SEC Company Response from BANK OF AMERICA (BAC) — Nov 9, 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: Nov. 9, 2012 · CIK: 0000070858 · Accession: 0000070858-12-000367
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-06523
Referenced dates: October 19, 2012, September 4, 2012
Letter
United States Securities and Exchange Commission Division of Corporation Finance Form 10-Q for the Quarterly Period Ended June 30, 2012 Filed August 2, 2012 Response Dated September 28, 2012 File No. 001-06523
Dear Ms. Hayes:
We have received and reviewed your letter dated October 19, 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.
General
1.
In your response to several of our comments you agreed to provide certain disclosure revisions in your future filings; however you did not provide us with a draft of your proposed disclosures as requested. We may have additional comments once we review your revised disclosures.
Response: For your convenience we have attached the above referenced disclosures, which were included in our Form 10-Q for the Quarterly Period ended September 30, 2012, as an appendix (Appendix A) to this letter. There were certain requests to expand our discussion of our risk factors, of which we agreed to include beginning in our Form 10-K for the year ended December 31, 2012 (From 10-K). These are not included in Appendix A as they will be completed with the Form 10-K.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
November 9, 2012
Page 2 of 10
Rule 83 confidential treatment request made by Bank of America Corporation
Form 10-K for Fiscal Year Ended December 31, 2011
Item 1A. Risk Factors
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 September 4, 2012. Please include the percentage of Countrywide PCI portfolio in the calculation of your residential mortgage loan portfolio that is concentrated in judicial states.
Response: While our response to your prior comment 2 of your letter dated September 4, 2012 letter indicated we planned to exclude the Countrywide PCI and fully insured portfolios from the risk factor disclosure, we will adjust the disclosure so that it includes the Countrywide PCI portfolio. Therefore, the risk factor disclosures in future filings, beginning with the Form 10-K for the period ended December 31, 2012, will include the following, with the underlined words being new as compared to prior 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 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].
Management's Discussion and Analysis of Financial Condition and Results of Operations
Complex Accounting Estimates - Goodwill and Intangible Assets, page 124
3. We note your responses to prior comments 3 - 4 of our letter dated September 4, 2012. In an effort to further understand your use of economic capital as a proxy for the carrying value of your reporting units for purposes of your goodwill impairment testing, please address the following:
a.
Provide us with the required economic capital balance for each of your reportable segments, including All Other, as of June 30, 2011 and reconcile the total economic capital of your reportable segments to consolidated shareholders' equity as of that date. Please ensure that the balances provided are period-end balances as opposed to average amounts.
Response: Our proxy for the carrying value of our reporting units is represented by a calculated amount (Allocated Equity) which is the sum of a reporting segment's economic capital, plus an allocation of equity equivalent to 100% of its goodwill and a portion of the intangibles applicable to the reporting unit. As described in our response to your comment 3b in your letter dated September 4, 2012, our estimate of economic capital is derived from the amount of capital each reporting segment would require to maintain a risk profile consistent with a AA rating. *[REDACTED]*
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
November 9, 2012
Page 3 of 10
Rule 83 confidential treatment request made by Bank of America Corporation
*[REDACTED]*
b.
Confirm our understanding that the net book value of the All Other segment equals its required economic capital balance plus any excess/residual capital of the Company.
Response: That is correct; the net book value of the All Other category equals its “Allocated Equity” plus the excess/residual capital of the Company.
c.
With respect to the net book value of the All Other segment as of June 30, 2011, provide us with the following:
i.
Quantify and describe the significant assets and liabilities that comprise the net book value of this segment after any hypothetical transfers of assets and liabilities to other segments.
Response: Included in the All Other category are certain liquidating businesses (e.g. student lending, manufactured housing lending and subprime lending businesses), Global Principal Investing (GPI) and strategic equity investments that are managed on a standalone basis. The assets and liabilities that comprise the net book value of the businesses and investments were approximately $10 billion in loans, $31 billion in securities, and $2 billion of miscellaneous liabilities as of June 30, 2011. The remaining portion of the assets and liabilities that comprise the net book value of the All Other category, after hypothetical allocations, is not specifically identifiable due to how we manage our ALM activities and the related allocation methodologies, as described in our response to comment 4a of your letter dated September 4, 2012.
