SEC Company Response from BANK OF AMERICA (BAC) — Oct 21, 2009
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: Oct. 21, 2009 · CIK: 0000070858 · Accession: 0001193125-09-211101
AI Filing Summary & Sentiment
Reasoning
Referenced dates: July 24, 2009, June 17, 2009, May 8, 2009, September 18, 2009
Letter
United States Securities and Exchange Commission Form 10-Q for the Period Ended March 31, 2009 Filed May 7, 2009 Form 10-Q for the Period Ended June 30, 2009 Filed August 7, 2009
Dear Mr. West,
We have received and reviewed your letter dated September 18, 2009. 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 questions raised by the Staff. We are ready to assist the Staff in resolving any matter requiring further attention.
Form 10-K for the fiscal year ended December 31, 2008
Notes to the Consolidated Financial Statements
Note 10 – Goodwill and Intangible Assets, page 142
1. We note your response to prior comment 6 to our letter dated June 17, 2009. Tell us whether you provide the economic capital results by reporting unit to your Board of Directors or your banking regulators, and if so, whether the results of those calculations are consistent with the amounts used in your goodwill impairment analysis. To the extent that the economic capital results are provided at a higher level (company-level, or legal entity level), please confirm that you are calculating the economic capital measures consistently with the way they are calculated for your goodwill impairment analysis.
Rule 83 confidential treatment request made by Bank of America Corporation
Response: Economic capital results by segment and reporting unit are included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of our annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”). Specifically, we disclose the “average allocated equity” by segment and the “return on average equity” by segment and reporting unit (please refer to pages 27, 32 and 39 of Form 10-K for the Fiscal Year Ended December 31, 2008). Although the nomenclature differs between external communications (i.e., average allocated equity or average equity) and the internal documents (i.e., average economic capital), we confirm that the amounts included in MD&A are calculated consistently with the way they are calculated for the goodwill impairment analysis.
In addition to the publicly available reports filed with the SEC, economic capital results have historically been provided to the Board of Directors at the enterprise level. However in conjunction with the recent enhancements to our corporate governance, which included a reconstitution of the Board of Directors, the Enterprise Risk Committee has been formed. As such, effective October 2009, the Board’s Enterprise Risk Committee will begin to receive the economic capital results by reporting unit and at the enterprise level. Additionally, monthly economic capital results by reporting unit and at the enterprise level are currently, and have been historically, routinely provided to our banking regulators.
2. We note your response to prior comment 5 to our letter dated June 17, 2009 regarding the fair value estimation process for the Business Lending reporting unit. Your response indicates that as of October 31, 2008, you used a market approach to determine the fair value of this reporting unit. However, your response letter also indicates that you performed an alternative calculation using an income approach, which appears to have been done solely as part of your process of responding to our letter. Regarding this income approach performed, please tell us how many years your analysis projected into the future and tell us the key assumptions used in this analysis. Also, tell us whether you plan to continue to perform an income approach (in addition to a market approach) when valuing your reporting units in the future.
Response: The alternative calculation of fair value for the Business Lending reporting unit was performed to demonstrate that a change in methodology, specifically from the income approach to the market approach, did not result in a different impairment test conclusion. As discussed in our previous response letter dated July 24, 2009, we used the same base net income amount and market comparable earnings multiples for the alternative calculation that we had used for the original October 31, 2008 calculation of fair value using the market approach. Specifically:
•
Base net income of [*** Redacted ***] was used to estimate cash flows for the first year of the calculation. This amount equals base net income used in the market approach, which reflects actual results for the twelve months ending October 31, 2008.
•
An earnings multiple of [*** Redacted ***] was used to assess the terminal value of the reporting unit. This amount equals the earnings multiple used in the market approach.
Rule 83 confidential treatment request made by Bank of America Corporation
The remaining underlying assumptions were consistent with our prior income approach calculations as described in our response letter dated May 8, 2009, which were applied consistently across reporting units in our June 30, 2008 annual impairment test. Specific assumptions used in the alternative calculation were as follows:
•
A growth rate of [*** Redacted ***] was used to project cash flows for the next ten years.
•
Resulting cash flows were then discounted by a rate of [*** Redacted ***] to determine fair value.
