美國銀行 (BAC) 2009 Q1 法說會逐字稿

Welcome to today's teleconference.

At this time all participants are in listen-only mode.

(Operator Instructions).

We will take questions in turn following the presentation.

Please note today's call may be recorded.

It is now my pleasure to turn the program over to Kevin Stitt, please begin sir.

Good morning.

Before Ken Lewis and Joe Price begin their comments let me remind you that this presentation does contain some forward-looking statements in that these 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.

With that let me turn it over to Ken Lewis.

Good morning.

Thank you for joining our earnings review.

Our goal that we communicated to you in January, given our view of the economy, was to produce earnings for 2009 that are accretive to capital levels.

We believe first quarter results are a clear example of our ability to produce such earnings, to offset the significant impact from a contracting economy, and abnormally high credit costs.

Total revenue on an FTE basis was in excess of $36 billion, while pretax pre-provision income was approximately $19 billion, both were easily record levels.

Positive drivers in the quarter included a particularly favorable trading environment for interest rate products, currencies, credit products, and equity derivatives, elevated mortgage banking income related to higher volumes, benefits from the sale of certain securities and equity investments, continued momentum in new deposit generation, and prudent balance sheet management.

The earnings impact of these positives were offset by a substantial increase in provision expense, and the impact of lower consumer spending across many of our businesses.

It is interesting that the two businesses, that is Merrill Lynch and Countrywide, that garnered the most press, provided a significant contribution to revenue and earnings growth.

For the first quarter 2009 Bank of America earned $4.2 billion before preferred dividends, or $0.44 per diluted share, after including preferred dividends of $1.4 billion.

Major items in the quarter included the addition of Merrill Lynch on January 1st, accounted for approximately $3.7 billion in net income this quarter, prior to certain merger related costs.

Mortgage banking income increased $1.8 billion to $3.3 billion, compared to the fourth quarter as first mortgage production levels of $85 billion increased significantly, reflecting the strength of the origination platform.

Shares of China Construction Bank were sold for a pretax gain of $1.9 billion, which reduced our ownership from 19% to approximately 17%.

Also in the quarter securities, MBS, were sold for a gain of $1.5 billion in part to avoid prepayment risk.

Structured notes at Merrill Lynch, which are marked to market under the fair value option, were revalued resulting in a $2.2 billion increase to the P&L.

Total realized cost saves from the Merrill Lynch transition were approximately $420 million in the quarter, while merger related expenses from Merrill Lynch were approximately $510 million pretax.

Total credit extended in the first quarter was $183 billion, including commercial renewals, up from $181 billion in the fourth quarter.

The larger components are $85 billion in first mortgages, $71 billion in commercial, and $11 billion in commercial real estate.

The remaining $16 billion includes other consumer retail loans and small business loans.

Provision expense increased almost $5 billion from the fourth quarter, and included a $6.4 billion reserve increase, versus $3 billion in the fourth quarter.

Included in our record revenue levels were losses in global markets totaling $1.7 billion, associated with additional market disruption losses that have impacted past quarter, which Joe will review.

We decreased the period end balance sheet in global markets on a pro forma basis by 21%, or $149 billion.

Average core retail deposit levels, that is legacy Bank of America before the addition of Countrywide and Merrill Lynch, ended the quarter up $33 billion, or 6% from levels a year ago, which we believe is a multiple of market growth.

We exited the fourth quarter with a focus on balancing deposit growth and profitability, demonstrated by our efforts to lead market pricing lower, in response to significant Fed fund rate declines.

As we saw competitive and market pressures increase in the first quarter, we saw responded with new savings products, marketing, and associate engagement activities during the month of February.

By the end of the quarter and continuing into the second quarter, we believe we have regained momentum in our ability to grow market share.

Capital levels improved from the end of December.

Tier 1 capital increased to $171 billion, or 10.1% of risk weighted assets, while the tangible common equity ratio increased to 3.13%.

