SecProbe.io

CORRESP
1
filename1.htm

SEC Correspondence Letter

 August 10, 2010

Mr. John P. Nolan

 Senior Assistant
Chief Accountant

 United States Securities and Exchange Commission

Division of Corporation Finance

 100 F Street,
NE

 Washington DC 20549-5546

RE:
Bank of America Corporation

Accounting for Repurchase Agreements, Securities Lending Transactions or Other Transactions Involving the Transfer of Financial Assets with an Obligation to Repurchase
the Transferred Assets

 Dear Mr. Nolan,

We write to supplement and correct certain information provided in our letters dated April 14, 2010 and May 13, 2010 with respect to the matter
referenced above. Those letters discuss, in relevant part, six transfers we identified that should have been accounted for as secured borrowings rather than as sales. In the course of our review of certain transactional data, it has come to our
attention that we inadvertently did not reflect the value of one of the six transfers that was completed in the quarter ending December 31, 2007 in providing summary information and analysis regarding the six transfers in our letters. We
apologize for the oversight and provide updated information below. The correction does not affect our conclusion that the impact of the transactions is not material to our previously issued financial statements.

On April 14, 2010, we provided a response (the “April 14 Response”) to your inquiries concerning our accounting for repurchase agreements,
securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets. In our letter, we stated that we had “identified six transfers for which sale accounting
treatment was not in strict compliance” with our policy of “account[ing] for repurchase transactions as secured borrowings unless they fail to meet the criteria set forth in ASC 860-10-40-24.” (April 14 Response at 7.) We included a
table in the letter that quantified: the transaction amounts for the four quarters in which the six transfers took place, the company’s total assets for those periods, and the percentage of total assets that the transactions represented. (April
14 Response at 8.) In particular, the table indicated that the transaction amount for the period ending December 31, 2007 was $1.8 billion or 0.11% of total assets. Upon subsequent review, we determined that the table failed to reflect the
value of one of the six transfers we had identified that was completed in the quarter ending December 31, 2007. The amount of that transfer was approximately $265 million. Consequently, the table should have reflected that the value of the
transactions for the period ending December 31, 2007 was $2.080 billion or 0.12% of total assets.

 Following our April 14 Response, on April 26, 2010, you requested by letter that we provide
additional information regarding our conclusion that the accounting error associated with the six transactions was not material. Specifically, you requested that we provide a materiality analysis that included consideration of the factors under SEC
Staff Accounting Bulletin No. 99. We responded to this request on May 13, 2010 and included as an exhibit to the letter our SAB 99 Analysis (the “May 13 Response”). We concluded that “the impact of the transactions is not
material to the previously issued consolidated financial statements” of BAC. (May 13 Response at 1.)

 The May 13 Response also did
not include the value of the $265 million transfer completed in the quarter ending December 31, 2007 in quantifying the transactions at issue for that period. The May 13 Response outlined BAC’s disclosure included in its Form 10-Q for
the quarter ended March 31, 2010 regarding the six transfers. (May 13 Response at 3.) The disclosure indicated that the value of the transactions for the December 31, 2007 was $1.8 billion. (BAC corrected this figure in its Form 10-Q for
the period ending June 30, 2010 filed on August 6, 2010).

 In addition, the SAB 99 Analysis from the May 13 Response included
three tables that each listed the value of the transactions for the period ending December 31, 2007 as $1.815 billion. Inclusion of the omitted transaction increases that balance to $2.080 billion. An updated SAB 99 Analysis reflecting the
corrected value is attached as Exhibit 1 to this letter. For your convenience, we have also summarized the relevant updated information in the following tables:

Updates to SAB 99 Analysis Table 1 Data (dollars in millions)

Prior December 31,
2007 Information

Updated December 31,
2007 Information

Balance/Percent
Change

 Principal amount

$
1,815

$
2,080

$
265

 As a percentage of ending:

 Trading account assets

1.12
%

1.28
%

0.16
%

 Total assets

0.11
%

0.12
%

0.01
%

 Federal funds purchased and securities loaned or sold under agreements to repurchase

0.82
%

0.94
%

0.12
%

 Total liabilities

0.12
%

0.13
%

0.01
%

 Updates to SAB 99
Analysis Table 2 Data (dollars in millions)

