Attached files
 Addressing Legacy Mortgage Issues
June 29, 2011
Exhibit 99.4 |
 Key Takeaways
•
Today we are announcing a settlement agreement, a related institutional investor
agreement and several 2Q11 mortgage actions that represent important
steps in putting representations
and warranties (“R & W”) risk behind us
•
Following today's agreements (which include an $8.5B cash payment after final
court approval)
and
other
mortgage-related
actions
in
2Q11
we
will
have
recorded
reserves¹
in
our
financial statements for a substantial portion of our R & W exposure measured
by original UPB and we have estimated a range of possible loss for the
remainder •
Expect to report a 2Q11 net loss of $8.6B to $9.1B on July 19; EPS loss of $0.88
to $0.93 (includes $0.26 per share goodwill impairment charge)
•
Excluding mortgage-related items and gains from asset sales and other
non-operating items, net income expected in the $3.2B -
$3.7B range
•
Including the impact of these settlements and related actions, BAC's Tier 1 Common
Equity ratio is expected to remain above 8% at June 30, 2011 and tangible
book value per share to be above $12.50 (and
book value per share to be above $20.00) 1
Settlement
Agreement
and Other
2Q11
Actions
Executing on
Long-Term
Strategy
•
We have best-in-class businesses
•
We are executing on a strategy for growth and relationship deepening with strong
early signs of success
•
All of our businesses, ex Consumer Real Estate Services, are performing well
•
We are focused on a shareholder-value model to deliver consistent, sustainable
returns •
Our reported capital ratios are expected to be well above minimum Basel III
requirements 1
2
Represents a non-GAAP financial measure, please refer to the end of this
presentation material for a reconciliation. 2
2
Reserves are subject to adjustment in future periods based on a number of factors including home
prices and counterparty behavior – also refer to Footnote 3 of this document. |
 Summary Review of Today’s Agreements
Announced
Agreements:
•
Settlement with Bank of New York Mellon (“BNY”), as Trustee, regarding
repurchase and servicing claims for 530 legacy Countrywide
private-label residential mortgage-backed securities trusts
–
BNY, as Trustee, will release the claims on behalf of the covered trusts and all
associated investors
•
Agreement with a group of large institutional asset managers being represented by
the law firm Gibbs & Bruns to support the settlement
•
Settlement agreement is subject to final court approval and certain other
matters Claims
Covered
by
Agreement:
•
The settlement agreement will provide for the release of claims related to:
–
All R
&
W
in
the
covered
Countrywide
RMBS
trusts
which
represent
nearly
all of
Countrywide first-lien private-label exposure;
–
Substantially all past servicing of loans;
–
Future servicing of loans, to the extent that future servicing complies with newly
agreed- to standards; and
–
Successor liability claims against BAC for Countrywide acts related to released
claims 2 |
 Scope of Private-Label Settlement Agreement
Scope of Settlement:
•
Covers 530 Countrywide residential mortgage-backed private-label
trusts
–
$424B of Original Unpaid Principal Balance
•
Does not address R & W exposure from:
–
Loans sold by other BAC entities into private-label trusts
–
Loans sold to third parties and subsequently sold in private
RMBS trusts
–
Investors’
securities and fraud claims and certain other claims
Settlement Amount / Other:
•
$8.5B cash payment upon final court approval plus related
fees/expenses of $100M
•
Payment allocated
directly
to
the
trusts
by
the
Trustee
based
on
a
collateral loss formula
•
BAC has agreed to implement certain servicing standards and
address documentation deficiencies as part of the settlement, with
certain of the obligations starting now
–
The estimated cost to implement servicing and documentation
obligations is approximately $400M and will contribute to a
negative valuation charge
on the MSR asset in 2Q11
3
Original Unpaid Principal Balance
of 530 Countrywide Private Label
Mortgage Trusts in Settlement
$47B
$59B
$115B
$203B
Defaulted
Severely
Delinquent
Outstanding
Excluding
Severely
Delinquent
Paid Off
$424B
Total Original Unpaid
Principal Balance |
 Rationale for Settlement
4
•
Continued and substantial progress in addressing R & W exposure
–
January 3, 2011 -
Settlements with Fannie Mae and Freddie Mac for certain Countrywide exposure
–
April 15, 2011 -
Assured Guaranty Settlement
–
June 28, 2011 -
Countrywide-issued Private-Label Settlement
–
Total R & W expense of
approximately $22.0B over the last six quarters, including expected 2Q11
actions •
Reduces uncertainty –