In the future, when valuing our reporting units other than Card Services, we plan to calculate fair value using the market approach, but will also perform independent calculations under the income approach to help validate our estimates of fair value. For Card Services, we will continue to calculate fair value using an income approach.
3. We note your response to prior comment 5 to our letter dated June 17, 2009 regarding your goodwill impairment testing of the Capital Markets and Advisory Services (CMAS) reporting unit. Your response indicates that you used a market approach to determine the fair value of the reporting unit, whereby three estimates of fair value were calculated based on earnings multiples, tangible common equity multiples, and total book common equity multiples, and then you weighted them approximately evenly. Given the wide disparity of earnings multiples for the comparable companies, and the fact that you would have failed Step 1 of the goodwill impairment test had the earnings multiple approach not been weighted in your determination of fair value, please tell us why you believe it was not necessary to perform Step 2 of the goodwill impairment test as you did for certain other reporting units where the difference between the fair value and carrying value of the reporting units was not significant. Also, tell us why you used projected 2009 income instead of trailing income as you have done in other scenarios and confirm that the selected multiples used are forward multiples (i.e. utilizing a market capitalization as of the valuation date and projected 2009 income).
Response: We believe that the market multiples used in calculating the fair value of CMAS are sufficiently conservative as discussed further below and therefore it was not necessary to perform Step 2 of the goodwill impairment test. As noted in our prior response letter, a substantial majority of the assets and liabilities of CMAS are already carried at fair value or are short-term in nature. Accordingly, a Step 2 analysis would not yield a fair value for CMAS that was significantly different than the carrying amount.
As a general rule, we believe that earnings multiples are a more meaningful indicator of fair value than capital multiples. If comparable earnings multiples are not available or are distorted due to market disruptions, it may be appropriate to use other multiples (e.g., tangible capital) in determining fair value of the reporting unit. Accordingly, given the wide disparity of the CMAS comparable earnings multiples and the relatively small number of comparable companies, [*** Redacted ***].
Rule 83 confidential treatment request made by Bank of America Corporation
We acknowledge the wide disparity in earnings multiples noted for the comparable companies but believe that the price to earnings (PE) multiple of [*** Redacted ***] used in the fair value calculation is very conservative based on historical norms. As noted in the table below provided by our independent valuation experts, PE multiples of the comparable companies ranged from 6.2 to 39.6 over the past eight years.
Capital Markets and Advisory Services
Market Capitalization to Earnings
8 Year
Average
Ticker
Company
10/31/2007
10/31/2006
10/31/2005
10/31/2004
10/31/2003
10/31/2002
10/31/2001
10/31/2000
GS
Goldman Sachs Group Inc.
8.5
10.1
11.0
11.0
17.5
16.2
15.5
14.2
13.0
MS
Morgan Stanley
7.9
10.5
16.0
13.0
17.0
13.5
13.9
15.5
13.4
JEF
Jefferies Group Inc.
15.0
17.4
16.9
18.0
25.4
17.6
15.4
11.6
17.1
PJC
Piper Jaffray Companies
19.9
6.2
19.3
24.7
NA
NA
NA
NA
17.5
RJF
Raymond James Financial Inc.
17.8
17.3
17.0
15.1
22.9
19.2
14.6
12.5
17.0
SF
Stifel Financial Corp.
33.4
32.7
17.2
8.5
10.3
37.3
39.6
10.3
23.7
Maximum
33.4
32.7
19.3
24.7
25.4
37.3
39.6
15.5
28.5
Average
17.1
15.7
16.2
15.0
18.6
20.8
19.8
12.8
17.0
Median
16.4
13.9
16.9
14.0
17.5
17.6
15.4
12.5
15.5
Minimum
7.9
6.2
11.0
8.5
10.3
13.5
13.9
10.3
10.2
[***Redacted***]
We used projected 2009 income in the calculation of fair value as a proxy as we believed it to be more representative of expected future results compared to the results during the market disruption. Actual results during the trailing twelve months ended October 31, 2008 were dramatically affected by the impact of market dislocations during this period and were not indicative of long-term normalized operating results of the CMAS reporting unit. As a result, we believe that the use of projected results yielded a more reliable amount than would have been obtained had we begun with historical earnings and attempted to calculate a normalized number.
