SEC Company Response from BANK OF AMERICA (BAC) — Dec 19, 2011
BANK OF AMERICA CORP /DE/ (BAC, BAC-PB, BAC-PE, BAC-PK, BAC-PL, BAC-PM, BAC-PN, BAC-PO, BAC-PP, BAC-PQ, BAC-PS, BML-PG, BML-PL) (CIK 0000070858)
Date: Dec. 19, 2011 · CIK: 0000070858 · Accession: 0000070858-11-000192
AI Filing Summary & Sentiment
Reasoning
Referenced dates: August 2, 2011, December 2, 2011, June 6, 2011
Letter
United States Securities and Exchange Commission Division of Corporation Finance Filed August 4, 2011 Form 10-Q for the Quarterly Period ended September 30, 2011 Filed November 3, 2011 File No. 1-06523
Dear Ms. Hayes:
We have received and reviewed your letter dated December 2, 2011. The following are our responses to each of your comments and requests. For ease of reference, we have repeated the Staff's comments. Our responses are intended to address the comments and questions raised by the Staff. We would be pleased to continue to work with the Staff in resolving any matter requiring further attention.
Form 10-K for the Fiscal Year Ended December 31, 2010
Risk Factors, page 8
Item 1A. Risk Factors
Adverse changes to our credit ratings from the major credit rating agencies could have a material adverse effect on our liquidity, cash flows, competitive position…, page 8
1.
We note your response to comment one in our letter dated August 2, 2011 as well as the statements in your Form 10-Q for the period ended September 30, 2011. In future filings please disclose the additional collateral and termination payments that you may be required to post as a result of a one and two notch downgrade in your credit rating. We note that this information is included in note 4 to the financial statements and continue to believe that this information should be included in the risk factor discussion as it will assist an investor in understanding the risk and potential consequences.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
December 19, 2011
Page 2 of 7
Response:
In future Form 10-K filings, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and, where material, to the extent Risk Factors disclosure is appropriate for Form 10-Q filings, in future Form 10-Q filings, we will disclose the additional collateral and termination payments that we may be required to post as result of a one and two notch downgrade in the Corporation's credit ratings.
Exhibits
2.
We note your response to comment three from our letter dated August 2, 2011. We disagree with your position that these agreements were entered into in the ordinary course of business. While bulk settlements occurred in prior years, such settlements of this magnitude do not ordinarily accompany your business and therefore are not entered into the ordinary course. Please file the agreements pursuant to Item 601(b)(10) of Regulation S-K.
Response: We will file the agreements as exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Form 10-Q for the Quarterly Period Ended September 30, 2011
Counterparty Credit Risk Valuation Adjustments
Non-U.S. Portfolio, page 115
3.
We refer to Table 58 on page 118 which provides information about your exposure to selected European countries. We note that footnote six to your table indicates that the credit default protection column represents the net notional credit default protection purchased to hedge derivative assets. We are unclear as to why you would only disclose the net notional amount of these instruments as opposed to the fair values given that the derivative assets that they are hedging are presented at fair value in your table. Please revise your future filings to also disclose the fair values of the net credit default protection purchased. Additionally, please disclose the fact that losses could still result in your positions even if there is purchased credit protection because the purchased credit protection contracts only pay out under certain scenarios and thus not all losses may be covered by the credit protection.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
December 19, 2011
Page 3 of 7
Response:
In future filings, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, we will disclose the fair values of the net credit default protection purchased. Additionally, we will disclose in future filings the fact that losses could still result even if there is credit default protection purchased because the purchased credit protection contracts only pay out under certain scenarios and thus not all losses may be covered by the credit protection contracts. The effectiveness of our credit default swap (“CDS”) protection as a hedge of these risks is influenced by a number of factors, including the contractual terms of the CDS. Generally, only the occurrence of a credit event as defined by the CDS terms (which may include, among other events, the failure to pay by, or restructuring of, the reference entity) results in a payment under the purchased credit protection contracts. The determination as to whether a credit event has occurred is made by the relevant ISDA Determination Committee (comprised of various ISDA member firms) based on the terms of the CDS and facts and circumstances for the event. Accordingly, uncertainties exist whether any particular strategy or policy action for addressing the European debt crisis would constitute a credit event under the CDS. Most recently the question of whether a voluntary restructuring of certain European debt that does not bind all holders has been viewed as unlikely to trigger a credit event under CDS terms.
Notes to the Financial Statements
Note 9 - Representations and Warranties Obligations and Corporate Guarantees, page 198
Rescission Notices, page 202
4.