based on original principal balance, and including the impact of pay-downs,
prior settlements and 2Q11 actions we have settled or have provided reserves
for a substantial portion of the original UPB and have provided a range
of possible loss for the remainder
–
Reserves are subject to adjustment in future periods depending on a number of
factors including home prices and behavior of our counterparties
–
Unreserved reasonably possible and estimable exposure is reflected in the
non-GSE Range of Possible Loss disclosure
•
Today’s settlement reduces exposure to variability of future losses on
loans through liquidation
•
Attractive trust-based structure addresses all historical R & W exposure of
the covered trusts –
Trustee will release repurchase and certain servicing and loan documentation
claims on behalf of all private- label investors in 530 legacy
Countrywide trusts |
 Preliminary Financial Impact of Today’s Announcements
5
•
$8.5B
settlement
payment
will
be
accrued
for
in
2Q11,
but
is
not
payable
until
after
final
court approval of settlement agreement
•
Expect to record additional 2Q11 mortgage items:
–
Additional $5.5B provision for R & W liability for non-GSE exposure and,
to a lesser extent, GSE exposure
–
$2.6B goodwill impairment in Consumer Real Estate Services, reducing its goodwill
to $0 –
Other mortgage-related charges of approximately $4.0B including litigation
costs, MSR valuation charge and compensatory fees and assessments related
to foreclosure delays •
Remaining Range of Possible Loss on non-GSE R & W exposure currently
estimated to be up
to
$5B
above
accruals
3
After giving effect to the settlement and the additional representations and
warranties charges expected to be recorded in the second quarter of 2011, the
company currently estimates that the range of possible loss with
respect to non-GSE investor representations and warranties expense could be up
to $5 billion over expected accruals. After giving effect to the additional
GSE representations and warranties charges expected to be taken in the
second quarter of 2011, based on its past experience with the GSEs, the
company believes that its remaining exposure to repurchase obligations for
first-lien residential mortgage loans sold directly to the GSEs will be
accounted for in the recorded liability for representations and warranties for these loans. The company is not currently
able to reasonably estimate the possible loss with respect to any such potential
impact in excess of current reserves on future GSE provisions if the GSE
behaviors change from past experience. In addition, future provisions associated
with representations and warranties for both non-GSE and GSE exposures
may be materially impacted if actual results are different from our assumptions
regarding economic conditions, home prices and other matters, including
counterparty behavior and estimated repurchase rates.
3 |
 •
Expect to report a net loss of $8.6B to $9.1B on July 19; EPS loss of $0.88 to
$0.93 –
$0.26 EPS impact of $2.6B goodwill impairment charge
•
Earnings ex goodwill impairment expected to include the following
mortgage-related pre-tax charges:
–
R & W expense $14.0B
–
Additional mortgage costs of approximately $4.0B, including:
•
Litigation costs
•
MSR valuation charge
•
Compensatory fees and other assessments related to foreclosure delays
•
Earnings also expected to include several non mortgage-related items totaling
approximately $2.5B pre-tax:
–
Gains on the sales of Balboa, BlackRock stock
–
Other notable items will include debt securities gains, dividends from strategic
investments •
Results expected to show the following trends:
–
Net interest income hitting expected lows
–
Sales
and
trading
results
ahead
of
last
year
second
quarter,
but
below
seasonally
strong
1Q11
–
Provision expense declining from 1Q11, asset quality continues to improve
6
4
Results are estimates and could change based on information obtained in the process
of finalizing results. 2Q11 Preliminary Results
4 |
 7
Estimated Regulatory Capital Impact
•
Tier 1 Common Ratio
(under Basel I)
expected to be above
8% at 6/30/11
5
Reflects the 12/31/09 information adjusted to include 1/1/10 adoption of FAS
166/167 as reported in our SEC filings. 5
BAC
Tier 1
Common
Ratio
(Basel I) |
 8
•
Tangible Book Value
Per Share expected
to be above $12.50
at 6/30/11
6
5
Reflects the 12/31/09 information adjusted to include 1/1/10 adoption of FAS
166/167 as reported in our SEC filings. 6
Represents a non-GAAP financial measure, refer to the end of the presentation
material for a reconciliation. Estimated Impact on Capital
Metrics •
Book Value Per
Share expected to
be above $20.00 at
6/30/11
Tangible