*[REDACTED]*
The process to allocate assets and liabilities to the reporting segments is to first identify the carrying value of a reporting unit's specific assets and/or liabilities along with its Allocated Equity. After which, we allocate hypothetical assets and/or liabilities from the All Other category to the reporting segments at amounts equal to the difference between the reporting segment's specific net assets and Allocated Equity, (i.e., to balance the assets to equal liabilities plus equity). These assigned hypothetical assets and/or liabilities are not specific assets and liabilities but are hypothetical and assumed to have terms (e.g., interest rate and maturity characteristics) consistent with the prices the reporting units absorbed through the funds transfer pricing process. These hypothetical assets or liabilities are also deducted from the All Other assets and liabilities. This allocation is essentially a balancing entry where one amount is deducted from All Other and added to the applicable reporting segment. From a fair value perspective, these allocated assets and/or liabilities are assumed to have terms (e.g., interest rate and maturity characteristics) consistent with the costs the reporting units absorbed through the funds transfer pricing process. *[REDACTED]*
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
November 9, 2012
Page 4 of 10
Rule 83 confidential treatment request made by Bank of America Corporation
*[REDACTED]*
In regards to the residual or remaining $209 billion of assets and $149 billion of liabilities in All Other after the hypothetical transfers, $41 billion of assets and $2 billion of liabilities represent the liquidating businesses and GPI and strategic equity investments leaving $168 billion of assets and $147 billion of liabilities remaining in All Other. As described above, it is not feasible to select the specific portion of the assets and liabilities that were hypothetically transferred or determine the exact make-up of the remaining $168 billion assets and $147 billion of liabilities in All Other. However, as the specific assets and liabilities of the reporting segments consist of interest rate sensitive (e.g., rates duration) assets and/or funding liabilities, the hypothetical assets and liabilities transferred to the reporting units should have similar interest rate sensitivities as the specific assets and liabilities of the reporting segments so that their costs are consistent to the costs absorbed in the funds transfer pricing process. Therefore, if we went through a process to identify the specific portion of the ALM assets and liabilities that matched the hypothetical transfers, the remaining assets of All Other would be expected to largely consist of non-interest rate sensitive assets and liabilities. For example, as listed above, as of June 30, 2011, we had approximately $120 billion of cash and cash equivalents assigned to All Other. We believe this asset would comprise a significant portion of the $168 billion of assets remaining in All Other. Similarly, we would expect that the $147 billion of liabilities remaining in All Other after allocations would be a variety of non-interest rate sensitive products that would match the remaining assets in All Other. Because these assets are not considered in the fair value of the reporting segments, we do not allocate these remaining assets and liabilities from the All Other category.
Discussion of alternative view related to “excess/residual capital”
Although we disagree with this view, as an alternative to our approach to allocate equity to the reporting segments, we could apply a methodology to allocate the $32 billion of “excess/residual capital”. In addition to our reporting segments results not being measured in this manner, it also results in requiring the reporting units to absorb certain parent capital buffers (e.g., future SIFI requirements, future Basel 3 requirements) that we do not believe would apply to the reporting segments on a standalone basis as of June 30, 2011. Nevertheless, if we did allocate out the $32 billion of “excess/residual capital” it is important to consider that we would also need to allocate the remaining $32 billion of net assets in All Other. This allocation would be needed to allow the reporting units assets to equal their liabilities and equity. As these assets and liabilities remaining in All Other would generally be non-interest rate sensitive items, we would expect the fair value of these assets and liabilities to be near their carrying values. Therefore, the $32 billion of net assets transferred to the reporting units would be considered excess assets to a buyer in a hypothetical sale resulting in a simultaneous increase in fair value and carrying value of each reporting segment. This allocation result would also apply to our reporting units. We do not perform this step as it is inconsistent with how we measure the results of the reporting segments. Additionally, since the allocation would result in a simultaneous increase to the net book value and fair value of our reporting units, it would have no effect on the goodwill analysis. As we described in our response to comment 3b of your September 4, 2012 letter, we believe our allocation methodology results in capital levels that a market participant would require for the reporting segments. Therefore, we do not believe an allocation of the “excess/residual” capital in All Other along with the excess net assets is appropriate or meaningful.
ii.
If feasible, separately quantify those assets and liabilities in the All Other segment that are included in the required economic capital balance vs. the excess/residual capital balance.
Ms. Suzanne Hayes
Assistant Director
United States Securities and Exchange Commission
November 9, 2012
Page 5 of 10
Response: As discussed above, the total assets and liabilities in the All Other category that are included in the Allocated Equity balances as of June 30, 2011 were approximately $41 billion and $2 billion, respectively. These assets and liabilities relate to the liquidating businesses, GPI and strategic equity investments of the Company.
iii.
