACTION, BUT A BIG PIECE OF IT IS JUST A GOVERNANCE ISSUE THAT SEEMS TO BE GROWING. I EXPECT MORE OF THAT WILL HAPPEN IN THE FUTURE.

QUICK: LET'S TALK ABOUT THAT MERRILL TRANSACTION. THERE'S BEEN A LOT WRITTEN SINCE THE LAST TIME WE SPOKE WITH YOU ABOUT WHAT HAPPENED, WHO SAID WHAT BETWEEN PAULSON, BERNANKE, WHAT YOU WERE TOLD BEHIND CLOSEDDOORS. IS IT YOUR IMPRESSION THAT PAULSON TOLD YOU THAT YOU COULD NOT RELEASE THAT INFORMATION ABOUT THE MERRILL LOSSES TO THE SHAREHOLDERS?

LEWIS: WELL, I CAN'T SPEAK A LOT ABOUT IT BECAUSE THESE ISSUES BECAUSE IT'S IN LITIGATION, AND I'VE BEEN TOLD BY THE LAWYERS THAT I CAN'T. BUT I WOULD LIKE TO SAY BEN BERNANKE AND HANK PAULSON AND INTURN ME AT SOME POINT WERE DEALING WITH AN ISSUE THAT'S ONCE IN A LIFETIME. IT WAS A HUGE PROPORTION. AND NO ONE SHOULD QUESTION THE INTEGRITY OF HANK PAULSON OR BEN BERNANKE.

QUINTANILLA: THAT IMPLIES IN SOME WAYS MR. LEWIS, THAT THE NORMAL RULES DIDN'T APPLY AT THE TIME.

LEWIS: NO, I'M NOT SAYING THAT AT ALL. I'M JUST SAYING THEY WERE DEALING WITH AN INCREDIBLY DIFFICULT SITUATION.

QUINTANILLA: DO YOU TALK TO JOHN THANE AT ALL?

LEWIS: I HAVE NOT TALKED TO JOHN FORSOME TIME.

QUINTANILLA: WHAT DO YOU MAKE OF HIS APPARENT MISSION TO DISCREDIT YOU?

LEWIS: ALL I CAN SAY IS I WISH JOHN THE BEST. NOTHING MORE THAN THAT.

KERNEN: KEN, A LOT OF PEOPLE AT THIS POINT ARE WORRIED ABOUT ALL THE MORAL HAZARD THAT'S BEEN ENGENDERED FROM THIS WHAT WE'VE BEEN THROUGH. IT'S NICE TO BE ABLE TO LOOK, ALMOST TO FEEL LIKE WE'RE LOOKING BACK AT IT FROM THE OTHER SIDE. ONCE THE BANKS NOW ARE IN A BETTER POSITION, ARE WE KNOW LOOKING AT JAPAN? THEY SAVED THEIR BANKS TOO, AND LOOK WHAT HAPPENED. IS CREDIT GOING TO FLOW AGAIN? ARE YOU IN A POSITION TO GET BACK TO NORMAL IN TERMS OF DOINGWHAT WE NEED TO HELP PEOPLE THAT NEED CREDIT?

LEWIS: WELL, JOE, IN THE SIMPLEST FORM, A COMMERCIAL BANK IN PARTICULAR, TAKES DEPOSITS AND MAKES LOANS. WE DON'T MAKE AN OPTIMUM AMOUNT OF MONEY IF WE DON'T DO THAT. SO IT'S ENLIGHTENED SELF-INTEREST FOR THE BANKS TO MAKE AS MANY GOOD LOANS AS THEY CAN. WE ACTUALLY INCREASED OUR LOANS IN THE -- OR ORIGINATION OF LOANS FROM THE FOURTH QUARTER TOTHE FIRST QUARTER AND LENT $183 BILLION IN THE FIRST QUARTER. SO BANKS REALLY ARE LENDING MONEY.

QUICK: THERE WERE QUESTIONS, THOUGH,THAT AFTER THE STRESS TEST, AFTER BANKS WERE BEING FORCED TO REALLY LOOK AT VERY CONSERVATIVE CUSHIONS IN TERMS OF THEIR TIER ONE CAPITAL, THE BANKS WOULD NOTGO AHEAD AND CONTINUE TO LOAN. YOU THINK THAT THAT'S A FAULTY ASSUMPTION?