Book Value
Per Share
Book Value
Per Share |
 9
Estimated Impact on Capital Metrics (cont’d)
•
Tangible Common
Equity Ratio
expected to be above
5.7% at 6/30/11
6
Tangible
Common
Equity Ratio
Common
Equity Ratio
•
Common Equity
Ratio expected to be
above roughly 9.0%
at 6/30/11
5
5
5
Reflects the 12/31/09 information adjusted to include 1/1/10 adoption of FAS
166/167 as reported in our SEC filings. 6
Represents a non-GAAP financial measure, refer to the end of the presentation
material for a reconciliation. |
  Capital and Basel III
2.0%
3.5%
4.0%
4.5%
4.5%
4.5%
4.5%
4.5%
0.6%
1.3%
1.9%
2.5%
0.6%
1.3%
1.9%
2.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Capital Deduction
Phase-In
1/1/2012
0%
1/1/2013
0%
1/1/2014
20%
1/1/2015
40%
1/1/2016
60%
1/1/2017
80%
1/1/2018
100%
1/1/2019
100%
•
Including currently identified RWA mitigation, 12/31/12 RWA is estimated at ~$1.8T;
mitigation efforts will continue after 12/31/12
•
Also actively mitigating against Basel III capital numerator deductions which
phase in starting in 2014 •
Expect our ratios to be in excess of all required minimums
•
Assuming no benefit for the Basel III capital deduction phase-in (i.e., fully
front-loaded basis), our goal is to achieve a 6.75% -
7% Tier 1 Common Ratio by 1/1/13 assuming no phase-in for capital
deductions
•
That said, given the phase-in period provided for by the Basel rules, we will
protect shareholder value when decisioning
mitigation
efforts
that
allow
for
earlier
fully
phased-in
compliance
Basel III Capital Requirements *
Tier 1 Common Minimum
Capital Conservation Buffer
SIFI @ 250bps
2012
2013
2014
2015
2016
2017
2018
2019
10
* Per Basel |
 Key Takeaways
•
Making substantial progress in addressing legacy issues
•
Today’s announcement addresses significant exposure on potential
representations and warranties losses
•
2Q11 results include other mortgage-related costs
•
Although results include a significant cost to shareholders, we believe the
capital impact is recoverable over two quarters
•
Outside of Consumer Real Estate Services, businesses operating well
11 |
 Forward-Looking Statements
12
Certain statements in this Presentation represent the current expectations, plans or forecasts of Bank
of America and are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to
historical or current facts. These statements often use words like “expects,” “anticipates,”
“believes,” “estimates,” “targets,” “intends,”
“plans,” “predict,” “goal” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and
“could.” The forward-looking statements made in this Presentation include, without
limitation, statements concerning: the preliminary information about Bank of America’s results of
operations and financial condition for the quarter ending June 30, 2011 and related trends, including
Bank of America’s expected net loss and including Bank of America’s expected net
income if the settlement, other mortgage-related charges, and proceeds from asset-sales are excluded, the expected amount and sufficiency of the charges to be recorded in the
quarter ending June 30, 2011 related to the settlement agreement, the related expected increase in the
reserve for representations and warranties expense and the estimated costs associated with the
additional servicing and documentation obligations undertaken in connection with the settlement and the corresponding expected write-down of the valuation of the
mortgage servicing rights (MSR), the expected amount and sufficiency of the additional charge for
representation and warranty expense in the quarter ending June 30, 2011 for both GSE and
non-GSE-exposures, the expected other mortgage-related costs to be recorded in the quarter ending June 30, 2011, including the expected elimination in the quarter ending
June 30, 2011 of the balance of the goodwill in the Consumer Real Estate Services business segment and
the amount of the goodwill impairment charge expected to be recorded, Bank of America’s
expected tangible book value per share, book value per share, tangible common equity ratio, common equity ratio, Tier 1 common ratio (Basel I) for the quarter
ending June 30, 2011 and the estimated capital recovery period, estimated RWA, ratio goals and
expectations, and the expected trends outside of the mortgage area, including Bank of
America’s expectations regarding net interest income, sales and trading results, core expenses, provision expense, gains from the sale of Balboa and BlackRock, debt securities
gains, dividends from strategic investment and fair value option gains on certain structured
liabilities; the portion of Bank of America’s repurchase obligations for residential mortgage