As discussed with our independent valuation experts, the market multiples used in our calculation reflected the market capitalization as of the valuation date and trailing earnings for the twelve months then ended. Without clear insight into the business plan for these comparable companies, we had no legitimate basis upon which to project a dollar amount of estimated earnings for the coming year. Similarly, given market dislocations and volatility in the second half of 2008, we concluded that analyst consensus earnings projections would not be meaningful.
[*** Redacted ***] Accordingly, we made a reasoned judgment that Step 2 of the impairment analysis would not have produced materially different results from the Step 1 analysis.
4. We note your response to prior comment 12 to our letter dated June 17, 2009 where you indicate that providing the carrying amount and estimated fair value for each reporting unit where there is no indication of impairment provides competitive information about your businesses that could potentially impact competitive bidding in the event of any sale of any of your businesses. We continue to believe this type of information is relevant as it provides more forward looking insight into the potential for impairment charges in the future. We believe that this information could be provided in such a way to reduce any competitive concerns; for example, in future filings, please provide the fair value as a percentage of carrying value by reporting unit, for any reporting unit that is tested for impairment.
Response: We will provide the fair value as a percentage of the carrying value by reporting unit when reporting units are tested for impairment. This information will be provided within MD&A at least annually for all reporting units and more frequently for reporting units for which a Step 2 analysis is performed. We will continue to provide this information until the business environment improves and indicators that the fair value of certain reporting units may be stressed no longer exist.
Note 14 – Shareholders’ Equity and Earnings per Common Share
Preferred Stock, page 163
5. We note your response to prior comment 13 to our letter dated June 17, 2009 regarding the methodology and assumptions for valuing the preferred stock issued to the U.S. Treasury. It is still unclear to us why it is appropriate to assume the preferred stock is essentially perpetual in nature and thus use an eighty year life for the purposes of estimating the fair value of the Series N, Q and R preferred securities. Please tell us the following:
a. Tell us why using the current market yield of the instrument most similar to the Series N, Q and R securities, would not be sufficient for the purpose of trying to capture the uncertainty in the marketplace about when the preferred shares would be redeemed, instead of also assuming that the preferred shares were essentially perpetual in nature.
Response: Please see response to comment 5(b) below.
b. Tell us the nature of any evidence obtained to support your assumption that market participant’s valuations would assume a perpetual life and not probable early redemptions at the call date.
Response: Bank of America Corporation (“Bank of America” or the “Corporation”) issued three series of Fixed Rate Cumulative Perpetual Preferred Stock (“Series N, Q and R preferred stock”) with accompanying common stock warrants, to the U.S. Treasury in accordance with the Troubled Asset Relief Program (“TARP”). The Series N preferred stock was issued on October 28, 2008 pursuant to the Capital Purchase Program (“CPP”) and concurrently with seven other financial institutions. The Series Q preferred stock was issued on January 9, 2009, also pursuant to the CPP, but subsequent to the Corporation’s acquisition of Merrill Lynch & Co., Inc. (“Merrill Lynch”). The terms of the Series N and Q preferred stock were negotiated and announced concurrently in October 2008. In contrast, the terms of the Series R preferred stock, which was issued on January 16, 2009 pursuant to the Targeted Investment Program (“TIP”), were negotiated in January 2009.
In order to assign a book value to the preferred stock and the corresponding warrants, we estimated a fair value for each type of security separately, and then apportioned the total investment proportionately to the respective fair values in accordance with APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants (“the relative fair value method”). The difference between the initial book value and the redemption amounts of the preferred stock is being amortized over five years (Series N and Q) or ten years (Series R) consistent with the guidance in Staff Accounting Bulletin Topic 5.Q., Increasing Rate Preferred Stock.
These transactions were negotiated and announced in October 2008 and January 2009, at a time of unprecedented market turmoil. In our response letter dated July 24, 2009, we included a graph which illustrated both the extreme volatility and tremendous price declines followed by subsequent partial recoveries of similar preferred securities issued by Bank of America, Wells Fargo, Citi and JP Morgan from July 2008 to June 2009. Based on a review of that graph and the underlying data, prices ranged from the mid-twenties to the mid-eighties, and theoretically, depen
Show Raw Text
CORRESP
1
filename1.htm
Correspondence
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 omissions.
