SEC Company Response from BANK OF AMERICA (BAC) — Sep 28, 2012
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: Sept. 28, 2012 · CIK: 0000070858 · Accession: 0000070858-12-000352
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-06523
Referenced dates: May 25, 2012, May 3, 2012, September 4, 2012
Letter
United States Securities and Exchange Commission Division of Corporation Finance Form 10-Q for Quarterly Period Ended June 30, 2012 Filed August 2, 2012 Response Dated May 25, 2012 File No. 001-06523
Dear Ms. Hayes:
We have received and reviewed your letter dated September 4, 2012. 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. Terms used herein but not defined have the same meaning as in the referenced Form 10-K or Form 10-Q as applicable. We would be pleased to continue to work with the Staff in resolving any matter requiring further attention.
Form 10-K for Fiscal Year Ended December 31, 2011
Item 1A. Risk Factors
Mortgage and Housing Market-Related Risk, page 5
1.
We note your response to prior comment 1 of our letter dated May 3, 2012 and continue to believe that risk factor disclosure quantifying the portion of your residential loan portfolio consisting of HELOCs, home equity loans, reverse mortgages and loans in a second-lien or more junior position is appropriate. Please either expand your risk factor titled Further weaknesses in the U.S. housing market, including home prices, may adversely affect our consumer portfolios and have a significant adverse effect on our financial condition and results of operations or include an additional risk factor to include the requested information.
Response: We will expand our risk factors disclosure in future filings, beginning with the Form 10-K for the period ended December 31, 2012.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
September 28, 2012
Page 2 of 27
We temporarily suspended our foreclosure sales nationally in 2010 to conduct an assessment…,
page 7
2.
We note your response to prior comment 2 of our letter dated May 3, 2012 and note that at June 30, 2012, excluding the Countrywide PCI and fully-insured portfolios, 15% of your residential mortgage loan portfolio is concentrated in Florida and New York and 25% of your home equity loans are concentrated in New York, New Jersey and Florida. Please expand the risk factor discussion to disclose the concentrations in judicial states in the aggregate. Also include the information contained in your response regarding the backlog of foreclosure activity.
Response: We will expand our risk factors disclosure in future filings, beginning with the Form 10-K for the period ended December 31, 2012, to disclose the concentrations in judicial states in the aggregate. We will include the following, with the underlined words being new, in future filings.
We have resumed foreclosure sales in nearly all states where foreclosure does not require a court order (non-judicial states). While we have resumed foreclosure proceedings in nearly all states where a court order is required (judicial states), our progress on foreclosure sales in judicial states has been much slower than in non-judicial states. Excluding the Countrywide PCI and fully-insured portfolios, approximately [ ]% of our residential mortgage loan portfolio, including [ ]% of non-performing residential mortgage loans, and [ ]% of our home equity portfolio, including [ ]% of non-performing home equity loans, were in judicial states as of [period end date].
With regard to the Staff's request to “Also include the information contained in your response regarding the backlog of foreclosure activity.” In our prior response, we provided the Staff an illustrative example of the foreclosure backlog in judicial states which included Industry Standard timelines prepared and published by the GSEs. As we do not prepare this information, we cannot verify or confirm its accuracy or completeness with the level of confidence and control required we have for our information. Accordingly, we do not believe it is appropriate to include this GSE-prepared timeline information in our Securities Exchange Act of 1934 reports. However, in future filings, we will include the following sentence to address the backlog of foreclosure activity.
There continues to be a backlog of foreclosure inventory in judicial states as the process of obtaining a court order can significantly increase the time required to complete a foreclosure.
Additionally, in future filings our tables that disclose our state concentrations in residential mortgage loans and home equity loans (Tables 25 and 27 in the Form 10-K for the period ended December 31, 2011), will be expanded to add a footnote that will reference which states in the table are judicial states.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
September 28, 2012
Page 3 of 27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Complex Accounting Estimates, page 120
Goodwill and Intangible Assets, page 124
3.