obligations sold by Bank of America and its affiliates to investors that has been paid or reserved
after giving effect to the settlement agreement and the expected charges in the quarter ending
June 30, 2011; the estimated range of possible loss over existing accruals related to non-GSE representation and warranty exposure; the expected impact of the settlement
agreement and the institutional investor agreement; expected support of the institutional investors;
whether and to what extent challenges will be made to the settlement and the timing of the
court approval process; whether the conditions to the settlement will be satisfied, including the receipt of final court approval and tax opinions; and the potential assertion and
impact of claims not addressed by the settlement agreement. Forward-looking statements speak
only as of the date they are made, and Bank of America undertakes no obligation to update any
forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
These statements are not guarantees of future results or performance and involve certain risks,
uncertainties and assumptions that are difficult to predict and are often beyond Bank of
America’s control. Actual outcomes and results may differ materially from those expressed
in, or implied by, any of these forward-looking statements. You should not place undue
reliance on any forward-looking statement and should consider all of the following uncertainties
and risks, as well as those more fully discussed under Item 1A. “Risk Factors” of Bank
of America’s 2010 Annual Report on Form 10-K and in any of Bank of America’s other
subsequent Securities and Exchange (SEC) filings: the accuracy and variability of estimates
and assumptions in determining the expected total cost of the settlement to Bank of America; the
adequacy of the liability reserves for the representations and warranties exposures to the
GSEs, monolines and private-label and other investors; the accuracy and variability of estimates and assumptions in determining the estimated range of possible loss over existing
accruals related to non-GSE representation and warranty exposure; the accuracy and variability of
estimates and assumptions in determining the portion of Bank of America’s repurchase
obligations for residential mortgage obligations sold by Bank of America and its affiliates to investors that has been paid or reserved after giving effect to the settlement
agreement and the expected charges in the quarter ending June 30, 2011; whether and to what extent
challenges will be made to the settlement and the timing of the court approval process,
including the nature and timing of any appeals that may follow an initial court decision; whether the conditions to the settlement will be satisfied, including the receipt of final
court approval and a private letter rulings from the IRS and other tax opinions; whether conditions in
the settlement agreement that would permit Bank of America and legacy Countrywide to withdraw
from the settlement will occur and whether Bank of America and legacy Countrywide will determine to withdraw from the settlement if such conditions occur;
the impact of performance and enforcement of obligations under, and provisions contained in, the
settlement agreement and the institutional investor Agreement, including performance of
obligations under the settlement agreement by Bank of America (and certain of its affiliates) and the Trustee and the performance of obligations under the institutional
investor agreement by Bank of America (and certain of it affiliates) and the investor group; Bank of
America’s and certain of its affiliates’ ability to comply with the servicing and
documentation obligations under the settlement agreement; the potential assertion and impact of
additional claims not addressed by the settlement agreement or any of the prior agreements
entered into between Bank of America (and/or certain of its affiliates) and the GSEs, monoline insurers and other investors; Bank of America’s mortgage modification
policies, loss mitigation strategies and related results; the foreclosure review and assessment
process, the effectiveness of Bank of America’s response to such process, and any
governmental or private third-party claims asserted in connection with these foreclosure matters;
and any measures or steps taken by federal regulators or other governmental authorities with
regard to mortgage loans, servicing agreements and standards, or other matters. |
 Note Relating to Non-GAAP Financial Disclosures
This presentation contains non-GAAP financial information. We believe the use
of these non-GAAP measures provides additional clarity in
assessing the
results
of
the
Corporation.