Provide further disaggregation of the assets and liabilities in All Other by business (or function). For example, quantify the amount of loans for which economic capital was required that are part of your international credit card business, your legacy asset servicing business or your ALM activities.
Response: In regards to the businesses noted in your comment, as of June 30, 2011, the international card business was not part of the All Other category. During the third quarter of 2011, this business was transferred to All Other and subsequently reclassified to All Other in future filings. The legacy asset servicing business is not a standalone business but is a group of loan types (prime option plus, etc.) that we no longer originate or own in any of the reporting segments. The servicing related to these loans is performed by our Consumer Real Estate Services reporting segment. These loans are included in the $259 billion of loans in All Other, prior to hypothetical allocations. The total assets of the liquidating businesses and GPI and equity investments as of June 30, 2011 were approximately $10 billion, which was substantially all loans, and $31 billion, respectively. There were $2 billion of liabilities associated with the liquidating businesses.
Form 10-Q for Quarterly Period Ended June 30, 2012
Non-U.S. Portfolio, page 114
Table 62 - Selected European Countries, page 117
4.
We note your response to prior comment 12 of our letter dated September 4, 2012 as well as your disclosure on page 116 of your gross notional amount of single-name CDS purchased and sold on referenced assets and your disclosure in footnote 3 to the table where you state that securities exposures are reduced by hedges and short positions on a single-name basis. Please confirm that you have not reflected any indexed or tranched purchased credit derivatives in your table, including in the column titled hedges and credit default protection. To the extent that you have included indexed or tranched purchased credit derivatives in your table, please expand your disclosure to discuss this fact, separately quantify the amount of this protection, and disclose how the amounts are reflected amongst the different countries and counterparties.
Response: We expanded the footnotes to provide further clarification of the above exposures. Because the total amount of exposure to all of the counterparties and countries is not significant, we are only reflecting the totals in a footnote versus presenting them amongst the different countries and counterparties. Following are the expanded footnotes to the table as included in our Form 10-Q for the Quarterly Period ended September 30, 2012:
(3) Long securities exposures have been netted on a single-name basis to but not below zero by short positions of $3.9 billion and net CDS purchased of $2.1 billion, consisting of $2.3 billion of net single-name CDS purchased and $14
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CORRESP 1 filename1.htm BAC Response 10.19.2012 Confidential Treatment of Portions of this Letter Has Been Requested by Bank of America Corporation Pursuant to 17 C.F.R. § 200.83. Asterisks denote such portions. November 9, 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 the Fiscal Year Ended December 31, 2011 Filed February 23, 2012 Form 10-Q for the Quarterly Period Ended June 30, 2012 Filed August 2, 2012 Response Dated September 28, 2012 File No. 001-06523 Dear Ms. Hayes: We have received and reviewed your letter dated October 19, 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. General 1. In your response to several of our comments you agreed to provide certain disclosure revisions in your future filings; however you did not provide us with a draft of your proposed disclosures as requested. We may have additional comments once we review your revised disclosures. Response: For your convenience we have attached the above referenced disclosures, which were included in our Form 10-Q for the Quarterly Period ended September 30, 2012, as an appendix (Appendix A) to this letter. There were certain requests to expand our discussion of our risk factors, of which we agreed to include beginning in our Form 10-K for the year ended December 31, 2012 (From 10-K). These are not included in Appendix A as they will be completed with the Form 10-K. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission November 9, 2012 Page 2 of 10 Rule 83 confidential treatment request made by Bank of America Corporation Form 10-K for Fiscal Year Ended December 31, 2011 Item 1A. Risk Factors 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 September 4, 2012. Please include the percentage of Countrywide PCI portfolio in the calculation of your residential mortgage loan portfolio that is concentrated in judicial states. Response: While our response to your prior comment 2 of your letter dated September 4, 2012 letter indicated we planned to exclude the Countrywide PCI and fully insured portfolios from the risk factor disclosure, we will adjust the disclosure so that it includes the Countrywide PCI portfolio. Therefore, the risk factor disclosures in future filings, beginning with the Form 10-K for the period ended December 31, 2012, will include the following, with the underlined words being new as compared to prior 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 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]. Management's Discussion and Analysis of Financial Condition and Results of Operations Complex Accounting Estimates - Goodwill and Intangible Assets, page 124 3. We note your responses to prior comments 3 - 4 of our letter dated September 4, 2012. In an effort to further understand your use of economic capital as a proxy for the carrying value of your reporting units for purposes of your goodwill impairment testing, please