LEWIS: YEAH, I DO BECAUSE MAKING MONEY IS REALLY IMPORTANT.AND THE WAY YOU MAKE MONEY, AGAIN, IN THE SIMPLEST FORM, IS TO MAKE GOOD LOANS.

QUICK: LET'S TALK ABOUT YOUR EARNINGS POWER. THAT'S SOMETHING WE'VE HEARD AGAIN AND AGAIN FROM MANY BANK EXECUTIVES THAT WHAT THE GOVERNMENT WAS LOOKING FOR IN THESE STRESS TESTS REALLY UNDERESTIMATED THE BANK'S EARNING POWER. WHAT IS YOUR ASSUMPTION FOR WHAT YOU'LL BE EARNING OVER THE NEXT THREE QUARTERS OR SO, AND WHAT WAS THE GOVERNMENT ALLOWING YOU IN THESE STRESS TESTS?

LEWIS: WE DON'T MAKE PREDICTIONS IN EARNINGS, FORWARD EARNINGS, BUT WE DID HAVE AN ARGUMENT ABOUT THAT, OR A DIFFERENCE OF OPINION ON THAT ISSUE THAT WE THOUGHT OUR PREPROVISION, PRETAX NUMBER WOULD BE BETTER THAN THEY THOUGHT. AND THERE WERE SMALL THINGS.THE EASIEST EXAMPLE I CAN GIVE YOU IS IN OUR -- IN ONE OF OUR SCENARIOS, WE HAD SOME SECURITY GAINS IN OUR NUMBERS.

THEY TOOK THEM OUT. BUT THEY DIDN'T PUT THE NET INTEREST INCOME THAT YOU'D GET FROM THE SECURITIES WHEN YOU COUNT IT AMONG YOUR BALANCE SHEET AND DIDN'T SELL THEM. SO THE LITTLE THINGS LIKE THAT MAKE US PRETTY CONFIDENT WE'RE GOING TO DO BETTER THAN WHAT THEY HAVE IN THEIR NUMBERS.

KERNEN: THE TEN-YEAR HIT THE HIGHEST LEVEL SINCE NOVEMBER TODAY.KEN, YOU SAW THAT AUCTION, I'M SURE, YESTERDAY THAT DIDN'T GO WELL. NOW PEOPLE ARE RAISING THE SPECTER OF EVEN HIGHER RATES. THAT'S GOOD FOR YOU GUYS. THE YIELD CURVE IS STEEPENING. HOW LONG DO YOU THINK YOU'RE GOING TO GET MONEY AT ZERO? HOW MUCH LONGER DO YOU THINK THEFED CAN DO THAT GIVEN HOW MUCH THEY'VE ALREADY DONE?

LEWIS: I THINK THEY'RE GOING TO BE VERY VIGILANT ON THAT ISSUE, AND AS SOON AS THEY SEE ANY EVIDENCE OF THE ECONOMY REALLY PICKING UP AND CERTAINTY IN THAT AND THEN SEEING ANY SIGNS OF INFLATION, I THINK THEY WILL BE VERY FOCUSED ON THAT ISSUE AND MAKING SURE THAT THEY BEGIN TO RAISE RATES. AND FRANKLY, I LOOK FORWARD TO THAT BECAUSE THAT MEANS A LOT OFGOOD THINGS ARE HAPPENING.

RYDING: MR. LEWIS, JOHN RYDING HERE. IF YOU LOOK FORWARD TO BEYOND THIS AND THE KIND OF CONSTRUCTIVE REFORMS WE COULD PUT IN PLACE TO PREVENT THIS FROM HAPPENING AGAIN, I JUST WONDER WHAT KINDS OF THINGS YOU SEE. ONE THING I THINK IS WE SHOULD HAVE A MUCH MORE COUNTERCYCLICAL POLICY IN TERMS OF SETTING ASIDE RESERVES. YET, IF YOU LOOK AT WHAT THE S.E.C. HAS DONE IN THE PAST WITH SUNTRUST BANK BACK IN 1998, THEY ACTUALLY MADE SUNTRUST REDUCE THE AMOUNT OF RESERVE THEY PUT AGAINST BAD LOANS IN GOOD TIMES. I JUST WONDER ARE YOUR TWO OR THREE THINGS YOU WOULD WANT TO THROW IN THERE AS WAYS TO PREVENT THIS FROM HAPPENING AGAIN.