October 21, 2009
Mr. Hugh West
Accounting Branch Chief
United States Securities and Exchange Commission
100 F Street NE
Mail Stop 4561
Washington, DC 20549-4561
RE:
Bank of America Corporation
Form 10-K for the Fiscal Year Ended December 31, 2008
Filed February 27, 2009
Form 10-Q for the Period Ended March 31, 2009
Filed May 7, 2009
Form 10-Q for the Period Ended June 30, 2009
Filed August 7, 2009
Dear Mr. West,
We have received and reviewed your letter dated September 18, 2009. 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 questions raised by the Staff. We are ready to assist the Staff in resolving any matter requiring further attention.
Form 10-K for the fiscal year ended December 31, 2008
Notes to the Consolidated
Financial Statements
Note 10 – Goodwill and Intangible Assets, page 142
1.
We note your response to prior comment 6 to our letter dated June 17, 2009. Tell us whether you provide the economic capital results by reporting unit to your
Board of Directors or your banking regulators, and if so, whether the results of those calculations are consistent with the amounts used in your goodwill impairment analysis. To the extent that the economic capital results are provided at a higher
level (company-level, or legal entity level), please confirm that you are calculating the economic capital measures consistently with the way they are calculated for your goodwill impairment analysis.
Rule 83
confidential treatment request made by Bank of America Corporation
Response:
Economic capital results by segment and reporting unit are included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) of our annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”). Specifically, we disclose the “average allocated equity” by segment and the “return on average
equity” by segment and reporting unit (please refer to pages 27, 32 and 39 of Form 10-K for the Fiscal Year Ended December 31, 2008). Although the nomenclature differs between external communications (i.e., average allocated equity or
average equity) and the internal documents (i.e., average economic capital), we confirm that the amounts included in MD&A are calculated consistently with the way they are calculated for the goodwill impairment analysis.
In addition to the publicly available reports filed with the SEC, economic capital results have historically
been provided to the Board of Directors at the enterprise level. However in conjunction with the recent enhancements to our corporate governance, which included a reconstitution of the Board of Directors, the Enterprise Risk Committee has been
formed. As such, effective October 2009, the Board’s Enterprise Risk Committee will begin to receive the economic capital results by reporting unit and at the enterprise level. Additionally, monthly economic capital results by reporting unit
and at the enterprise level are currently, and have been historically, routinely provided to our banking regulators.
2.
We note your response to prior comment 5 to our letter dated June 17, 2009 regarding the fair value estimation process for the Business Lending reporting unit.
Your response indicates that as of October 31, 2008, you used a market approach to determine the fair value of this reporting unit. However, your response letter also indicates that you performed an alternative calculation using an income
approach, which appears to have been done solely as part of your process of responding to our letter. Regarding this income approach performed, please tell us how many years your analysis projected into the future and tell us the key assumptions
used in this analysis. Also, tell us whether you plan to continue to perform an income approach (in addition to a market approach) when valuing your reporting units in the future.
Response:
The alternative calculation of fair value for the Business Lending reporting unit was performed to demonstrate that a change in methodology, specifically from the
income approach to the market approach, did not result in a different impairment test conclusion. As discussed in our previous response letter dated July 24, 2009, we used the same base net income amount and market comparable earnings multiples
for the alternative calculation that we had used for the original October 31, 2008 calculation of fair value using the market approach. Specifically:
•
Base net income of [*** Redacted ***] was used to estimate cash flows for the first year of the calculation. This amount equals base net income used in
the market approach, which reflects actual results for the twelve months ending October 31, 2008.
•
An earnings multiple of [*** Redacted ***] was used to assess the terminal value of the reporting unit. This amount equals the earnings multiple used
in the market approach.
Rule 83
confidential treatment request made by Bank of America Corporation
The remaining underlying assumptions were consistent with our prior income approach
calculations as described in our response letter dated May 8, 2009, which were applied consistently across reporting units in our June 30, 2008 annual impairment test. Specific assumptions used in the alternative calculation were as
follows:
•
A growth rate of [*** Redacted ***] was used to project cash flows for the next ten years.
•
Resulting cash flows were then discounted by a rate of [*** Redacted ***] to determine fair value.
