Bank of America Corporation (BAC)

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Bank of America (BAC)

Q1 2011 Earnings Call

April 15, 2011 7:30 am ET

Executives

Neil Cotty - Chief Accounting Officer

Brian Moynihan - Chief Executive Officer, President, Director and Member of Executive Committee

Kevin Stitt - Investor Relations

Charles Noski - Chief Financial Officer and Executive Vice President

Analysts

John McDonald - Sanford C. Bernstein & Co., Inc.

Ed Najarian - ISI Group Inc.

Paul Miller - FBR Capital Markets & Co.

Betsy Graseck - Morgan Stanley

Moshe Orenbuch - Crédit Suisse AG

Vivek Juneja - JP Morgan Chase & Co

Glenn Schorr - Nomura Securities Co. Ltd.

Michael Mayo - Credit Agricole Securities (USA) Inc.

Matthew O'Connor - Deutsche Bank AG

Presentation

Operator

Good day, everyone, and welcome to the Bank of America First Quarter Earnings Review. [Operator Instructions] And it is now my pleasure to turn the conference over to Mr. Kevin Stitt. Please go ahead, sir.

Kevin Stitt

Good morning. Before Brian Moynihan and Chuck Noski 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. And 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 also joining us this morning as he did last -- three months ago will be Neil Cotty, our Chief Accounting Officer. And with that, let me turn it over to Brian.

Brian Moynihan

Good morning, everyone. Before we get started this morning, I want to spend a couple of minutes on announcements that occurred this morning other than earnings. Obviously, we will cover in this call the announcement with the FSA/Assured on the monoline.

But on the leadership side, I just wanted to talk through what we've done there. Last year, Chuck came to me and due to an illness of a close family member in California where he has lived, it was going to be clear that he may not be able to move, and we decided to continue to talk about the situation. He had made a commitment to move at the end of the school year obviously because he has a daughter who’s at senior high school. But with that, it became clear as we moved through this quarter that Chuck could not move. So I asked Chuck to take another leadership position that could help us work on some client matters, matters in the mortgage company and help them transition to new CFO.

So what we announced this morning was to have Bruce Thompson take over for Chuck as CFO effective -- and that transition will be completed by the end of the second quarter. And Chuck will continue as a great judge and perspective to help Bruce continue to learn the tasks. Chuck has served as a CFO at a time when we had a tremendous transformation on our financials. He's been a great partner, and we're glad that we came up with something that worked for everybody. Bruce, many of you know, he's been a Chief Risk Officer. He's done a great job for us since last year doing that. He manned our Capital Markets business for Tom and ran Leveraged Finance and many other things for the company over his 15-year career here. As Chief Risk Officer, he may assist through a difficult situation including, as you'll see in some of the pages later, a great reposition of the balance sheet.

In addition to those two changes, we also announced that Gary Lynch will join us as Global Head Of Legal, Compliance and Regulatory Relations. My judgment was that we want to continue to add to the quality and capabilities of our management team. As Gary became available, his reputation in the Street in legal circles and regulators is well known. He has also been the Head of Enforcement at the SEC. And the relationships he has around the world, he spent the last couple of years in London, will help us outside the United States. He'll join us when his garden leave expires later this year.

So with the management changes behind us, let's shift to the quarterly results. With that, I'll start on Slide 4. Rather than get into some of the detail on the page, let me just give you the themes for this quarter, which are similar to those relayed to you in early March.

The franchise that we've built over the last 230 years in this company continues to deliver, and you can see that in the numbers and the statistics this morning. Obviously, the Mortgage business is still in need of continued repositioning, and we continue to work on that. But what you've seen is solid customer activity across the board. Our focus on changing the strategy in the Consumer Deposits business has led to the first quarter of net checking account growth, a return to profit in that business, improved customer satisfaction across the board, the best retention of customers in that business in many quarters.

In other areas, we continue to grow our FA headcount. We've had strong referrals in the businesses across to each other. The deposit growth through the whole franchise has gone over $1 trillion in total deposits. And as the economy has improved a bit, we're starting to see some loan growth on a core basis in the Middle Market business with David Darnell. And we'll touch on some of that later, but the key theme is the franchise continues to deliver.

As you back up to the second point, revenue rose from last quarter. Expenses were flat on a gross basis to $20 billion, including goodwill, and I'll cover it a little later, up $500 million more on the core business. But the absolute levels are elevated, and I'm just going to talk about what we're doing about that in a few minutes.

Overall, earnings improved to $2 billion or $0.17, but we're still impacted by charges as we continue to pull out through the financial crisis. We had $5 billion in charges this quarter we absorbed, and we also had $3 billion between reserve releases and higher private equity to the good side.

When we talked to you at Investor Day, we said we were shooting for pretax, pre-provision profits as we normalized to $45 billion to $50 billion. This quarter, Chuck will walk you through the one-time items, but if you adjust for those, you'll get to a number of approximately $10 billion, which is up from last quarter, and I think puts us in a position that we can see clearly how we build a bridge to the $45 billion to $50 billion level as we normalize. That normalization requires the interest rate environment to change more fundamentally to more normalized environment. We've got to take the costs down across the board. As the economy continues to plug away, we'll continue to make progress in other revenue sources.

In addition, one of the things we talked about at Investor Day was the need to continue to drive down the legacy assets and risk in the company. During this quarter, we took care of one of the monoline exposures. We absorbed the home price fall-off, and we also continued to have our loan portfolio run off across all categories of portfolio we identified for you a couple quarters go. This quarter, that portfolio ran down by about $6 billion, excluding the government-matured loans, which we show you in the Appendix. The cost of that to the P&L was about $1.9 billion pretax this quarter. Again, Tom and his team did a good job reducing legacy trading assets and we continue to make progress in that area.

When you look at the balance sheet, we continue to position the balance sheet, our reserves even after the release remains strong, 4.3% to loans, 1.63x trailing to charge-offs. We made progress improving the capital ratios, lowering our risk-weighted assets again, growing liquidity and reducing long-term debt. All those important metrics we identified for you a few months ago.

We also continue to move forward to take advantage of the opportunities we identified for you. We have a great opportunity in this company in the Affluent and Mass Affluent segments and between Joe Price and Sallie Krawcheck and the team, they continue to see good growth there. We continue to have opportunities in our international capabilities, and I'll describe the work we've done there over the last quarter. And we continue to have opportunities in the business, that will rebound as the economy continues to move forward in the Investment Management and Capital Markets areas, and we had solid quarters there.

And again, this quarter, we continue to simplify the franchise. This quarter, we made progress. We sold a European small business card portfolio. We have Balboa under contract. That will close late this quarter, early next. In addition, we continue to reduce our private equity positions across the board, and we continue to sell some other small pieces to continue to fine-tune this franchise.

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