Before I turn it over to Joe, let me make a couple comments about our [Company] given the current environment.

Fist, make no doubt about it, credit is bad, and we believe credit is going to get worse, before it will eventually stabilize and improve.

Whether that turn is later this year, or in the first half of 2010, I am not going to hazard a guess.

But I do know that our associates are doing everything they can, to not only manage through the turmoil, but to offset higher credit losses, with continued revenue generation across all product lines.

Results this quarter are a testament to the value and breadth of the franchise, the brand, the product mix, and the perseverance of our associates, who have been weathering this environment for the past seven quarters.

The additions of Countrywide and Merrill Lynch have clearly been accretive to earnings, as these market sensitive businesses offer diversification, to offset the core consumer credit headwinds we are now facing.

For the rest of the year, we look for charge-offs to continue to trend upward, I think it will be at a slower pace than we have experienced in the past few quarters.

Reserve build will also continue for the next couple quarters, though not at the level we experienced this quarter.

We continue to position the balance sheet to ride out the recession, which you can see in our actions this quarter, by delevering the balance sheet, adding long-term debt, shrinking certain asset positions, and substantially adding to reserve levels.

Many of these actions have increased our liquidity, approximately $174 billion at the end of March, as you can see in the higher cash and cash equivalent levels.

While these actions are prudent, they are also very expensive in the short term, but are well worth the cost in the long term.

From an economic standpoint, we believe we can see weak but positive GDP growth by the fourth quarter this year.

I have to say that even our internal economists are a little at odds, as to the timing with some seeing recovery earlier.

However, we think it is prudent to run the Company under an expectation it will be later in the year, or early next year.

We believe unemployment levels won't peak until next year, at somewhere in the high-single digits.

At this point we don't see unemployment meeting or exceeding 10%, but that will of course be impacted by how long the economy stays in recession.

As most of you know, unemployment was a lagging indicator, and is only one of the factors we look at, along with home prices, bankruptcy expectations, and speculative degrade of default rates, to name a few.

But at this point I want to turn it over to Joe for some additional color and commentary.

Thanks, Ken.

Before commenting on specific businesses, let me point out that with our acquisition of Merrill Lynch, we have moved our reporting from three to six primary segments that you can see on slide seven.

Essentially what we did was divide the three previous segments into further detail, with some minor geography changes.

In order to better coordinate our consumers payments businesses, we consolidated our Card Products into Global Card Services, which means debit cards have moved from Deposits to Global Card Services.

Investment banking is part of Global Banking, and Investment Banking Fees are allocated between Global Banking and Global Markets.

Global Markets consists of sales and trading activities, and Fixed Income, Currencies, Commodities, and Equities.

Now let me quickly touch on some highlights in each of the businesses, that demonstrate how we are performing in the face of a contracting economy.

Let me first say that impacting some of the segments this quarter is lower residual net interest income, which is the revenue allocated to the business segments, that is the result of our asset and liability management, and other corporate strategies.

Corporate decisions such as delevering the balance sheet, or changing interest rate positioning, will impact the level of revenue that we allocate to the separate business segments.

Under the Deposit segment, which you can see on slide eight, earnings were $493 million in the quarter, down from $1.5 billion in the fourth quarter, due to lower net interest income and service charges.

The lower net interest income was due to the lower residual income of approximately $800 million allocated to the business.

We continue to add new customers on a net basis in DDA savings accounts, as well as online banking.

While sales are in-line with a year ago, we are seeing more account closures by both the bank and the customer, as customers face the pressure of the recessionary environment.

Net new DDA accounts, for instance, were 218,000 in the first quarter, up 68% from the fourth quarter, but down by more than half from a year ago.

This growth correlates with what we think is higher retail deposit market share, as Ken referenced earlier, when he talked about deposit levels, which we show on slide nine.

Global Card Services which is on slide 10, earnings were a negative $1.8 billion versus $26 million in the fourth quarter, due mainly to a $2.5 billion increase in credit costs.