LEWIS: THAT IS THE POINT THAT I TALK ABOUT A LOT AND THAT BOTHERS ME THE MOST. AND THE POINT IS WHY SOMEBODY WOULDN'T HAVE SEEN THE LOGIC OF -- OR HOW ILLOGICAL THAT IS AND IT BEING SO COUNTER PRO CYCLICAL. I HOPE PEOPLE STEP BACK THIS TIME BECAUSE A HUGE AMOUNT OF EQUITY AND TAXABLE INCOME IS SITTING IN RESERVES AT THE WORST OF TIMES. AND WHY YOU WOULDN'T BE ABLE TO STEP BACK AND SAY, LOOK, LET'S USE SOME COMMON SENSE AND BUILD RESERVES DURING GOOD TIMES AND BE ABLE TO USE THEM DURING BAD TIMES IS BEYOND ME.

RYDING: I AGREE WITH THAT, BUT IT ALSO SEEMS BEYOND STATE AND LOCAL GOVERNMENTS TO SET ASIDE RESERVES IN GOOD TIMES TO DEAL WITH THE BAD TIMES AS WELL. SO MAYBE THAT'S A GOVERNMENT MENTALITY THING.

LEWIS: YEAH, I DON'T KNOW. IT SEEMS THAT IT'S MORE OF AN ACCOUNTING ISSUE BECAUSE I DON'T THINK THE REGULATORS WOULD DISAGREE WITH ME. HOPEFULLY, THE VARIOUS PARTIES THAT WOULD BE ABLE TO INFLUENCE THAT WOULD GET TOGETHER AND REALLY LOOK AT SOME SERIOUS CHANGE.

QUINTANILLA: AS YOU'VE GONE THROUGH THIS PROCESS WITH THE STRESS TESTS OVER THE PAST COUPLE OF MONTHS, CAN YOU CHARACTERIZE HOW AGGRESSIVELY B OF A PUSHED BACK AND TO WHAT DEGREE BANKS REALLY DID HAVE A SAY OR A SEAT AT THE TABLE. ARE THE RESULTS OF THESE TESTS, WOULD YOU CALL THEM NEGOTIATED OR NOT?

LEWIS: WELL, I WOULDN'T SAY NEGOTIATED.WE SUPPLIED INFORMATION AND MADE OUR POINTS. WE PROBABLY LOST MORE THAN WE WON. WE GOT SOME CHANGES BASED ON, OBVIOUSLY, THE FIRST QUARTER PERFORMANCE. WE GOT SOME CHANGES WHEN WE SAW DUPLICATIONS AND DOUBLE COUNTS OR MAYBE AN ERROR. THERE WEREN'T A LOT OF SUBSTANTIVE CHANGES OTHER THAN THOSE KINDS OF THINGS.

QUINTANILLA: WHAT WOULD YOU SAY TO THOSE WHO DO BELIEVE, EVEN AT THIS POINT, THAT THE TRUE MOTIVE FOR THE TEST WAS TO PUT THE MARKET ON HOLD, TO LET US GET PAST THE DARK DAYS OF MARCH.

LEWIS: I HAVEN'T HEARD THAT ONE. BUT, YOU KNOW, IN RETROSPECT, IFIT WAS TO CREATE SOME TRANSPARENCY AND CERTAINTY, THEN IT DID WORK. AND IT DOES SEEM TO BE HELPING THE MARKETS AND HELPING BANK EQUITY.

KERNEN: PEOPLE SAY THE ERA OF THE BIG BANK IS OVER, AND ESPECIALLY ONES THAT ARE TOO BIG TO FAIL.WE'VE GOT TO GET -- WE'VE GOT TO CHANGE THAT IN THE FUTURE. DO YOU THINK WE'LL HAVE SMALLER BANKS THAT HAVE LESS -- I MEAN, IT DOESN'T SEEM LIKE BANK OF AMERICA IS GOING TO BE THE MODEL OF THE FUTURE FOR BANKS?

