Bank of America Corporation (BAC)

BAC 
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Bank of America Corporation (BAC)

Q1 2010 Earnings Call

April 16, 2010 9:30 am ET

Executives

Kevin Stitt – Investor Relations

Brian T. Moynihan – President, Chief Executive Officer & Director

Neil A. Cotty – Interim Chief Financial Officer & Chief Accounting Officer

Analysts

Matthew D. O’Connor – Deutsche Bank North America

Paul J. Miller – FBR Capital Markets

Mike Mayo – Calyon Securities (USA), Inc.

Betsy Graseck – Morgan Stanley

Glenn Schorr – UBS

Edward R. Najarian – ISI Group

Christopher Kotowski – Oppenheimer & Co.

[Chris Weyland – IRA]

Presentation

Operator

At this time all participants are in listen only mode. (Operator Instructions) Please note today’s call is being recorded. It is now my pleasure to turn the program over to Kevin Stitt.

Kevin Stitt

Before Brian Moynihan and Neil Cotty begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding our financial conditions and financial results in that these statements involve certain risks that may cause actual results in the future to be different from our current expectations. These factors include among other things changes in economic conditions, changes in interest rates, competitive pressures within the financial services industry and legislative or regulatory requirements that may affect our businesses.

For additional factors please see our press release and SEC documents. With that, let me turn it over to Brian.

Brian T. Moynihan

I’m going to start by giving you a high level review of the first quarter and then I’ll turn it over to Neil to take you through the core drivers of the business and as usual we’ve included lots of details on each of the business segments on each of the appendixes to the slides to answer your questions and Kevin and Lee and the rest of our team will be available to answer your follow up questions all through the day.

Just starting on a first quarter before we get in to the slides, I think that the results reinforce what I think will be the trends that we’ll discuss over the next few quarters, decreasing charge offs, potential reserve releases and those types of things that dominate credit discussions. We see the modest growth in the economy through the rest of 2010 will continue to hold loan growth back but on the good side of that we’re seeing the consumer and commercial health return which we believe will continue as the year progresses and add some momentum.

As the economy continues to recover we’ll also see a switch in how we earn money in our company, expecting our core banking earnings and loans and deposit businesses to pick up and supplement the currently strongly capital markets, investment banking and wealth management businesses. So let’s drop in to the slides.

Let’s begin on page four; just to hit the high points and the summary for the quarter, the credit costs and delinquency levels continue to improve with managed losses coming down about $500,000,000 from the fourth quarter of $10.8 billion which is a good sign. The commercial criticized levels continue to drop also in addition through the 166 and 167, our reserves now stand at $48 billion or about 4.8% of total loans. All this makes us more confident that the worst of the credit cycle is clearly behind us at this point.

Our capital levels remain quite strong even after bringing in the 167 changes. We currently expect to accrete and add additional capital through earnings and asset sales through the year as we’ve talked to you about and we remain comfortable that through our past capital raises, our earnings and balance sheet management, our capital position remains strong and is sufficient. We’ve also built our liquidity and Neil will talk to you about that later.

As we think about our business performance during the quarter, I’d summarize as follows. Our global banking and markets business had a very strong quarter. There’s two components to that business, one is our global corporate investment team and it looks like they were second in overall fees received, they had strong debt and equity capital markets. We do have room to continue to improve in the M&A area [inaudible] and then the core lending cash management business and that business remains strong.

Tom Montag that leads that business but also leads our global markets business had a tremendous quarter in the areas of sales and trading, strong results across all the areas with legacy assets right downs now down to an immaterial amount and that also shows the worst of the crisis is behind us we believe.

Switching to the other businesses, David Darnell’s global commercial banking business returned to profitability which is a good sign with a solid quarter as better credit results coupled with strong deposits and fee performance continue to offset what is weak loan demand from our core commercial customers. Our global wealth and investment management area led by Sallie Krawcheck, they had a solid quarter. As markets stabilized core activity picked up when we stabilized the advisors and other areas in that business.

As we move to the consumer side, Joe Price and the deposit business had a stable quarter and we’ll talk to you about the challenges that group faces with the new regulations around the fees they can receive over time under Reg E and other changes we made. The good news is that our core credit card business returned to profitability. It was driven by a reserve release but the lower net charge off levels are still a very good thing and that business is continuing to repair.

As I have said, the consumer card balances will take a few quarters to level off but, given that and given our conservative underwriting, we still produced 725 million accounts which is good performance. Our work in progress remains mortgage. Barbara Desoer’s team has done a good job on the modifications and getting ahead of some of the issues that were the talk of the industry early in the quarter but we still face the issues that are elevated home equity charge offs that we think will continue for several quarters and I talked to you about that a few weeks ago. On production side, the production level came down as the market slowed and Barbara and their team will adjust their thoughts likewise over the next several quarters.

As we think about the company from more the offensive side and how we go to market, we continue to drive this integrated model across the three customer groups we serve: consumers; companies; and institutional investors. The model continues to require that we focus our consumer businesses more effectively as a group going against the customer and Joe Price and his team recently announced further changes to integrate the card and deposits business. We’ve also made changes in how we charge our customers. While this impacts our short term revenue along with the rule changes that have gone on, we believe this provides an investment in our franchise to maintain our position as the number one retail banking franchise in this country.

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