Average managed consumer credit card outstandings were down 2% from the fourth quarter.

Pressure on consumers to moderate spending has driven a drop in retail purchase volume, a 9% seasonal drop from fourth quarter activity, and a 10% drop from the first quarter a year ago.

Even though the economy has contracted, we continue to add new account.

800,000 new domestic retail and small business credit card accounts in the quarter, with credit lines of approximately $5.5 billion.

Turning to Home Loans & Insurance, and you can see this on slide 11, the business is going full bore, as evidenced by the fact that we have added or intend to add almost 5,000 new positions in addition to transferring over 700 associates from other parts of the bank, to fulfill the increased volume.

Total revenue for the quarter was $5.2 billion, up 60% from fourth quarter levels.

However, earnings were negative due to a high level of provision, but still improved versus the fourth quarter, as the higher revenue more than offset the $1.7 billion increase in provisions.

We saw first mortgage fundings spike 91% over the fourth quarter.

Approximately one-quarter of the fundings were for home purchases.

Our market share remains strong at 20%, and we expect strong origination trends to continue for the balance of 2009.

Global Wealth Management, which is shown on slide 12, earned $510 million in the first quarter in-line with fourth quarter levels, and more than double the earnings versus a year ago.

This business was also impacted by our overall balance sheet strategies, as net interest income absorbed over $250 million in lower allocated revenue.

Also, as you know, it is a tough environment for asset managers, given the condition of global markets, and investors' response to market conditions.

Assets under management ended the quarter just under $700 billion, down on a pro forma basis from the end of the year, due to the drop in market valuation, and outflows in Columbia's cash fund.

Both asset management and brokerage fees were down, due to lower market levels.

Much has been written about the disruption of our financial advisers, and some have taken substantial bonuses to move elsewhere, but for the most part, we are keeping the FAs who are most productive.

Over 95% of the high producing FAs have remained with Bank of America.

Of the FAs who have left the organization, more than 1,200, or 55% were trainees.

Turning to Global Banking, which is shown on slide 13, it encompasses our commercial bank, corporate bank, and the investment bank.

Here we earned $175 million in the quarter, down from $1 billion in the fourth quarter, due to higher provision, higher expense levels, and lower allocated deposit net interest income, that more than offset higher noninterest revenue.

Credit spreads continue to widen, as facilities were repriced at higher market rates.

And although commercial and corporate clients are being cautious given the economy, organic revenue growth across these client segments was 10% versus a year ago.

Average loans as reported for the quarter were flat with the fourth quarter.

Average deposit levels were stable factoring in some seasonal activity, and are up 22% from a year ago.

Now investment banking fees, and that would be across the corporation, exceeded $1 billion, and you see this on slide 14, which is a strong showing in a pretty weak environment.

As industry-wide deal volumes were down across the board for the quarter, with maybe the exception of debt capital markets, the combined Bank of America/Merrill Lynch franchise ranked number one in US equity capital markets, high yield, leverage and syndicated loans by volumes, and was a top-five merger and acquisitions advisor in the US and globally, based on announced deal volumes.

Global Markets on slide 15 earned $2.4 billion in the first quarter, versus a loss of $3.7 billion in the fourth quarter.

Clearly the trading environment in the first quarter was much improved from the fourth quarter, and was characterized by high levels of volatility, and increased client driven activity, especially in more liquid products.

The strong business performance this quarter is a testimony to the combined sales and trading platform, and in particular the excellent talent we have retained from both legacy companies in these businesses.

All core businesses posted record revenues reflecting the environment, greater volatility in liquid products, a rebound in credit, and the complimentary nature of bringing the two platforms together.

Let me add some additional comments around the performance, as well as some color around the positions at quarter end.

As you can see on slide 16, sales and trading revenue increased to just short of $6 billion in the quarter, versus a negative $5.8 billion in the fourth quarter.