We note your response to prior comment 3 of our letter dated May 3, 2012 as well as your disclosure on page 124 that you use the reporting units' allocated equity (which includes economic capital, goodwill and a portion of intangible assets) as a proxy for the carrying amount of equity for each reporting unit in your goodwill impairment tests. Please address the following with respect to your calculation of economic capital:
a.
Please tell us whether you calculate economic capital on a legal entity basis in addition to at the reporting unit and segment levels. If so, please tell us if the economic capital calculation is greater or less than required regulatory capital, and quantify the average difference. If there have been significant changes in this relationship over the last two years, please describe the reasons for, and the magnitude of, the difference.
Response: We do not calculate economic capital on a stand-alone legal entity basis, only at the reporting unit and segment levels. Our segments and reporting units are not comprised solely of specific legal entities. Instead, certain assets and liabilities are assigned to a segment and reporting unit based on their function (e.g., certain commercial loans are assigned to Global Banking), with such assets and liabilities actually held in multiple legal entities. Regulatory capital, as reported on the FR Y-9C and Call reports (for banking subsidiaries), is calculated only for regulated legal entities and is based solely on the assets and liabilities owned by the legal entity. If we calculated economic capital for a legal entity, it would be impractical to compare the results to the economic capital of our segment or reporting units. While not a perfect comparison, the minimum Tier 1 capital needed for BAC to be considered a “well-capitalized” bank holding company is approximately $77 billion. The economic capital of our reporting units, including $25 billion of economic capital for businesses in the All Other category, was approximately $110 billion as of December 31, 2011.
b.
Please clarify whether you estimate a hypothetical regulatory capital requirement at the reporting unit level. If so, please provide us with this information. In addition, please also tell us whether a market participant, in a hypothetical sales transaction to purchase a reporting unit, would require sufficient capital in the reporting unit to meet regulatory requirements.
Response: As explained in our response letter dated May 25, 2012, in our analysis we utilized an economic capital methodology to allocate equity to our segments and reporting units. This allocation methodology was derived from the Corporation's target rating of maintaining a risk profile consistent with a AA rating. Using the capital requirements for these credit ratings is a reliable benchmark that has been consistently applied period over period among the various segments and reporting units. If our reporting units were each operating as independent entities, we believe compliance with these credit ratings results in capital levels that a market participant would require for the reporting units. We further believe that in
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
September 28, 2012
Page 4 of 27
order to maintain these credit ratings, which Moody's and Standard & Poor's reserve for securities they consider to be of high credit quality, the associated capital levels would need to include the applicable minimum regulatory capital requirements. We believe our economic capital allocation methodology, which includes a portion of goodwill and intangibles specifically assigned to the business segments,
included the hypothetical regulatory capital requirements that the market would impose if each of our reporting units were separate legal entities. While there is not a specific estimate for a hypothetical regulatory capital requirement in our allocation process, we believe the process resulted in the incorporation of hypothetical regulatory capital requirements in the allocated capital of the reporting units.
c.
In your response, you state that you maintain a capital buffer at the consolidated parent for regulatory capital purposes. Please tell us whether you maintain a similar capital buffer at your regulated subsidiaries. If so, please quantify the average capital buffer amount. Please also discuss your formal policy regarding capital levels, including how the consolidated parent and its subsidiaries meet or exceed regulatory capital minimums.
Response: We assume your question relates to the “capital buffer” for regulatory capital purposes representing the difference between actual Tier 1 capital and the minimum required Tier 1 regulatory capital to meet the definition of “well-capitalized” promulgated by banking supervisors. We maintain a capital buffer for regulatory capital purposes at the consolidated parent (BAC), Bank of America, National Association (BANA) and FIA Card Services, National Association (FIA). The average Regulatory Tier I “capital buffer” amounts were $91.5 billion for BAC, $62.5 billion for BANA and $13.8 billion for FIA, as of June 30, 2012. The average was calculated based on the quarter end amounts for March 31, 2012 and June 30, 2012. As a comparison, the average Regulatory Tier I “capital buffer” at June 30, 2011 and 2010 for BAC was approximately $73 billion and $67 billion, respectively.