In the future, when valuing our reporting units other than Card Services, we plan to calculate fair value using the market approach, but
will also perform independent calculations under the income approach to help validate our estimates of fair value. For Card Services, we will continue to calculate fair value using an income approach.
3.
We note your response to prior comment 5 to our letter dated June 17, 2009 regarding your goodwill impairment testing of the Capital Markets and Advisory
Services (CMAS) reporting unit. Your response indicates that you used a market approach to determine the fair value of the reporting unit, whereby three estimates of fair value were calculated based on earnings multiples, tangible common equity
multiples, and total book common equity multiples, and then you weighted them approximately evenly. Given the wide disparity of earnings multiples for the comparable companies, and the fact that you would have failed Step 1 of the goodwill
impairment test had the earnings multiple approach not been weighted in your determination of fair value, please tell us why you believe it was not necessary to perform Step 2 of the goodwill impairment test as you did for certain other reporting
units where the difference between the fair value and carrying value of the reporting units was not significant. Also, tell us why you used projected 2009 income instead of trailing income as you have done in other scenarios and confirm that the
selected multiples used are forward multiples (i.e. utilizing a market capitalization as of the valuation date and projected 2009 income).
Response:
We believe that the market multiples used in calculating the fair value of CMAS are sufficiently conservative as discussed further below and therefore it was not
necessary to perform Step 2 of the goodwill impairment test. As noted in our prior response letter, a substantial majority of the assets and liabilities of CMAS are already carried at fair value or are short-term in nature. Accordingly, a Step 2
analysis would not yield a fair value for CMAS that was significantly different than the carrying amount.
As a
general rule, we believe that earnings multiples are a more meaningful indicator of fair value than capital multiples. If comparable earnings multiples are not available or are distorted due to market disruptions, it may be appropriate to use other
multiples (e.g., tangible capital) in determining fair value of the reporting unit. Accordingly, given the wide disparity of the CMAS comparable earnings multiples and the relatively small number of comparable companies, [*** Redacted ***].
Rule 83
confidential treatment request made by Bank of America Corporation
We acknowledge the wide disparity in earnings multiples noted for the comparable
companies but believe that the price to earnings (PE) multiple of [*** Redacted ***] used in the fair value calculation is very conservative based on historical norms. As noted in the table below provided by our independent valuation experts, PE
multiples of the comparable companies ranged from 6.2 to 39.6 over the past eight years.
Capital Markets and
Advisory Services
Market Capitalization to Earnings
8 Year
Average
Ticker
Company
10/31/2007
10/31/2006
10/31/2005
10/31/2004
10/31/2003
10/31/2002
10/31/2001
10/31/2000
GS
Goldman Sachs Group Inc.
8.5
10.1
11.0
11.0
17.5
16.2
15.5
14.2
13.0
MS
Morgan Stanley
7.9
10.5
16.0
13.0
17.0
13.5
13.9
15.5
13.4
JEF
Jefferies Group Inc.
15.0
17.4
16.9
18.0
25.4
17.6
15.4
11.6
17.1
PJC
Piper Jaffray Companies
19.9
6.2
19.3
24.7
NA
NA
NA
NA
17.5
RJF
Raymond James Financial Inc.
17.8
17.3
17.0
15.1
22.9
19.2
14.6
12.5
17.0
SF
Stifel Financial Corp.
33.4
32.7
17.2
8.5
10.3
37.3
39.6
10.3
23.7
Maximum
33.4
32.7
19.3
24.7
25.4
37.3
39.6
15.5
28.5
Average
17.1
15.7
16.2
15.0
18.6
20.8
19.8
12.8
17.0
Median
16.4
13.9
16.9
14.0
17.5
17.6
15.4
12.5
15.5
Minimum
7.9
6.2
11.0
8.5
10.3
13.5
13.9
10.3
10.2
[***Redacted***]
We used projected 2009 income in the calculation of fair value as a proxy as we
believed it to be more representative of expected future results compared to the results during the market disruption. Actual results during the trailing twelve months ended October 31, 2008 were dramatically affected by the impact of market
dislocations during this period and were not indicative of long-term normalized operating results of the CMAS reporting unit. As a result, we believe that the use of projected results yielded a more reliable amount than would have been obtained had
we begun with historical earnings and attempted to calculate a normalized number.