This included absorbing legacy charges on legacy positions of $1.7 billion, the largest related to write-downs of mono-line guarantor counterparty receivables of about $1.2 billion, but also benefited from credit valuation adjustments.

Rates and currencies had a very strong quarter, $3.6 billion, or almost 60% of the total sales in trading, versus $181 million in the fourth quarter, as we have been able to capitalize on increased volatility in the interest rate markets, the flight to safety in US Treasuries and Agencies, and solid customer flows.

The commodities business reflected strong first quarter revenue, which is typical for this business.

In Credit Products where we had $890 million, versus a negative $2.2 billion in the fourth quarter, debt issuance in capital markets rebounded from the depressed levels of 2008, as issuers took advantage of improved investor appetite and attractive rates, some of which may be an acceleration of refinancing.

Credit trading had strong first quarter results driven by increased volatility and liquidity, offering better opportunities in client flow trading, as credit spread relationships normalized from the dislocations experienced in the fourth quarter 2008.

Now for the rest of the year we expect continued strength in origination, and more normalized trading results.

Structured products had a loss in the quarter due to the additional marks, which I will address in a minute.

However within structured products, mortgage products benefited this quarter from favorable market conditions in agency related securities, due to investor appetite for yield, and government efforts supporting the mortgage market.

Equities also had a good quarter, $1.4 billion in revenue, versus a loss of $18 million in the fourth quarter.

Despite the quarter being generally characterized by continued weakness in global equity markets, equity derivatives benefited from high levels of volatility.

Cash equities were solid due primarily to the addition of the Merrill equity franchise.

Now looking at the non business as usual results, losses of 1.7 were certainly lower than the levels we saw in 2008.

However, we continue to carry exposures at risk in the current economic environment although at reduced amounts and marked at current levels.

Let me give you a quick update as detailed on slide 17.

Starting with leveraged lending, we ended the quarter with exposures of $8.3 billion, which we are carrying at $4.4 billion.

The pre-disruption exposures are those not having current market terms, totaled $6.9 billion, which obviously is included in that $8.3 billion, and are carried at $3.1 billion, $0.45 on the dollar.

During the quarter we wrote down an additional $98 million, net of hedging results.

Looking back in order to keep perspective, Bank of America's total leveraged exposure was over $32 billion, while Merrill's was over $52 billion in 2007.

On the CMBS side we ended the quarter at $7.3 billion.

Approximately $5.5 billion relates to acquisition-related large floating rate debt, carried at $0.75 on the dollar.

The $7.3 billion excludes approximately $4 billion of senior positions that we transferred through the accrual book, in connection with the merger, and in recognition of the fact that we will be holding these positions.

The Floating rate CMBS market remains relatively closed to issuance at this time.

Charges during the quarter totaled $174 million, and related predominantly to this floating rate debt.

We also recorded $150 million of losses associated with equity investments we made in acquisition-related financing transactions.

On slide 18 and in the supplemental package, you can see our CDO related exposure, along with the changes during the quarter, where we recorded losses of $525 million.

The losses were comprised of $192 million in super senior CDO write-downs, a charge of $210 million to reflect counterparty risk, associated with our positions and hedges, and an additional write-down of $123 million, mainly on positions retained from CDO liquidations.

At the end of March, our unhedged subprime super senior related exposure dropped to $1.4 billion, while bonds retained from liquidations were $1.8 billion.

These positions are carried at a combined $0.25 on the dollar, Now the $1.95 billion on non-subprime super senior unhedged exposure is carried at $0.65 on the dollar.

The carrying value of the super senior CDO hedged exposure for subprime and non-subprime of $1.3 billion and $606 million, reflect values of $0.19 and $0.85 respectively.

Regarding the counterparties on the associated insurance wraps, $5.6 billion is with monoline financial guarantors.

We are carrying a 60% reserve, against our $4.2 billion receivables related to these wraps.