Prior December 31,
2007 Information

Updated December 31,
2007 Information

Balance/Percent
Change

 Principal balance

$
1,815

$
2,080

$
265

 Risk weight (MBS agencies)

20
%

20
%

0.00
%

 Risk weighted asset

$
363

$
416

$
53

 Updates to SAB 99 Analysis Table 3 Data (dollars in millions)

Prior
December 31,
2007
Information

Updated
December 31,
2007
Information

Balance/
Percent
Change

Prior
September 30,
2008
Information

Updated
September 30,
2008
Information

Balance/
Percent
Change

 Principal adjustment

$
1,815

$
2,080

$
265

$
10,702

$
10,702

Prior Disclosure
Nine Months
Ended
September 30,
2008

 Consolidated Statement of Cash Flows

 As reported

 Line item – Net (increase) decrease in trading and other derivatives

(8,108
)

(8,108
)

(17,963
)

(17,963
)

 Subtotal – Net cash provided by (used in) operating activities

11,036

11,036

31,276

31,276

 Line item – Net increase (decrease) in federal funds purchased and securities loaned or sold under agreements to repurchase

(1,448
)

(1,448
)

(15,398
)

(15,398
)

 Subtotal – Net cash (used in) provided by financing activities

103,412

103,412

(46,887
)

(46,887
)

 Revised:

 Line item – Net (increase) decrease in trading and other derivatives

(9,923
)

(10,188
)

(265
)

(26,850
)

(26,585
)

265

 Subtotal – Net cash provided by operating activities

9,221

8,956

(265
)

22,389

22,654

265

 Line item – Net increase (decrease) in federal funds purchased and securities loaned or sold under agreements to repurchase

367

632

265

(6,511
)

(6,776
)

(265
)

 Subtotal – Net cash (used in) provided by financing activities

105,227

105,492

265

(38,000
)

(38,265
)

(265
)

 Change

 Line item – Net (increase) decrease in trading and other derivatives

-22
%

-26
%

-4
%

-49
%

-48
%

1
%

 Subtotal – Net cash provided by operating activities

16
%

19
%

3
%

28
%

28
%

0
%

 Line item – Net increase (decrease) in federal funds purchased and securities loaned or sold under agreements to repurchase

-125
%

-144
%

-19
%

-58
%

-56
%

2
%

 Subtotal – Net cash provided by financing activities

2
%

2
%

0
%

-19
%

-18
%

1
%

 As noted above, the changes in the metrics resulting from the correction are not material to our analysis of
the issues presented and do not have any impact on our conclusion that the impact of the transactions is not material to our previously issued consolidated financial statements.

Sincerely,

/s/ John M. James

John M. James

Corporate Controller

cc:
Neil A. Cotty, Chief Accounting Officer

 Exhibit I

Three Years Ended December 31, 2009 SAB 99 – BAC

The SEC’s Staff Accounting Bulletin (“SAB”) No. 99, Materiality (“SAB 99”), indicates that the use of a percentage as
a numerical threshold to evaluate materiality, such as 5%, may provide the basis for a preliminary assessment that – without considering all relevant circumstances – a deviation of less than the specified percentage with respect to a
particular item on the registrant’s financial statements is unlikely to be material. SAB 99 indicates that the SEC Staff has no objection to such a “rule of thumb” as an initial step in assessing materiality. SAB 99, however, goes on
to say that quantifying, in percentage terms, the magnitude of a misstatement is only the beginning of an analysis of materiality; it cannot appropriately be used as a substitute for a full analysis of all relevant considerations. SAB 99 also
indicates that the formulation of materiality in the accounting literature is in substance identical to the formulation used by the courts in interpreting the federal securities laws. The U.S. Supreme Court has held that a fact is material if there
is “a substantial likelihood that the…fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.”

SAB 99 states that an assessment of materiality requires that one view the facts in the context of the “surrounding circumstances,” as the
accounting literature puts it, or the “total mix” of information. While the “total mix” includes the size in numerical or percentage terms of misstatement, it also includes the factual context in which the user of financial
statements would view the financial statement item. SAB 99 also states that materiality concerns the significance of an item to users of a registrant’s financial statements. Specifically the SEC Staff’s interpretive response says that
“A matter is ‘material’ if there is a substantial likelihood that a reasonable person would consider it important.” In its Statement of Financial Accounting Concepts No. 2, the FASB stated the essence of the concept of
materiality as follows:

 The omission or misstatement of an item in a financial report is material if, in the light of
surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.