The capital management policies for BAC, BANA and FIA require them to have robust processes for assessing capital adequacy and to establish capital adequacy tripwires and goals. Both quantitative and qualitative methods are employed in the company's internal capital adequacy assessment process, including comprehensive enterprise stress testing, peer and market analysis, and internal and regulatory risk based capital measures to assess capital adequacy in relation to risk. The capital adequacy tripwires and capital goals are periodically re-evaluated, and reset as needed. The capital adequacy tripwires ensure the entities maintain a sufficient capital buffer to regulatory minimums even under adverse conditions (the company uses both internally developed stress scenarios as well as the Federal Reserve's severe stress scenario). The tripwires are capital levels above which the entities will operate and serve as early warning signals to prompt senior management to take action to improve the entities' capital position in the event that reported capital levels are below the tripwires. The capital management policies also establish the entities' capital goals, which are capital levels set to exceed diversified economic capital requirements and regulatory capital minimum levels over the planning horizon while also allowing the entities to support their respective risk profiles and strategic plans under stressed conditions.
d.
If a capital buffer is necessary at the consolidated parent level, please tell us why a similar capital buffer would not also be needed at the subsidiary or reporting unit level.
Response: In regards to capital buffers at the subsidiary level, please see the response above in regards to
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
September 28, 2012
Page 5 of 27
regulatory capital requirements for our regulated bank subsidiaries. In responding to this question, we are assuming that you are referring to a similar percentage of capital buffer and not a similar dollar amount of capital buffer. We believe the allocated capital reflected the equity that the market would impose if they were standalone entities based on the risk exposures of those reporting units. We do not believe that all of the capital strategies implemented at the consolidated parent level would be applicable to reporting units. For example, the capital rules for systemically important financial institution (SIFI) would not apply at the same level to reporting units in which the market participant is not likely to be a SIFI. As another example, where a consolidated parent controls multiple operating businesses, it may choose to maintain a certain level of capital buffer at the consolidated level for deployment if an expected opportunity arises at one of the businesses or if some other unexpected event occurs. One of the benefits provided by the consolidated parent is that it would have the ability to quickly move capital to take advantage of those opportunities. Therefore, capital strategies that result in excess capital applicable only to the consolidated parent level would not be needed at the reporting unit level unless the market would impose a capital buffer (in a hypothetical sales transaction) in which case that capital buffer would be required to maintain the above rating classifications and then captured in our allocation process. As markets evolve, we have and continue to reassess our allocated capital methodology to consider these market factors.
4.
We note from your response and the table on page 54 that average allocated equity in your All Other segment was $72.1 billion in 2011. Please quantify the amounts of (a) required capital and (b) excess capital or residual capital that make up the $72.1 billion.
Response: The average allocated equity in All Other of $72.1 billion consisted of approximately $25.0 billion of required “economic” capital for various strategic and equity securities and liquidating businesses included in All Other and $47.1 billion of excess capital primarily related to increases in cash and highly liquid assets related to the Corporation's strategy to increase its liquidity profile, as described in our MD&A of Liquidity Risk.
a.
With respect to the excess capital or residual capital amount, please describe the significant assets and liabilities that comprise that equity balance. In your discussion, please describe how those significant assets and liabilities were specifically identified given your approach for determining the carrying value of a reporting unit based on an economic capital calculation.