We note your response to comment nine of our letter dated August 2, 2011 as well as your disclosure on page 202 regarding FNMA's new policy related to mortgage insurance rescissions. Given the potential impact that this policy could have on your pipeline of repurchase claims and your representations and warranties liability, please revise your future filings to provide some level of quantitative disclosure regarding your mortgage insurance rescissions, including number and amount of unresolved mortgage rescissions notices as well as the manner in which mortgage rescission notices have been resolved (e.g., acceptance, reinstatement of coverage, settlement, etc.). This disclosure can be in a format similar to what you provided in your response to prior comment 28(g) of our letter dated June 6, 2011.
Response: The number and amount of unresolved mortgage rescission notices are highly confidential and propriety information, which should remain confidential. In future filings, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, we will provide quantitative disclosure regarding our mortgage insurance rescissions (e.g. percentages), including the percentage of unresolved mortgage rescission notices, as well as the manner in which mortgage rescission notices have been resolved.
In addition, we acknowledge the SEC's question as discussed on December 9, 2011 regarding news reports of the Corporation's participation in the following Federal Reserve-sponsored funding programs during 2008-2009: the Term Auction Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. Below, we provide our response to the SEC's question which was:
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
December 19, 2011
Page 4 of 7
We have been made aware through various news reports that you may have accessed various the Term Auction Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility, which were Federal Reserve-sponsored programs during 2008 - 2009. We note from your disclosures during these periods that you appear to disclose the availability of these programs and in some cases you have participated in the programs. But you do not appear to have provided quantitative information as to the level or amount of borrowings under these programs. To the extent that you had borrowings under these programs during these periods, please tell us how you concluded that additional quantitative and qualitative disclosures about your participation in the programs were not required. Additionally, please provide your analysis as to whether you believe that participation in these programs instituted a form of federal financial assistance such that additional disclosure may have been required as to the effects of this assistance on your financial condition and results of operations pursuant to the guidance in FRC 501.06(c).
Participation in Government-Sponsored Funding Programs
As the Corporation disclosed in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q during 2008 - 2009, the Corporation accessed the Term Auction Facility (TAF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF, and together with the TAF, CPFF and PDCF, the Programs). The Corporation's borrowings under the Programs at December 31, 2008, March 31, 2009 and June 30, 2009, are detailed on Exhibit A1. The Programs were designed by the Federal Reserve and other supervisory authorities to help foster liquidity and continued market functioning during a period of historically significant stressed systemic, macroeconomic risk.
The Corporation's participation in the Programs was precautionary, not necessary. As noted in Exhibit A, the Corporation's borrowings under the Programs at December 31, 2008, March 31, 2009 and June 30, 2009 were approximately 13%, 16%, and 5%, respectively, of the quarterly average of all of the Corporation's short-term borrowings in the related quarter. The Corporation's utilization of these Programs did not exceed its otherwise available supply of unencumbered, highly liquid assets. During the periods when the Corporation accessed the Programs it retained access to, and in fact accessed, multiple other sources of short-term and long-term funding. The temporary liquidity and funding provided by the Programs was helpful to the Corporation and the markets broadly. Obtaining funding under reasonable terms was a prudent action from a liquidity risk management perspective.
Federally sponsored programs that provide liquidity or funding to banking and other financial organizations have taken, and continue to take, many forms. In general, these relationships are not controversial, and program-level disclosure is not warranted. Insured banking organizations and their affiliates have multiple and complex relationships with governmental agencies, some of which are supervisory in nature, and others of which concern governmental agencies in a role similar to a private market participant. For example, eligible organizations may pool FHA-insured and VA-guaranteed residential mortgage loans with Ginnie Mae in return for Mortgage-Backed Securities supported by the full faith and credit of the United States. In addition to this, qualified sellers may deliver conforming mortgage loans into Fannie Mae and Freddie Mac on relatively favorable terms, and this has continued since the initiation of each enterprise's conservatorship by the Federal Housing Finance Agency. Also, the Federal Home Loan Bank system provides funding secured by eligible residential mortgage loans to member banks.
1 These are the only quarter-ends at which Bank of America Corporation had outstanding advances under the Programs. Please refer to footnote 3 below concerning Merrill Lynch & Co., Inc.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
December 19, 2011
Page 5 of 7
The Corporation's Disclosure of the Programs
The Corporation concluded that the salient information that needed to be conveyed to our investors was:
•
the existence of the ongoing financial crisis and economic slowdown and related risks to the Corporation, including risks to its funding and liquidity position,
•
the U.S. government and regulatory response to the systemic macroeconomic risks presented by the ongoing financial crisis, including the establishment of the Programs,
•
the availability of the Programs to the Corporation and the fact that the Corporation had accessed the Programs during certain periods and subsequently was no longer accessing the Programs (for the Annual Report on Form 10-K for the fiscal year ended December 31, 2009), and
•
the Corporation's liquidity position, including its aggregate short-term borrowings.