Now in addition to the monoline financial guarantor exposure related to the super senior CDOs, we have got $55.9 billion of notional exposure that predominantly hedges corporate CLO and CDO exposure related to legacy Bank of America correlation trading books, but also covers CMBS, RMBS, and other ABS cash and synthetic exposures.

$14.7 billion of the $55.9 billion is carried as a receivable, and we are carrying a reserve of just over 40% on that receivable.

Charges to increase this reserve totaled $960 million during the first quarter.

Finally, we had additional negative marks associated with auction rate securities of $73 million.

Going forward I probably won't spend as much time on these exposures, but felt it was important this time given the merger.

Not included in the six business segments is equity investment income of $1.3 billion in the first quarter.

As Ken said earlier, we sold some of our investment in China Construction Bank, and booked a pretax gain of $1.9 billion.

Now in addition, we had negative marks and impairments of approximately $900 million on various investments, including global principal investing.

Now let me switch to credit quality which is starts on slide 19.

As Ken referenced, credit quality deteriorated further during the quarter, as the economy continued to weaken.

Consumers experienced increased stress from higher unemployment and underemployment levels, as well as further declines in home prices, leading to higher losses in almost all consumer portfolios.

While we are seeing an improvement in early stage delinquencies in many consumer products, we are largely attributing this to seasonal factors, until we see more sustained improvement.

These factors along with further pull-backs in spending by consumers and businesses, and continued turmoil in the financial markets, also negatively impacted the commercial portfolios.

Consequently the first quarter provision of $13.4 billion exceeded net charge-offs, with the addition of $6.4 billion to the reserve, versus an addition of $3 billion in the fourth quarter, as we fortified our balance sheet to absorb expected impacts going forward.

Now reflective of continued economic stress on the consumer, reserves were added for most consumer related products, most notably consumer real estate, credit card, and consumer lending.

The reserve addition also includes approximately $850 million associated with a reduction in expected principal cash flows on the Countrywide-impaired portfolio, driven by continued deterioration in the economy, and the home price outlook.

On the commercial side, we added approximately $1.2 billion to the reserves for small business and broadbased deterioration in the commercial real estate and domestic portfolios.

Our allowance for loan losses now stands at $29 billion, or 3% of our loan and lease portfolio.

Our reserve for unfunded commitments now stands at $1.4 billion, bringing total reserves to $30.4 billion.

On a held basis net charge-offs in the quarter increased 49 basis points from the fourth quarter levels to 2.85% of the portfolio, or $6.9 billion.

On a managed basis overall consolidated net losses in the quarter increased 56 basis points to 3.4% of the managed loan portfolio, or $9.1 billion.

Net losses in the consumer portfolios were 4.26% versus 3.46% in the fourth quarter, and credit card represents almost half of total consumer losses.

As you can see on slide 20, managed Consumer Credit Card net losses as a percentage of the portfolio, increased to 8.62% from 7.16% in the fourth quarter.

30-day delinquencies in Consumer Credit Card increased 117 basis points to 7.85%.

US credit card delinquencies continued to increase across all states, but more significantly in California and Florida.

Early stage delinquencies have shown improvement over recent trends, but as I said earlier we are attributing this to seasonality.

With unemployment levels projected to go higher, we would expect the Consumer Credit Card net loss ratio to increase as well, as I said last quarter, exceed unemployment levels by at least 100 basis points, and be further impacted by decreasing loan levels.

Credit quality in our consumer real estate business continued to deteriorate in the first quarter, as shown on slide 21.

Our home equity portfolio continued to be negatively impacted by rising unemployment, and centered in higher CLTV loans, particularly in the states that have experienced significant decreases in home prices.

Our largest concentrations are in California and Florida, which make up 41% of quarter end balances, and 61% of home equity net charge-offs during the quarter.

Home equity net charge-offs increased to $1.7 billion, or 4.3%, up 138 basis points from the prior quarter.