The SAB 99 analysis herein seeks to apply these criteria. As such, the quantitative and qualitative conclusions were considered both individually and in
the aggregate by management in determining whether or not the items at issue were material to the consolidated financial statements of Bank of America Corporation (“BAC”, the “Company” or the “Corporation”).

The SEC’s SAB 108, Considering the Effects of Prior year Misstatements when Quantifying Misstatements in Current year Financial Statements,
notes that (i) a materiality evaluation must be based on all relevant quantitative and qualitative factors; (ii) such analyses generally begins with quantifying potential misstatements to be evaluated; and (iii) there has been
diversity in practice with respect to this initial step of a materiality analysis. SAB 108 addresses certain of the quantitative issues discussed in SAB 99, but does not alter the analysis required by SAB 99.

SAB 108 notes the diversity in approaches for quantifying the amount of misstatements primarily stems from the effects of misstatements that were not
corrected at the end of the prior year (“prior year misstatements”), and states these prior year misstatements should be considered in quantifying misstatements in current year financial statements. It further states the techniques most
commonly used in practice to accumulate and quantify misstatements are generally referred to as the “rollover” and “iron curtain” approaches.

The “rollover approach” quantifies a misstatement based on the amount of the error originating in the current year income statement. This
approach ignores the effects of correcting the portion

of the current year balance sheet misstatement that originated in prior years (i.e., it ignores the “carryover effects” of prior year misstatements).

The “iron curtain approach” quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the
end of the current year, irrespective of the misstatement’s year(s) of origination.

 As demonstrated in an example in SAB 108, the primary
weakness of the rollover approach is that it can result in the accumulation of significant misstatements on the balance sheet that are deemed immaterial in part because the amount that originates in each year is quantitatively small. SAB 108 states
the staff is aware of situations in which a registrant, relying on the rollover approach, has allowed an erroneous item to accumulate on the balance sheet to the point where eliminating the improper asset or liability would itself result in a
material error in the income statement if adjusted in the current year. Such registrants have sometimes concluded that the improper asset or liability should remain on the balance sheet into perpetuity.

In contrast, the primary weakness of the iron curtain approach is that it does not consider the correction of prior year misstatements in the current
year (i.e., the reversal of the carryover effects) to be errors. Implicitly, the iron curtain approach assumes that because the prior year financial statements were not materially misstated, correcting any immaterial errors that existed in those
statements in the current year is the “correct” accounting, and is therefore not considered an error in the current year. Thus, utilization of the iron curtain approach can result in a misstatement in the current year income statement not
being evaluated as an error at all.

 Given the above mentioned weaknesses of the alternate approaches, we do not believe the exclusive
reliance on either the rollover or iron curtain approach appropriately quantifies all misstatements that could be material to users of financial statements. As discussed below, the impact of correcting entries related to certain past repurchase
transactions on our financial statements and operating results for the quarterly, year to date, and annual periods in the three years ended December 31, 2009 are not significant. Below, we have concluded that our originating errors are neither
material in dollar value nor percentage in relation to the consolidated financial statements and had no impact on reported net income (loss) for any period presented.

Management has also considered ASC 270-45-16, Interim Reporting and paragraph 29 of APB Opinion No. 28, Interim Financial Reporting, which
requires the following:

 In determining materiality for the purpose of reporting the correction of an error, amounts should be
related to the estimated income for the full fiscal year and also to the trend of earnings. Changes that are material with respect to an interim period, but not material with respect to the estimated income for the full fiscal year or to the trend
of earnings should be separately disclosed in the interim period.

 Summary of Unadjusted Differences

 In connection with our response to the SEC letter
dated March 29, 2010 regarding the accounting for repurchase agreements, securities lending transactions and other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets, we acknowledged
that our recent internal review identified six transactions in the past three years for which sale accounting treatment was not in strict compliance with ASC 860, Transfers and Servicing (also SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140)). We transferred agency pass-through securities

and simultaneously entered into derivative contracts to purchase similar pools of existing securities that were not specifically identified from the same counterparty (commonly and herein
referred to as “dollar rolls”) at the end of four calendar quarters during 2007, 2008 and 2009 (Q1 07, Q4 07, Q3 08, and Q1 09). As part of our normal balance sheet management strategy, internal quarter end limits for balance sheet
utilization capacity are establis