address the following: a. Provide us with the required economic capital balance for each of your reportable segments, including All Other, as of June 30, 2011 and reconcile the total economic capital of your reportable segments to consolidated shareholders' equity as of that date. Please ensure that the balances provided are period-end balances as opposed to average amounts. Response: Our proxy for the carrying value of our reporting units is represented by a calculated amount (Allocated Equity) which is the sum of a reporting segment's economic capital, plus an allocation of equity equivalent to 100% of its goodwill and a portion of the intangibles applicable to the reporting unit. As described in our response to your comment 3b in your letter dated September 4, 2012, our estimate of economic capital is derived from the amount of capital each reporting segment would require to maintain a risk profile consistent with a AA rating. *[REDACTED]* Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission November 9, 2012 Page 3 of 10 Rule 83 confidential treatment request made by Bank of America Corporation *[REDACTED]* b. Confirm our understanding that the net book value of the All Other segment equals its required economic capital balance plus any excess/residual capital of the Company. Response: That is correct; the net book value of the All Other category equals its “Allocated Equity” plus the excess/residual capital of the Company. c. With respect to the net book value of the All Other segment as of June 30, 2011, provide us with the following: i. Quantify and describe the significant assets and liabilities that comprise the net book value of this segment after any hypothetical transfers of assets and liabilities to other segments. Response: Included in the All Other category are certain liquidating businesses (e.g. student lending, manufactured housing lending and subprime lending businesses), Global Principal Investing (GPI) and strategic equity investments that are managed on a standalone basis. The assets and liabilities that comprise the net book value of the businesses and investments were approximately $10 billion in loans, $31 billion in securities, and $2 billion of miscellaneous liabilities as of June 30, 2011. The remaining portion of the assets and liabilities that comprise the net book value of the All Other category, after hypothetical allocations, is not specifically identifiable due to how we manage our ALM activities and the related allocation methodologies, as described in our response to comment 4a of your letter dated September 4, 2012. *[REDACTED]* The process to allocate assets and liabilities to the reporting segments is to first identify the carrying value of a reporting unit's specific assets and/or liabilities along with its Allocated Equity. After which, we allocate hypothetical assets and/or liabilities from the All Other category to the reporting segments at amounts equal to the difference between the reporting segment's specific net assets and Allocated Equity, (i.e., to balance the assets to equal liabilities plus equity). These assigned hypothetical assets and/or liabilities are not specific assets and liabilities but are hypothetical and assumed to have terms (e.g., interest rate and maturity characteristics) consistent with the prices the reporting units absorbed through the funds transfer pricing process. These hypothetical assets or liabilities are also deducted from the All Other assets and liabilities. This allocation is essentially a balancing entry where one amount is deducted from All Other and added to the applicable reporting segment. From a fair value perspective, these allocated assets and/or liabilities are assumed to have terms (e.g., interest rate and maturity characteristics) consistent with the costs the reporting units absorbed through the funds transfer pricing process. *[REDACTED]* Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission November 9, 2012 Page 4 of 10 Rule 83 confidential treatment request made by Bank of America Corporation *[REDACTED]* In regards to the residual or remaining $209 billion of assets and $149 billion of liabilities in All Other after the hypothetical transfers, $41 billion of assets and $2 billion of liabilities represent the liquidating businesses and GPI and strategic equity investments leaving $168 billion of assets and $147 billion of liabilities remaining in All Other. As described above, it is not feasible to select the specific portion of the assets and liabilities that were hypothetically transferred or determine the exact make-up of the remaining $168 billion assets and $147 billion of liabilities in All Other. However, as the specific assets and liabilities of the reporting segments consist of interest rate sensitive (e.g., rates duration) assets and/or funding liabilities, the hypothetical assets and liabilities transferred to the reporting units should have similar interest rate sensitivities as the specific assets and liabilities of the reporting segments so that their costs are consistent to the costs absorbed in the funds transfer pricing process. Therefore, if we went through a process to identify the specific portion of the ALM assets and liabilities that matched the hypothetical transfers, the remaining assets of All Other would be expected to largely consist of non-interest rate sensitive assets and liabilities. For example, as listed above, as of June 30, 2011, we had approximately $120 billion of cash and cash equivalents assigned to All Other. We believe this asset would comprise a significant portion of the $168 billion of assets remaining in All Other. Similarly, we would expect that the $147 billion of liabilities remaining in All Other after allocations would be a variety of non-interest rate sensitive products that would match the remaining