We did have some catch-up items in the first quarter that inflated the rate approximately 70 basis points, but having said that, we still expect loss rates to hover in the fours for a while.

30-day performing delinquencies were actually down seven basis points to 1.68%, and it is a positive sign, although we again are attributing the trend right now to seasonality.

We continue to see increased utilization rates up 180 basis points to 54%, driven by additional line management, and net draws on home equity lines of credit.

Our ending home equity balance of $158 billion was up due to the addition of Merrill.

That is about $5 billion.

Nonperforming loans in home equity rose to 2.28% of the portfolio, from 1.75% in the prior quarter.

Loans with a greater than 90% CLTV on a refreshed basis, currently represent 42% of loans, versus 37% in the fourth quarter.

Reflecting my earlier comment on loss expectations in home equity, we increased reserves for this portfolio to 4.73% of ending balances, reflecting a continued elevated level of delinquencies, frequency of defaults, and loss severities.

Turning to residential mortgage, our portfolio showed an increase in losses of $785 million, or 120 basis points for the quarter.

That would be 95 basis points net of our resi wrap protection.

Excluding our community reinvestment act portfolio, and that totals about 7% of the residential book, but about 24% of the losses.

losses would have been $597 million, or 98 basis points.

If you combine that with the resi wrap, it would be 71 basis points, net of both of those.

We continue to see increased delinquencies in losses across our portfolio, and to no one's surprise, in those states most affected by housing problems, California and Florida, which combined comprised 43% of the balances, drove 59% of the net losses.

Although period end loans are up due to Merrill Lynch, we have reduced the legacy Bank of America portfolio, through lower balance sheet retention of new originations, as well as sales and conversion of existing loans to securities, both of which further strengthen liquidity.

But this also has effect of bringing down the average loan balances, thereby negatively impacting the reported loss rate, and other credit metrics.

Now we do expect to see continued deterioration, and anticipate additional reserve increases in this portfolio.

We anticipate overall loss ratios to remain in excess of 100 basis points, which could potentially go higher, due to lower balance sheet retention of new originations.

On slide 22, we provide you details on our direct and indirect loans, which includes the auto portfolios and consumer lending.

Switching to our commercial portfolios, and you can see this on slide 26, net charge-offs increased to $1.5 billion, or 168 basis points, up nine basis points from the fourth quarter.

Almost all of the higher net charge-offs are driven by commercial real estate and small business.

Losses in the remaining commercial portfolios actually declined from last quarter.

Net losses in small business, which are reported as commercial loan losses, increased $71 million to 13.47%, and are most pronounced in states experiencing severe housing pressure.

As we have discussed before, many of the issues in small business relate to how we grew the portfolio over the last few years, which is now compounded by the current economic trends.

Our current allowance for small business after adding to the reserves in the first quarter stands at just under 16.5% of the portfolio.

Excluding small business, commercial net charge-offs increased $73 million from the fourth quarter to $870 million, representing a charge-off ratio of 102 basis points.

The increase was driven by commercial real estate.

Within commercial real estate, net losses increased 20 basis points to 2.56%.

Commercial real estate losses continue to be centered in homebuilders and land.

Reservable Criticized Utilized Exposure in our commercial book increased to 11.13% of the book, from 8.9% at the end of the year.

The increase continued to be broadbased across industries, lines of business, and products.

Nearly one-fourth of the increase was related to the addition of Merrill.

Of the remainder, 27% was non-homebuilder commercial real estate, and 40% was commercial domestic, centered on consumer facing industries, like specialty retail and restaurants.

Commercial NPAs rose $2.9 billion to $9.7 billion.

13% of the increase was the addition of Merrill, while the remaining increase was centered in commercial real estate, still concentrated in homebuilders, but also some in retail and commercial land.

Nearly 40% of the commercial NPAs relates to homebuilders.

Going forward we think we will see some leveling off of commercial real estate charge-offs, offset by growth in commercial domestic.

