Bank of America Corporation (BAC)

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Bank of America (BAC)

Q2 2011 Earnings Call

July 19, 2011 8:30 am ET

Executives

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

Kevin Stitt - Investor Relations

Bruce Thompson - Chief Risk Officer

Analysts

Ed Najarian - ISI Group Inc.

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

Paul Miller - FBR Capital Markets & Co.

Betsy Graseck - Morgan Stanley

Moshe Orenbuch - Crédit Suisse AG

Christoph Kotowski - Oppenheimer & Co. Inc.

Nancy Bush - NAB Research

Glenn Schorr - Nomura Securities Co. Ltd.

Michael Mayo - Credit Agricole Securities (USA) Inc.

Matthew O'Connor - Deutsche Bank AG

Presentation

Operator

Good day, and welcome to today's program. [Operator Instructions] Please note this call is being recorded [Operator Instructions]. 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 Bruce Thompson 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. And for additional factors, please see our press release and SEC documents.

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

Brian Moynihan

Thank you, Kevin. Now before I turn it over to Bruce, I just want to make a few comments about the quarter. As we discussed on the call on June 29, we announced the settlement on private-label securities litigation. We've been working hard to put large pieces of uncertain risks behind us as a company and where we can do that on the basis reasonable to you as our shareholders.

This quarter, following the actions we took on last year's fourth quarter on the GSEs, in the first quarter on the monolines, we put another significant part of the rep and warrant exposure behind us and other mortgage-related matters. In all, as you can see, from the materials, we took almost $20 billion in charges related to the Mortgage business. That is translated in a $0.90 per share loss in the range we gave you a few weeks ago. Adjusting for the mortgage charges, our earnings were $0.33 a share, that's the high end of the range we gave you in June. Bruce is going to give you more details on those adjustments later on.

Switching to the important question of capital. The work we have done to improve our balance sheet over the last several quarters came through this quarter as, even with the loss, we reported capital ratios, which are stronger than this quarter in 2010. Our Tier 1 common ratio, which we -- was -- which we said at the end of June was coming around 8%, actually came in at 8.23%, higher than we expected, a drop of 20 basis points since the first quarter 2011 but improving since last year. Our tangible common equity ratio, which we estimated at the end of June to be about 5.7%, came in at 5.87%, again, an improvement of what we said.

We achieved the ratios through the continued balance sheet optimization and repair that we've been going through the company over the last several quarters. In all, during the second quarter 2011, our RWA came down over $30 billion. Bruce is going to take you through the actions we completed during the second quarter of 2011 and, more importantly, the actions that are still ahead of us in the quarters ahead, all of which gave us comfort and demonstrate we don't need to raise capital as we continue on our plans to comply with Basel III.

As we look at the business lines and you can see how they perform, this quarter shows the power of the rest of our franchise, which has been covered up by losses in Mortgage. As you can see on Slide 5, you can see the results. Each business line, other than Mortgage, had solid earnings and returns, earning all -- in all over $5.7 billion after tax. The franchise and customer model continues to shine through.

In our Deposits business, we grew deposits. We also grew accounts at 2x the rate we grew them last quarter on net new checking accounts. We paid less for our deposits this quarter on our deposits franchise, and we lowered our cost to operate the franchise in this quarter. The transformation of this business unit continues to go well, and we are growing our fees again, offsetting the overdraft regulations that came through last year.

In our Card business, we had strong performance aided by the credit provision released. But we also increased our units in the United States this quarter to over 730,000 new cards. The Durbin will affect this business in subsequent quarters, and Bruce will lay that out later.

In our Global Wealth Investment Management business, we had another solid quarter. We grew long-term assets, grew our advisory team and continue to see strong performance across the franchise.

As we move to the corporate commercial side of our house, we had strong earnings in our Global Commercial Bank as you can see. That's our Middle Market business, led by David Darnell. And we had a good quarter in our global corporate Investment Banking business, which is part of the GBAM, led by Tom -- GBAM unit led by Tom Montag. That serves our larger corporate customers around the world. The deposit and treasury management revenues in these businesses were solid.

The loan growth outside the U.S. is strong, and our investment Banking fees of $1.6 billion plus were one of the best quarters we had in this business, since we came together several quarters ago. Our efforts here also show that our international businesses investments are starting to bear fruit as the revenues outside the United States grew faster than revenues inside the United States.

As we switch our sales and trading portion of the GBAM, Global Banking and Markets business, we had a solid quarter, down from the first quarter of 2011 but up from the second quarter of last year. We made money on 97% of the trading days, even on a choppy market.

Let me switch to 2 other areas of focus, our credit and expenses. On credit, we continue to see improvements in all portfolios, and we still have upside as charge-offs will continue to fall. Delinquencies in all portfolios continue to come down despite the recent backup on some economic and unemployment statistics.

Our -- on expenses, we continue to manage to a flat core expense level that Bruce will show you in a few minutes, if you eliminate the large mortgage onetime charges in the expense base. We've seen our headcount go down slightly this quarter. We continue to invest where we need and have to, in this franchise. Examples are the LAS buildout, the Legacy Asset Services buildout, where we've had to invest to collect the delinquent mortgage loans, but more importantly, on the revenue side, investing in more wealth managers in our Global Wealth and Investment Management business, more FSAs or brokers in our branch and small business lenders in our Deposits business, our international franchise and importantly, a technology investor throughout the franchise.

At the same time, we continue to take out expenses in other areas to help fund these investments. For example, this quarter, our branch count is down 63 from last quarter. Our New BAC projects, which is a company-wide initiative on expenses, will be done this quarter, in the third quarter 2011, for one -- about 1/2 of the company, and we'll give you the results of that in October and show you what we plan to do with the second half of the company during the latter part of this year. Suffice to say, that the work so far has gone well and shows a great opportunity to make our company better and more efficient in the future.

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