Other
companies
may
define
or
calculate
these
measures
and
ratios
differently.
The
reconciliations of those measures to GAAP measures are provided herein, in our
Form 10-K for the year ended December 31, 2010 or in our Form 10-Q
for the three months ended March 31, 2011, available through the Bank of America Investor Relations web site at:
http://investor.bankofamerica.com.
13
1
Reflects the 12/31/09 information adjusted to include 1/1/10 adoption of FAS
166/167 as reported in our SEC filings. $ in billions
As Reported
2006
2007
2008
4Q09
4Q09
Tangible common shareholder's equity
59.1
$
56.4
$
50.7
$
112.5
$
118.6
$
Tangible assets
1,386.5
1,629.8
1,729.3
2,235.8
2,135.4
Ratio
4.3%
3.5%
2.9%
5.0%
5.6%
Common shareholder's equity
132.4
$
142.4
$
139.4
$
188.1
$
194.2
$
Assets
1,459.7
1,715.7
1,817.9
2,330.7
2,230.2
Ratio
9.1%
8.3%
7.7%
8.1%
8.7%
Tangible book value per share
13.26
$
12.71
$
10.11
$
11.31
$
11.94
$
Book value per share
29.70
$
32.09
$
27.77
$
20.87
$
21.48
$
Reconciling items from GAAP measures to
non-GAAP measures are:
Common equlivalent securities
-
$
-
$
-
$
19.2
$
19.2
$
Goodwill
(65.7)
(77.5)
(81.9)
(86.3)
(86.3)
Intangible assets (excluding MSRs)
(9.4)
(10.3)
(8.5)
(12.0)
(12.0)
Related deferred tax liabilities
1.8
1.9
1.9
3.5
3.5
$ in billions
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
estimate
Tangible common shareholder's equity
117.4
$
121.8
$
129.5
$
130.9
$
133.8
$
126.8
$
Tangible assets
2,250.2
2,275.0
2,256.8
2,184.2
2,194.0
2,196.5
Ratio
5.2%
5.4%
5.7%
6.0%
6.1%
5.8%
Common shareholder's equity
211.9
$
215.2
$
212.4
$
211.7
$
214.3
$
204.7
$
Assets
2,344.6
2,368.4
2,339.7
2,264.9
2,274.5
2,274.5
Ratio
9.0%
9.1%
9.1%
9.3%
9.4%
9.0%
Tangible book value per share
11.70
$
12.14
$
12.91
$
12.98
$
13.21
$
12.52
$
Book value per share
21.12
$
21.45
$
21.17
$
20.99
$
21.15
$
20.21
$
Reconciling items from GAAP measures to
non-GAAP measures are:
Goodwill
(86.3)
$
(85.8)
$
(75.6)
$
(73.9)
$
(73.9)
$
(71.3)
$
Intangible assets (excluding MSRs)
(11.5)
(10.8)
(10.4)
(9.9)
(9.6)
(9.6)
Related deferred tax liabilities
3.4
3.2
3.1
3.0
2.9
2.9
1 |
  Note Relating to Non-GAAP Financial Disclosures
This page presents a reconciliation of estimated earnings adjusted for large items
expected to be recorded during the second quarter of 2011. The
after-tax amounts shown on large items assumes a 37% tax rate which could be different as actual results are finalized.
14
$ in billions
Estimated loss
(12.5)
$
to
(13.2)
$
(8.6)
$
to
(9.1)
$
Adjustments for large estimated items
Plus mortgage-related costs
Representations & warranties expense
14.0
14.0
8.8
8.8
Other mortgage-related costs
4.0
4.0
2.5
2.5
Goodwill impairment charge
2.6
2.6
2.6
2.6
Less gains
Gains from non-operating items
(2.5)
(2.5)
(1.6)
(1.6)
Adjusted estimated earnings
5.6
$
to
4.9
$
3.7
$
to
3.2
$
Pre-tax
After-tax |
 |