Overall we would expect to see a continued uptick in charge-offs given the economy, but still within the range of expectations.

As we did with all of the portfolios, additional allowance for loan losses were added in the first quarter, bringing our commercial coverage to 2.11% of loans.

Okay, let me get off credit quality, and say a couple things about net interest income.

Here I am on slide 28.

Compared to the fourth quarter on a managed and FTE basis, net interest income was down $95 million.

Core dropped approximately $425 million, offset by $330 million of higher trading net interest income.

Merrill Lynch added approximately $375 million to core net interest income, and $375 million to trading.

Excluding the addition of Merrill Lynch, managed core net interest income decreased approximately $800 million, and was due to essential three factors.

First, two less days in the quarter, resulting in approximately $200 million less.

Second, higher levels of long-term debt cost us approximately $200 million, as we continued to lengthen maturities.

And finally, we continued to take steps to delever the balance sheet, which cost us $350 million this quarter.

While earlier delevering actions were designed to increase our liquidity, our current actions have more to do with the continued decline in mortgage rates, and the fact that prepayments would have eliminated gains in our mortgage backed securities portfolio.

This quarter as you can see in the results, we sold approximately $51 billion of mortgage backed securities for gains of $1.5 billion.

These actions also indicate that in the short term, we will probably wait to reinvest given the possibility that the forward curve may shift higher, and continue to position ourselves towards an asset sensitive balance sheet.

What that means is that there could be some continued decline in net interest income.

The core net interest margin on a managed basis also decreased 39 basis points to 3.63%, due to lower margin, Merrill additions, and lower credit card balances.

At this point I wouldn't expect a lot of movement in the core net interest margins in the near term.

Prior to fourth quarter our risk position had been liability sensitive, where we benefit as rates decline, and are exposed as rates rise.

This risk position has evolved over the last two quarters to become asset sensitive.

Given the low level of rates, short-term funding products are unable to reprice much lower, while our discretionary portfolio is prepaying faster.

This has also been driven by a change in our balance sheet composition, including a reduction in our fixed rate assets, because of our discretionary portfolio reductions, and an increase in fixed rate funding, namely equity, and most of that due to preferred stock.

In addition, Merrill Lynch added a mostly variable rate asset base, that is largely funded by sweep deposit accounts.

As you can see from the bubble chart on slide 30, our interest rate risk position has become more asset sensitive when compared to year end, primarily due to agency MBS sales, and the addition of Merrill Lynch, net of the additional received fixed swap positions.

Given how low rates are, we are comfortable with our current interest rate risk profile.

Now let me say a few things about capital, the and you can see this on slide 32.

Tier 1 Capital at the end of March was 10.1%, up from 9.15% at the end of the year, due to the addition of Merrill Lynch, additional preferred, and quarterly earnings.

This Tier 1 ratio is lower than the pro forma projection we estimated in January, due to the fact that we haven't finalized the insurance wrap with the Federal Reserve, and therefore the benefit is excluded from the 10.1%.

It is estimated to add approximately 65 basis points.

Our tangible common equity ratio is 3.13%.

As you have heard us say before, this is a pretty blunt calculation.

For instance, adding back the OCI associated with higher quality MBS that we expect will pay off in full, and the restricted China Construction Bank shares, increased the tangible common ratio by approximately 37 basis points, giving you an adjusted TCE of about 3.5.

Likewise, if you considered the excess cash and cash equivalent positions we are currently carrying, you would get another lift.

Our tax rate this quarter, excluding the FTE impact, was 21%, which is in the range we expect for the rest of the year, and is driven by the level and geographical mix of our pretax earnings.

Going forward in 2009 and in-line with what Ken said, we have been fighting the downturn for almost seven quarters now, and expect to continue to fighting it for a few more quarters, until we see stabilization, and an eventual turn in economic growth.

We have a strong balance sheet with a robust and conservative liquidity position, strong credit reserves, and a solid capital position.