Response: Important to considering the assets and liabilities that comprise the equity balance in All Other is that assets and liabilities that are not specifically deployed to or utilized in a segment are assigned to All Other. The majority of these items would be assets and liabilities used in the Corporation's Asset Liability Management (“ALM”) activities, including the Corporation's liquidity portfolio. Other items included in All Other would be strategic and equity securities and liquidating businesses such as the international credit card business. For the allocated equity of All Other, a required ca
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CORRESP 1 filename1.htm BAC Response 092812 September 28, 2012 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 Form 10-K for Fiscal Year Ended December 31, 2011 Filed February 23, 2012 Form 10-Q for Quarterly Period Ended June 30, 2012 Filed August 2, 2012 Response Dated May 25, 2012 File No. 001-06523 Dear Ms. Hayes: We have received and reviewed your letter dated September 4, 2012. 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. Terms used herein but not defined have the same meaning as in the referenced Form 10-K or Form 10-Q as applicable. We would be pleased to continue to work with the Staff in resolving any matter requiring further attention. Form 10-K for Fiscal Year Ended December 31, 2011 Item 1A. Risk Factors Mortgage and Housing Market-Related Risk, page 5 1. We note your response to prior comment 1 of our letter dated May 3, 2012 and continue to believe that risk factor disclosure quantifying the portion of your residential loan portfolio consisting of HELOCs, home equity loans, reverse mortgages and loans in a second-lien or more junior position is appropriate. Please either expand your risk factor titled Further weaknesses in the U.S. housing market, including home prices, may adversely affect our consumer portfolios and have a significant adverse effect on our financial condition and results of operations or include an additional risk factor to include the requested information. Response: We will expand our risk factors disclosure in future filings, beginning with the Form 10-K for the period ended December 31, 2012. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission September 28, 2012 Page 2 of 27 We temporarily suspended our foreclosure sales nationally in 2010 to conduct an assessment…, page 7 2. We note your response to prior comment 2 of our letter dated May 3, 2012 and note that at June 30, 2012, excluding the Countrywide PCI and fully-insured portfolios, 15% of your residential mortgage loan portfolio is concentrated in Florida and New York and 25% of your home equity loans are concentrated in New York, New Jersey and Florida. Please expand the risk factor discussion to disclose the concentrations in judicial states in the aggregate. Also include the information contained in your response regarding the backlog of foreclosure activity. Response: We will expand our risk factors disclosure in future filings, beginning with the Form 10-K for the period ended December 31, 2012, to disclose the concentrations in judicial states in the aggregate. We will include the following, with the underlined words being new, in future filings. We have resumed foreclosure sales in nearly all states where foreclosure does not require a court order (non-judicial states). While we have resumed foreclosure proceedings in nearly all states where a court order is required (judicial states), our progress on foreclosure sales in judicial states has been much slower than in non-judicial states. Excluding the Countrywide PCI and fully-insured portfolios, approximately [ ]% of our residential mortgage loan portfolio, including [ ]% of non-performing residential mortgage loans, and [ ]% of our home equity portfolio, including [ ]% of non-performing home equity loans, were in judicial states as of [period end date]. With regard to the Staff's request to “Also include the information contained in your response regarding the backlog of foreclosure activity.” In our prior response, we provided the Staff an illustrative example of the foreclosure backlog in judicial states which included Industry Standard timelines prepared and published by the GSEs. As we do not prepare this information, we cannot verify or confirm its accuracy or completeness with the level of confidence and control required we have for our information. Accordingly, we do not believe it is appropriate to include this GSE-prepared timeline information in our Securities Exchange Act of 1934 reports. However, in future filings, we will include the following sentence to address the backlog of foreclosure activity. There continues to be a backlog of foreclosure inventory in judicial states as the process of obtaining a court order can significantly increase the time required to complete a foreclosure. Additionally, in future filings our tables that disclose our state concentrations in residential mortgage loans and home equity loans (Tables 25 and 27 in the Form 10-K for the period ended December 31, 2011), will be expanded to add a footnote that will reference which states in the table are judicial states. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission September 28, 2012 Page 3 of 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Complex Accounting Estimates, page 120 Goodwill and Intangible Assets, page 124 3. We note your response to prior comment 3 of our letter dated May 3, 2012 as well as your disclosure on page 124 that you use the reporting units' allocated equity (which includes economic capital, goodwill and a portion of intangible assets) as a proxy for the carrying amount of equity for each reporting unit in your goodwill impairment tests. Please address the following with respect to your calculation of economic capital: a. Please tell us whether you calculate economic capital on a legal entity basis in addition to at the reporting unit and segment levels. If so, please tell us if the economic capital calculation is greater or less than required regulatory capital, and quantify the average difference. If there have been significant changes in this relationship over the last two years, please describe the reasons for, and the magnitude of, the difference. Response: We do not calculate economic capital on a stand-alone legal entity basis, only at the reporting unit and segment levels. Our segments and reporting units are not comprised solely of specific legal entities. Instead, certain assets and liabilities are assigned to a segment and reporting unit based on their function (e.g., certain commercial loans are assigned to Global Banking), with such assets and liabilities actually held in multiple legal entities. Regulatory capital, as reported on the FR Y-9C and Call reports (for banking subsidiaries), is calculated only for regulated legal entities and is based solely on the assets and liabilities owned by the legal entity. If we calculated economic capital for a legal entity, it would be impractical to compare the results to the economic capital of our segment or reporting units. While not a perfect comparison, the minimum Tier 1 capital needed for BAC to be considered a “well-capitalized” bank holding company is approximately $77 billion. The economic capital of our reporting units, including $25 billion of economic capital for businesses in the All Other category, was approximately $110 billion as of December 31, 2011. b. Please clarify whether you estimate a hypothetical regulatory capital requirement at the reporting unit level. If so, please provide us with this information. In addition, please also tell us whether a market participant, in a hypothetical sales transaction to purchase a reporting unit, would require sufficient capital in the reporting unit to meet regulatory requirements. Response: As explained in our response letter dated May 25, 2012, in our analysis we utilized an economic capital methodology to allocate equity to our segments and reporting units. This allocation methodology was derived from the Corporation's target rating of maintaining a risk profile consistent with a AA rating. Using the capital requirements for these credit ratings is a reliable benchmark that has been consistently applied period over period among the various segments and reporting units. If our reporting units were each operating as independent entities, we believe compliance with these credit ratings results in capital levels that a market participant would require for the reporting units. We further believe that in Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission September 28, 2012 Page 4 of 27 order to maintain these credit ratings, which Moody's and Standard & Poor's reserve for securities they consider to be of high credit quality, the associated capital levels would need to include the applicable minimum regulatory capital requirements. We believe our economic capital allocation methodology, which includes a portion of goodwill and intangibles specifically assigned to the business segments, included the hypothetical regulatory capital requirements that the market would impose if each of our reporting units were separate legal entities. While there is not a specific estimate for a hypothetical regulatory capital requirement in our allocation process, we believe the process resulted in the incorporation of hypothetical regulatory capital requirements in the allocated capital of the reporting units. c. In your response, you state that you maintain a capital buffer at the consolidated parent for regulatory capital purposes. Please tell us whether you maintain a similar capital buffer at your regulated subsidiaries. If so, please quantify the average capital buffer amount. Please also discuss your formal policy regarding capital levels, including how the consolidated parent and its subsidiaries meet or exceed regulatory capital minimums. Response: We assume your question relates to the “capital buffer” for regulatory capital purposes representing the difference between actual Tier 1 capital and the minimum required Tier 1 regulatory capital to meet the definition of “well-capitalized” promulgated by banking supervisors. We maintain a capital buffer for regulatory capital purposes at the consolidated parent (BAC), Bank of America, National Association (BANA) and FIA Card Services, National Association (FIA). The average Regulatory Tier I “capital buffer” amounts were $91.5 billion for BAC, $62.5 billion for BANA and $13.8 billion for FIA, as of June 30, 2012. The average was calculated based on the quarter end amounts for March 31, 2012 and June 30, 2012. As a comparison, the