As discussed with our independent valuation
experts, the market multiples used in our calculation reflected the market capitalization as of the valuation date and trailing earnings for the twelve months then ended. Without clear insight into the business plan for these comparable companies,
we had no legitimate basis upon which to project a dollar amount of estimated earnings for the coming year. Similarly, given market dislocations and volatility in the second half of 2008, we concluded that analyst consensus earnings projections
would not be meaningful.
[*** Redacted ***] Accordingly, we made a reasoned judgment that Step 2 of the impairment analysis
would not have produced materially different results from the Step 1 analysis.
4.
We note your response to prior comment 12 to our letter dated June 17, 2009 where you indicate that providing the carrying amount and estimated fair value for
each reporting unit where there is no indication of impairment provides competitive information about your businesses that could potentially impact competitive bidding in the event of any sale of any of your businesses. We continue to believe this
type of information is relevant as it provides more forward looking insight into the potential for impairment charges in the future. We believe that this information could be provided in such a way to reduce any competitive concerns; for example, in
future filings, please provide the fair value as a percentage of carrying value by reporting unit, for any reporting unit that is tested for impairment.
Response:
We will provide the fair value as a percentage of the carrying value by reporting unit when reporting units are tested for impairment. This information will be
provided within MD&A at least annually for all reporting units and more frequently for reporting units for which a Step 2 analysis is performed. We will continue to provide this information until the business environment improves and indicators
that the fair value of certain reporting units may be stressed no longer exist.
Note 14 – Shareholders’ Equity and
Earnings per Common Share
Preferred Stock, page 163
5.
We note your response to prior comment 13 to our letter dated June 17, 2009 regarding the methodology and assumptions for valuing the preferred stock issued to
the U.S. Treasury. It is still unclear to us why it is appropriate to assume the preferred stock is essentially perpetual in nature and thus use an eighty year life for the purposes of estimating the fair value of the Series N, Q and R preferred
securities. Please tell us the following:
a.
Tell us why using the current market yield of the instrument most similar to the Series N, Q and R securities, would not be sufficient for the purpose of trying to
capture the uncertainty in the marketplace about when the preferred shares would be redeemed, instead of also assuming that the preferred shares were essentially perpetual in nature.
Response:
Please see response to comment 5(b) below.
b.
Tell us the nature of any evidence obtained to support your assumption that market participant’s valuations would assume a perpetual life and not probable early
redemptions at the call date.
Response:
Bank of America Corporation (“Bank of America” or the “Corporation”) issued three series of Fixed Rate Cumulative Perpetual Preferred Stock
(“Series N, Q and R preferred stock”) with accompanying common stock warrants, to the U.S. Treasury in accordance with the Troubled Asset Relief Program (“TARP”). The Series N preferred stock was issued on October 28, 2008
pursuant to the Capital Purchase Program (“CPP”) and concurrently with seven other financial institutions. The Series Q preferred stock was issued on January 9, 2009, also pursuant to the CPP, but subsequent to the Corporation’s
acquisition of Merrill Lynch & Co., Inc. (“Merrill Lynch”). The terms of the Series N and Q preferred stock were negotiated and announced concurrently in October 2008. In contrast, the terms of the Series R preferred stock, which
was issued on January 16, 2009 pursuant to the Targeted Investment Program (“TIP”), were negotiated in January 2009.
In order to assign a book value to the preferred stock and the corresponding warrants, we
estimated a fair value for each type of security separately, and then apportioned the total investment proportionately to the respective fair values in accordance with APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants (“the relative fair value method”). The difference between the initial book value and the redemption amounts of the preferred stock is being amortized over five years (Series N and Q) or ten years (Series R)
consistent with the guidance in Staff Accounting Bulletin Topic 5.Q., Increasing Rate Preferred Stock.
These
transactions were negotiated and announced in October 2008 and January 2009, at a time of unprecedented market turmoil. In our response letter dated July 24, 2009, we included a graph which illustrated both the extreme volatility and tremendous
price declines followed by subsequent partial recoveries of similar preferred securities issued by Bank of America, Wells Fargo, Citi and JP Morgan from July 2008 to June 2009. Based on a review of that graph and the underlying data, prices ranged
from the mid-twenties to the mid-eighties, and theoretically, depen