assets in All Other. Because these assets are not considered in the fair value of the reporting segments, we do not allocate these remaining assets and liabilities from the All Other category. Discussion of alternative view related to “excess/residual capital” Although we disagree with this view, as an alternative to our approach to allocate equity to the reporting segments, we could apply a methodology to allocate the $32 billion of “excess/residual capital”. In addition to our reporting segments results not being measured in this manner, it also results in requiring the reporting units to absorb certain parent capital buffers (e.g., future SIFI requirements, future Basel 3 requirements) that we do not believe would apply to the reporting segments on a standalone basis as of June 30, 2011. Nevertheless, if we did allocate out the $32 billion of “excess/residual capital” it is important to consider that we would also need to allocate the remaining $32 billion of net assets in All Other. This allocation would be needed to allow the reporting units assets to equal their liabilities and equity. As these assets and liabilities remaining in All Other would generally be non-interest rate sensitive items, we would expect the fair value of these assets and liabilities to be near their carrying values. Therefore, the $32 billion of net assets transferred to the reporting units would be considered excess assets to a buyer in a hypothetical sale resulting in a simultaneous increase in fair value and carrying value of each reporting segment. This allocation result would also apply to our reporting units. We do not perform this step as it is inconsistent with how we measure the results of the reporting segments. Additionally, since the allocation would result in a simultaneous increase to the net book value and fair value of our reporting units, it would have no effect on the goodwill analysis. As we described in our response to comment 3b of your September 4, 2012 letter, we believe our allocation methodology results in capital levels that a market participant would require for the reporting segments. Therefore, we do not believe an allocation of the “excess/residual” capital in All Other along with the excess net assets is appropriate or meaningful. ii. If feasible, separately quantify those assets and liabilities in the All Other segment that are included in the required economic capital balance vs. the excess/residual capital balance. Ms. Suzanne Hayes Assistant Director United States Securities and Exchange Commission November 9, 2012 Page 5 of 10 Response: As discussed above, the total assets and liabilities in the All Other category that are included in the Allocated Equity balances as of June 30, 2011 were approximately $41 billion and $2 billion, respectively. These assets and liabilities relate to the liquidating businesses, GPI and strategic equity investments of the Company. iii. Provide further disaggregation of the assets and liabilities in All Other by business (or function). For example, quantify the amount of loans for which economic capital was required that are part of your international credit card business, your legacy asset servicing business or your ALM activities. Response: In regards to the businesses noted in your comment, as of June 30, 2011, the international card business was not part of the All Other category. During the third quarter of 2011, this business was transferred to All Other and subsequently reclassified to All Other in future filings. The legacy asset servicing business is not a standalone business but is a group of loan types (prime option plus, etc.) that we no longer originate or own in any of the reporting segments. The servicing related to these loans is performed by our Consumer Real Estate Services reporting segment. These loans are included in the $259 billion of loans in All Other, prior to hypothetical allocations. The total assets of the liquidating businesses and GPI and equity investments as of June 30, 2011 were approximately $10 billion, which was substantially all loans, and $31 billion, respectively. There were $2 billion of liabilities associated with the liquidating businesses. Form 10-Q for Quarterly Period Ended June 30, 2012 Non-U.S. Portfolio, page 114 Table 62 - Selected European Countries, page 117 4. We note your response to prior comment 12 of our letter dated September 4, 2012 as well as your disclosure on page 116 of your gross notional amount of single-name CDS purchased and sold on referenced assets and your disclosure in footnote 3 to the table where you state that securities exposures are reduced by hedges and short positions on a single-name basis. Please confirm that you have not reflected any indexed or tranched purchased credit derivatives in your table, including in the column titled hedges and credit default protection. To the extent that you have included indexed or tranched purchased credit derivatives in your table, please expand your disclosure to discuss this fact, separately quantify the amount of this protection, and disclose how the amounts are reflected amongst the different countries and counterparties. Response: We expanded the footnotes to provide further clarification of the above exposures. Because the total amount of exposure to all of the counterparties and countries is not significant, we are only reflecting the totals in a footnote versus presenting them amongst the different countries and counterparties. Following are the expanded footnotes to the table as included in our Form 10-Q for the Quarterly Period ended September 30, 2012: (3) Long securities exposures have been netted on a single-name basis to but not below zero by short positions of $3.9 billion and net CDS purchased of $2.1 billion, consisting of $2.3 billion of net single-name CDS purchased and $14