average Regulatory Tier I “capital buffer” at June 30, 2011 and 2010 for BAC was approximately $73 billion and $67 billion, respectively. The capital management policies for BAC, BANA and FIA require them to have robust processes for assessing capital adequacy and to establish capital adequacy tripwires and goals. Both quantitative and qualitative methods are employed in the company's internal capital adequacy assessment process, including comprehensive enterprise stress testing, peer and market analysis, and internal and regulatory risk based capital measures to assess capital adequacy in relation to risk. The capital adequacy tripwires and capital goals are periodically re-evaluated, and reset as needed. The capital adequacy tripwires ensure the entities maintain a sufficient capital buffer to regulatory minimums even under adverse conditions (the company uses both internally developed stress scenarios as well as the Federal Reserve's severe stress scenario). The tripwires are capital levels above which the entities will operate and serve as early warning signals to prompt senior management to take action to improve the entities' capital position in the event that reported capital levels are below the tripwires. The capital management policies also establish the entities' capital goals, which are capital levels set to exceed diversified economic capital requirements and regulatory capital minimum levels over the planning horizon while also allowing the entities to support their respective risk profiles and strategic plans under stressed conditions. d. If a capital buffer is necessary at the consolidated parent level, please tell us why a similar capital buffer would not also be needed at the subsidiary or reporting unit level. Response: In regards to capital buffers at the subsidiary level, please see the response above in regards to Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission September 28, 2012 Page 5 of 27 regulatory capital requirements for our regulated bank subsidiaries. In responding to this question, we are assuming that you are referring to a similar percentage of capital buffer and not a similar dollar amount of capital buffer. We believe the allocated capital reflected the equity that the market would impose if they were standalone entities based on the risk exposures of those reporting units. We do not believe that all of the capital strategies implemented at the consolidated parent level would be applicable to reporting units. For example, the capital rules for systemically important financial institution (SIFI) would not apply at the same level to reporting units in which the market participant is not likely to be a SIFI. As another example, where a consolidated parent controls multiple operating businesses, it may choose to maintain a certain level of capital buffer at the consolidated level for deployment if an expected opportunity arises at one of the businesses or if some other unexpected event occurs. One of the benefits provided by the consolidated parent is that it would have the ability to quickly move capital to take advantage of those opportunities. Therefore, capital strategies that result in excess capital applicable only to the consolidated parent level would not be needed at the reporting unit level unless the market would impose a capital buffer (in a hypothetical sales transaction) in which case that capital buffer would be required to maintain the above rating classifications and then captured in our allocation process. As markets evolve, we have and continue to reassess our allocated capital methodology to consider these market factors. 4. We note from your response and the table on page 54 that average allocated equity in your All Other segment was $72.1 billion in 2011. Please quantify the amounts of (a) required capital and (b) excess capital or residual capital that make up the $72.1 billion. Response: The average allocated equity in All Other of $72.1 billion consisted of approximately $25.0 billion of required “economic” capital for various strategic and equity securities and liquidating businesses included in All Other and $47.1 billion of excess capital primarily related to increases in cash and highly liquid assets related to the Corporation's strategy to increase its liquidity profile, as described in our MD&A of Liquidity Risk. a. With respect to the excess capital or residual capital amount, please describe the significant assets and liabilities that comprise that equity balance. In your discussion, please describe how those significant assets and liabilities were specifically identified given your approach for determining the carrying value of a reporting unit based on an economic capital calculation. Response: Important to considering the assets and liabilities that comprise the equity balance in All Other is that assets and liabilities that are not specifically deployed to or utilized in a segment are assigned to All Other. The majority of these items would be assets and liabilities used in the Corporation's Asset Liability Management (“ALM”) activities, including the Corporation's liquidity portfolio. Other items included in All Other would be strategic and equity securities and liquidating businesses such as the international credit card business. For the allocated equity of All Other, a required ca