Bank of America Corporation (BAC)

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Bank of America Corporation (BAC)

Q4 2009 Earnings Call

January 20, 2010 9:30 am ET

Executives

Kevin Stitt - Director, Investor Relations

Brian T. Moynihan - Chief Executive Officer

Joe L. Price - Chief Financial Officer

Analysts

Glenn Schorr – UBS

Matt O’Connor – Deutsche Bank

Ed Najarian – ISI Group

Betsy Graseck – Morgan Stanley

Paul Miller – FBR Capital Markets

Jefferson Harralson – KBW

Michael Mayo – CLSA

John McDonald – Sanford C. Bernstein

Moshe Orenbuch - Credit Suisse

Presentation

Operator

Welcome to today's teleconference. (Operator Instructions) It's now my pleasure to turn the program over to Kevin Stitt.

Kevin Stitt

Good morning. Before Brian Moynihan and Joe Price begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results and 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.

And with that, let me turn it over to Brian.

Brian T. Moynihan

Good morning and thank you for joining us on this busy day on our earnings call. Over the past couple of years I might have spoken to many of you regarding the various businesses that I have run within Bank of America, and in my new role of CEO I would tell you that I am honored to serve this company, its customers, associates, and importantly, its shareholders.

I firmly believe that we have built one of the best franchises in the industry, if not the best, with the ability to serve customers and clients of all types on a global basis. My team and I plan on leveraging our leading market positions with capabilities that we believe match or exceed our competitors.

Our goal is to refocus our efforts here at Bank of America, refocus our efforts and our attention on those core capabilities that will make Bank of America a winner in the years ahead, drawing on our long tradition of operational excellence and strong execution.

I know there are several banks and several companies reporting this morning, so I know that you are anxious to get directly to the numbers. For the fourth quarter of 2009, Bank of America had net loss of $194 million, before the $5 billion impact of preferred dividends and repayment of TARP, which resulted in a loss of about $0.60 per diluted share.

Included in the $5 billion was $4.6 billion related to our preferred stock, including the $4 billion associated with repurchasing our preferred, as the book valued of our preferred was less than the amount paid.

For the full year 2009, before preferred dividends, net income was $6.3 billion or a loss of $0.29 per diluted share, after deducting preferred dividends and TARP repayment. TARP dividends and the TARP repayment for all of 2009 represented $0.94 per diluted share.

The financial crisis has taken its toll on our company in many ways during 2009. With respect to our investment by the government, during 2009 we repaid the $45 billion of preferred stock; we have paid dividends of $2.6 billion; we paid termination fees on the proposed asset wrap of $425 million; we paid about $3 billion in various insurance fees, including our normal FDIC expense; and we prepaid [inaudible] in FDIC premiums.

In addition, we issued the government warrants to buy 122 million and 150 million shares of our company at $30.79 and 13.30 respectively.

In summary, these are heavy costs that represented just some of the challenges that our associates had to contend with in 2009 as they competed in the market. But with these behind us, we clearly look forward to 2010.

Moving to the revenue, total revenue for the fourth quarter of 2009 on an FTE basis was in excess of $25 billion. Pre-tax, pre-provision income was approximately $9 billion, even after the impact of some unusual items that Joe will detail a little bit later.


There were several positive trends in the quarter. First, credit quality appears to be stabilizing, if not improving. Net credit losses in dollar terms decreased $1.6 billion from the third quarter of 2009, supporting our comments in October that overall credit costs were peaking.

Second, the capital markets environment reflected strong investment banking revenue, up substantially from our third quarter which was already a strong quarter in the business, and we retained our second-place position in that business.

Next, results in our Global Wealth and Investment Management team continued to prove strong asset management fees and brokerage income driven by improving markets and increased client activity. In addition, the number of our financial advisors has stabilized at 15,000.

Across our franchise, new deposit generation maintained its positive momentum with overall total corporate-wide average deposits of nearly $6 billion, despite a substantial drop of $15 billion in wholesale funding. In addition, we continue to meet and exceed many of the milestones around both Merrill and Countrywide integrations.

Now unfortunately, any earnings impact these cause are more than offset by continued high level of credit costs, lower customer activity due to the economic environment, and some other items that have been headwinds for most of the year 2009.

Total credit extended in the fourth quarter was $177 billion, including commercial renewals, versus $184 billion during the third quarter, as growth in our commercial areas was more than offset by lower mortgage production. The large components of this production for the fourth quarter were $87 billion in first mortgages, down from $96 billion in the third quarter; $66 billion in non-real estate commercial; $11 billion in commercial real estate; the remaining $13 billion includes $9 billion in other consumer retail loans and $4 billion in small business loans.

Despite these new extensions, loan balances overall declined since we did charge-offs, lower consumer spending, lower commercial client activity and a resurgence in the capital markets, allowing larger corporate clients to issue bonds and equity, replacing loans as a source for funding. We note that companies who are our clients continue to be very cautious and we are not yet seeing the typical level of business activity for a recovery.

As we move to provision expense, in the fourth quarter it decreased from the third quarter by $1.6 billion, driven by lower net charge-offs. Credit costs included a $1.7 billion addition to reserves, versus $2.1 billion in the third quarter. Roughly half of that reserve increase in the quarter was driven by a change in reserve coverage in consumer credit card to a full 12 months.

Let me make a few comments about the current economic environment. For almost six months now many major economic indicators have been improving at the national and global levels, which hopefully indicate we have reached the bottom of the cycle. Our economic team here at Bank of America currently forecasts global growth in 2010 above 4%, led by emerging markets and growth in U.S. GDP of about 3%. Embedded in that aggregate outlook are our views on four economic indicators we believe highly correlate to future economic performance.

First, the labor market. We believe we can anticipate positive job growth during the first half of 2010, but even with that the number of unemployed will remain very large for quite some time and extend the drag on consumer spending and overall economic growth.

Second, in the housing market, although home prices in the largest 20 markets have posted back-to-back monthly price increases for the past few months, the potential new round of foreclosures required represents some downside risk to that stability.

Third, on household net worth, the recovery in the equity market and stabilization of home prices have led to recovery in total household wealth over the past several months. The consumer balance sheets, especially those for less-affluent customers, remain under stress.

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