The Corporation provided disclosure regarding the ongoing financial crisis and economic slowdown during the periods under discussion, including the risks of continued instability and volatility in the financial markets and the corresponding potential impact on the Corporation's funding and liquidity. Examples of this disclosure are provided on Exhibit B.
In this context, the Corporation provided qualitative disclosure concerning the salient features of each of the Programs, its participation in the Programs, and its exit from the Programs in its Annual Reports on Form 10-K and, as applicable, Quarterly Reports on Form 10-Q for the periods under discussion. Examples of this disclosure are also provided on Exhibit B. Additionally, the Corporation provided quantitative disclosure regarding its use of short-term funding generally, segregated according to standard market metrics in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q during the periods under discussion. In accordance with Industry Guide 3, Statistical Disclosure by Bank Holding Companies (Industry Guide 3), we provided detailed quantitative disclosure in our Annual Reports on Form 10-K for the 2008 and 2009 fiscal years concerning our short-term borrowings, including for each category of short-term borrowings reported in the financial statements. All borrowings under the Programs were included in our disclosed short-term borrowing metrics. The Corporation also provided other qualitative and quantitative disclosure regarding the Corporation's short-term liabilities and associated liquidity risk management matters in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q during the periods under discussion.
In preparing Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the Corporation focuses on known material events and uncertainties that would cause reported financial information not to be necessarily indicative of future operating performance or of future financial condition. The most significant information for investors regarding the Programs, which were widely available to and used by U.S. financial institutions during the periods under discussion, was the fact of their existence and their intended purpose to foster liquidity and continued market functioning during a period of historically significant stressed systemic, macroeconomic risk, and the fact that they were available to and used by the Corporation, rather than Program level quantitative detail for the Corporation, particularly considering the insignificance of our participation to the Corporation's overall funding levels and excess liquidity. The Corporation believed that Program specific quantitative disclosure would not have been significant to investors and would have assigned undue prominence both to the liquidity and funding available under the Programs (which was believed to be temporary in nature), and
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
December 19, 2011
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CORRESP 1 filename1.htm Dec 19, 2011 Comment Letter December 19, 2011 Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission Division of Corporation Finance 100 F Street, NE Washington, DC 20549 Re: Bank of America Corporation (the Corporation) Form 10-K for the Fiscal Year Ended December 31, 2010 Filed February 25, 2011 Form 10-Q for the Quarterly Period ended March 31, 2011 Filed May 5, 2011 Form 10-Q for the Quarterly Period ended June 30, 2011 Filed August 4, 2011 Form 10-Q for the Quarterly Period ended September 30, 2011 Filed November 3, 2011 File No. 1-06523 Dear Ms. Hayes: We have received and reviewed your letter dated December 2, 2011. The following are our responses to each of your comments and requests. For ease of reference, we have repeated the Staff's comments. Our responses are intended to address the comments and questions raised by the Staff. We would be pleased to continue to work with the Staff in resolving any matter requiring further attention. Form 10-K for the Fiscal Year Ended December 31, 2010 Risk Factors, page 8 Item 1A. Risk Factors Adverse changes to our credit ratings from the major credit rating agencies could have a material adverse effect on our liquidity, cash flows, competitive position…, page 8 1. We note your response to comment one in our letter dated August 2, 2011 as well as the statements in your Form 10-Q for the period ended September 30, 2011. In future filings please disclose the additional collateral and termination payments that you may be required to post as a result of a one and two notch downgrade in your credit rating. We note that this information is included in note 4 to the financial statements and continue to believe that this information should be included in the risk factor discussion as it will assist an investor in understanding the risk and potential consequences. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission December 19, 2011 Page 2 of 7 Response: In future Form 10-K filings, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and, where material, to the extent Risk Factors disclosure is appropriate for Form 10-Q filings, in future Form 10-Q filings, we will disclose the additional collateral and termination payments that we may be required to post as result of a one and two notch downgrade in the Corporation's credit ratings. Exhibits 2. We note your response to comment three from our letter dated August 2, 2011. We disagree with your position that these agreements were entered into in the ordinary course of business. While bulk settlements occurred in prior years, such settlements of this magnitude do not ordinarily accompany your business and therefore are not entered into the ordinary course. Please file the agreements pursuant to Item 601(b)(10) of Regulation S-K. Response: We will file the agreements as exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Form 10-Q for the Quarterly Period Ended September 30, 2011 Counterparty Credit Risk Valuation Adjustments Non-U.S. Portfolio, page 115 3. We refer to Table 58 on page 118 which provides information about your exposure to selected European countries. We note that footnote six to your table indicates that the credit default protection column represents the net notional credit default protection purchased to hedge derivative assets. We are unclear as to why you would only disclose the net notional amount of these instruments as opposed to the fair values given that the derivative assets that they are hedging are presented at fair value in your table. Please revise your future filings to also disclose the fair values of the net credit default protection purchased. Additionally, please disclose the fact that losses could still result in your positions even if there is purchased credit protection because the purchased credit protection contracts only pay out under certain scenarios and thus not all losses may be covered by the credit protection. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission December 19, 2011 Page 3 of 7 Response: In future filings, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, we will disclose the fair values of the net credit default protection purchased. Additionally, we will disclose in future filings the fact that losses could still result even if there is credit default protection purchased because the purchased credit protection contracts only pay out under certain scenarios and thus not all losses may be covered by the credit protection contracts. The effectiveness of our credit default swap (“CDS”) protection as a hedge of these risks is influenced by a number of factors, including the contractual terms of the CDS. Generally, only the occurrence of a credit event as defined by the CDS terms (which may include, among other events, the failure to pay by, or restructuring of, the reference entity) results in a payment under the purchased credit protection contracts. The determination as to whether a credit event has occurred is made by the relevant ISDA Determination Committee (comprised of various ISDA member firms) based on the terms of the CDS and facts and circumstances for the event. Accordingly, uncertainties exist whether any particular strategy or policy action for addressing the European debt crisis would constitute a credit event under the CDS. Most recently the question of whether a voluntary restructuring of certain European debt that does not bind all holders has been viewed as unlikely to trigger a credit event under CDS terms. Notes to the Financial Statements Note 9 - Representations and Warranties Obligations and Corporate Guarantees, page 198 Rescission Notices, page 202 4. We note your response to comment nine of our letter dated August 2, 2011 as well as your disclosure on page 202 regarding FNMA's new policy related to mortgage insurance rescissions. Given the potential impact that this policy could have on your pipeline of repurchase claims and your representations and warranties liability, please revise your future filings to provide some level of quantitative disclosure regarding your mortgage insurance rescissions, including number and amount of unresolved mortgage rescissions notices as well as the manner in which mortgage rescission notices have been resolved (e.g., acceptance, reinstatement of coverage, settlement, etc.). This disclosure can be in a format similar to what you provided in your response to prior comment 28(g) of our letter dated June 6, 2011. Response: The number and amount of unresolved mortgage rescission notices are highly confidential and propriety information, which should remain confidential. In future filings, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, we will provide quantitative disclosure regarding our mortgage insurance rescissions (e.g. percentages), including the percentage of unresolved mortgage rescission notices, as well as the manner in which mortgage rescission notices have been resolved. In addition, we acknowledge the SEC's question as discussed on December 9, 2011 regarding news reports of the Corporation's participation in the following Federal Reserve-sponsored funding programs during 2008-2009: the Term Auction Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. Below, we provide our response to the SEC's question which was: Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission December 19, 2011 Page 4 of 7 We have been made aware through various news reports that you may have accessed various the Term Auction Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility, which were Federal Reserve-sponsored programs during 2008 - 2009. We note from your disclosures during these periods that you appear to disclose the availability of these programs and in some cases you have participated in the programs. But you do not appear to have provided quantitative information as to the level or amount of borrowings under these programs. To the extent that you had borrowings under these programs during these periods, please tell us how you concluded that additional quantitative and qualitative disclosures about your participation in the programs were not required. Additionally, please provide your analysis as to whether you believe that participation in these programs instituted a form of federal financial assistance such that additional disclosure may have been required as to the effects of this assistance on your financial condition and results of operations pursuant to the guidance in FRC 501.06(c). Participation in Government-Sponsored Funding Programs As the Corporation disclosed in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q during 2008 - 2009, the Corporation accessed the Term Auction Facility (TAF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF, and together with the TAF, CPFF and PDCF, the Programs). The Corporation's borrowings under the Programs at December 31, 2008, March 31, 2009 and June 30, 2009, are detailed on Exhibit A1. The Programs were designed by the Federal Reserve and other supervisory authorities to help foster liquidity and continued market functioning during a period of historically significant stressed systemic, macroeconomic