LEWIS: WELL, THE -- OUR OBJECTIVE IS TO BE THE BEST BANK IN THE NEIGHBORHOOD. IT'S JUST A LOT OF NEIGHBORHOODS. AND SO I DON'T THINK, JUST BECAUSE YOU'RE BIG, YOU CAN'T BE PERSONAL. YOU CAN'T CARE ABOUT YOUR COMMUNITIES.YOU CAN'T CARE ABOUT YOUR ASSOCIATES AND YOUR CLIENTS AND CUSTOMERS.WE DO. WE'RE THE VERY FABRIC OF VIRTUALLY EVERY PLACE WE OPERATE. I DISAGREE. WE CAN COMBINE THE GOOD OF BEING LARGE AND HAVING SCALE, BUT ALSO FOCUS ON EACH INDIVIDUAL CUSTOMER AND CLIENT.

KERNEN: BUT YOU JUST LOOK AT THE PUBLIC IRE AT THIS POINT.I KNOW IN THE PAST YOU'VE -- WHAT DID ANDREW JACKSON SAY ABOUT BANKERS IT KIND OF GOES IN CYCLES BUT THERE'S A LOT OF PEOPLE WHO THINK 9% UNEMPLOYMENT AND ALL THE HEART ACHE AND MISERY IN THIS COUNTRY, THAT BANKS HAVE HAD A LOT TO DO WITH WHAT'S HAPPENED ON MAIN STREET. HOW LONG DO YOU THINK BEFORE THIS PUBLIC IRE STARTS TO DISSIPATE? BECAUSE IT'S PALPABLE.

LEWIS: I WOULD ACKNOWLEDGE EVERYTHING YOU SAID, JOE, AND I COULDN'T PREDICT. I THINK, AS SOME OF THIS -- AS THE ECONOMY STARTS TO IMPROVE AND PEOPLE SEE ALL THAT BANKS DO IN THEIR COMMUNITIES FROM PHILANTHROPIC GIVING TO INVESTMENT IN THE COMMUNITIES --I MEAN, WE HAVE A $1.5 TRILLION COMMITMENT OVER THE NEXT TEN YEARS TO INVEST IN OUR COMMUNITIES.

QUICK: KEN, YOU MENTIONED LAST NIGHT ON THE CONFERENCE CALL, YOU WERETALKING ABOUT THIS EXTREME SCENARIO THAT'S LAID OUT BY THE GOVERNMENT.IN YOUR OPINION, IS THAT EXTREME SCENARIO, WHAT ARE THE ODDS OR THE LIKELIHOOD OF THAT HAPPENING?

LEWIS: I WOULD SAY LESS THAN 20%.THERE ARE TOO MANY SIGNS NOW, BECKY, AGAIN, THAT POINT TO SOMEBOTTOMING.AND SO I THINK THAT'S A FAIRLY LOW PROBABILITY.

RYDING: MR. LEWIS, IF WE LOOK OUT BEYOND 2010 -- AND I KNOW ECONOMIC FORECASTS ARE DIFFICULT. BUT THE LEVEL OF UNEMPLOYMENT WE'RE LIKELY TO GET TO AND THE STRENGTH OF THE RECOVERY WE'RE LIKELY TO HAVE, WHICH I THINK WILL BE SLOW LIKE THE LAST TWO RECOVERIES, MEANS WE'RE REALLY LOOKING AT AN EXTENDED PERIOD OF UNEMPLOYMENT IN THE 8% TO 9% RANGE PERHAPS FOR THREE OR FOUR MORE YEARS BEFORE WE START MOVING BACK DOWN TO WHERE WE WERE BEFORE GOING INTO THIS RECESSION. TO WHAT EXTENT CAN BANKS MAKE MONEY ON CONSUMER LOANS WITH THAT KIND OF UNEMPLOYMENT SCENARIO POTENTIALLY OUT THERE?

LEWIS: THAT WOULD BE VERY DIFFICULT BECAUSE YOU WOULD -- WITH THOSE KIND OF UNEMPLOYMENT RATES, YOU WOULD HAVE SOME VERY HIGH CHARGE-OFF RATES ON CREDIT CARD IN PARTICULAR FOR QUITE SOME TIME. AND I ACTUALLY DON'T THINK IT WOULD BE POLITICALLY FEASIBLE. I THINK THINGS WOULD BE DONE TO COUNTER THAT. THAT'S JUST TOO HIGH.

QUICK: KEN, WE'D LIKE TO THANK YOU VERY MUCH FOR BEING WITH US THISMORNING.

LEWIS: GOOD TO BE WITH YOU, BECKY.

QUICK: KEN LEWIS IS THE CEO OF BANK OF AMERICA.




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