risk. The Corporation's participation in the Programs was precautionary, not necessary. As noted in Exhibit A, the Corporation's borrowings under the Programs at December 31, 2008, March 31, 2009 and June 30, 2009 were approximately 13%, 16%, and 5%, respectively, of the quarterly average of all of the Corporation's short-term borrowings in the related quarter. The Corporation's utilization of these Programs did not exceed its otherwise available supply of unencumbered, highly liquid assets. During the periods when the Corporation accessed the Programs it retained access to, and in fact accessed, multiple other sources of short-term and long-term funding. The temporary liquidity and funding provided by the Programs was helpful to the Corporation and the markets broadly. Obtaining funding under reasonable terms was a prudent action from a liquidity risk management perspective. Federally sponsored programs that provide liquidity or funding to banking and other financial organizations have taken, and continue to take, many forms. In general, these relationships are not controversial, and program-level disclosure is not warranted. Insured banking organizations and their affiliates have multiple and complex relationships with governmental agencies, some of which are supervisory in nature, and others of which concern governmental agencies in a role similar to a private market participant. For example, eligible organizations may pool FHA-insured and VA-guaranteed residential mortgage loans with Ginnie Mae in return for Mortgage-Backed Securities supported by the full faith and credit of the United States. In addition to this, qualified sellers may deliver conforming mortgage loans into Fannie Mae and Freddie Mac on relatively favorable terms, and this has continued since the initiation of each enterprise's conservatorship by the Federal Housing Finance Agency. Also, the Federal Home Loan Bank system provides funding secured by eligible residential mortgage loans to member banks. 1 These are the only quarter-ends at which Bank of America Corporation had outstanding advances under the Programs. Please refer to footnote 3 below concerning Merrill Lynch & Co., Inc. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission December 19, 2011 Page 5 of 7 The Corporation's Disclosure of the Programs The Corporation concluded that the salient information that needed to be conveyed to our investors was: • the existence of the ongoing financial crisis and economic slowdown and related risks to the Corporation, including risks to its funding and liquidity position, • the U.S. government and regulatory response to the systemic macroeconomic risks presented by the ongoing financial crisis, including the establishment of the Programs, • the availability of the Programs to the Corporation and the fact that the Corporation had accessed the Programs during certain periods and subsequently was no longer accessing the Programs (for the Annual Report on Form 10-K for the fiscal year ended December 31, 2009), and • the Corporation's liquidity position, including its aggregate short-term borrowings. The Corporation provided disclosure regarding the ongoing financial crisis and economic slowdown during the periods under discussion, including the risks of continued instability and volatility in the financial markets and the corresponding potential impact on the Corporation's funding and liquidity. Examples of this disclosure are provided on Exhibit B. In this context, the Corporation provided qualitative disclosure concerning the salient features of each of the Programs, its participation in the Programs, and its exit from the Programs in its Annual Reports on Form 10-K and, as applicable, Quarterly Reports on Form 10-Q for the periods under discussion. Examples of this disclosure are also provided on Exhibit B. Additionally, the Corporation provided quantitative disclosure regarding its use of short-term funding generally, segregated according to standard market metrics in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q during the periods under discussion. In accordance with Industry Guide 3, Statistical Disclosure by Bank Holding Companies (Industry Guide 3), we provided detailed quantitative disclosure in our Annual Reports on Form 10-K for the 2008 and 2009 fiscal years concerning our short-term borrowings, including for each category of short-term borrowings reported in the financial statements. All borrowings under the Programs were included in our disclosed short-term borrowing metrics. The Corporation also provided other qualitative and quantitative disclosure regarding the Corporation's short-term liabilities and associated liquidity risk management matters in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q during the periods under discussion. In preparing Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the Corporation focuses on known material events and uncertainties that would cause reported financial information not to be necessarily indicative of future operating performance or of future financial condition. The most significant information for investors regarding the Programs, which were widely available to and used by U.S. financial institutions during the periods under discussion, was the fact of their existence and their intended purpose to foster liquidity and continued market functioning during a period of historically significant stressed systemic, macroeconomic risk, and the fact that they were available to and used by the Corporation, rather than Program level quantitative detail for the Corporation, particularly considering the insignificance of our participation to the Corporation's overall funding levels and excess liquidity. The Corporation believed that Program specific quantitative disclosure would not have been significant to investors and would have assigned undue prominence both to the liquidity and funding available under the Programs (which was believed to be temporary in nature), and Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission December 19, 2011