As first quarter results demonstrated, we are engaged 100% in leveraging the strengths of the corporation, to be profitable on an EPS basis, and add to our capital levels.

While we expect credit losses to trend higher in most of our businesses, we believe the level of our reserves and revenue generation over the next several quarters, will enable us to get through the periods, with minimal impact on capital levels.

As you know by now, both Merrill Lynch and Countrywide contributed positively to earnings this quarter.

The Merrill Lynch integration effort, while difficult given the environment, is on track.

As Ken said, cost saves benefited the quarter and for the most part are in-line with expectations.

We completed the Merrill Lynch assessment phase of the transition in March, and they are now in to execution.

During the second quarter, we will focus on businesses that serve corporate and institutional clients.

These lines of businesses will introduce new brands and logos for their combined organization, allowing them to interact with clients and customers as a united team.

Likewise, at Countrywide we are rebranding our stores this month, so our customers will be looking at the Bank of America name across our entire mortgage operation.

So while the next quarters will be challenging, we believe we can move Bank of America forward from a competitive standpoint, an operational standpoint, and an earnings standpoint.

With that let me open it up for questions, and I thank you for your attention.

Thank you, sir.

(Operator Instructions).

We will take our first question from the site of Christopher Mutascio from Stifel Nicolaus, your line is open.

Good morning Ken and Joe, how are you?

Good morning.

Good.

Joe, I wanted to get a little more color on the commercial side of the loan book, I was taken back a little bit by how high the NPLs went this quarter on commercial real estate and C&I.

Is this indication of we are now entering the second stage, if you will, of the credit cycle?

We have all been worried about the consumer side, and still we are seeing some pressure there, but the commercial side is now full force, and if so, did the NPLs this quarter exceed your expectation, and therefore does it mean that the loss rates going forward could be higher than what you currently expect?

I think if you look at, as I said in our comments, there was some contribution from Merrill Lynch coming on, so kind of take that out, and that was about 13% of it I think.

The rest was still centered in commercial real estate, and still centered in homebuilders, although some came from retail and land, so you are seeing some spread of that into other commercial components.

If you look at our Criticized, you can see some into the other domestic, or the increase that came from other domestic.

So remember, part of this effort on Criticized and non-performing is to quickly identify, get these things into special workout groups, and be aggressive about that.

So I wouldn't say they exceeded expectations as much as it is kind of the natural progression that you would see in credit management, coming in this weak environment.

Just a follow-up, or an unrelated question, there has been some reports in the paper about maybe selling off some other business lines, and some in asset management.

Any thought on that going forward?

Are there other lines of business that you might be looking to sell or to monetize?

This is Ken.

You know we have got First Republic in the process as we speak.

And we don't comment on any items before we put them up for sale, but any time you acquire a company the size of Merrill Lynch, you step back and you look across all your business lines, to make sure that you have got the ones that are strategically important, and then look very carefully at ones that you may or may not think that are, so that process is going on, but that is a natural process, given any large acquisition.

If I could ask one final one, other than the $2.2 billion in the debt write-up of Merrill, were there any other fair market value adjustments that are noteworthy in the quarter?

You would have had your normal components of CVA in your derivative books, across Tom Montag's platform, or the Global Markets platforms, that would have had favorability in them this quarter also.

Can you quantify that?

It is probably somewhere in the $1.5 billion number all-in, but on our spread side, here is the way to think about it.

Okay.

Thank you very much.

We will go next to the site of Betsy Graseck with Morgan Stanley, your line is open.

Good morning.

On page 16, you went through the sales and trading numbers, and then you indicated that going forward you think you can get to a more normalized level of trading.

Clearly there has been a lot of volatility from write-downs, et cetera, and you have also had an increase it look like in the VAR in the quarter, but I am sure that is part due to Merrill.

Could you just give us a sense as to how you are thinking the about managing the trading activities, and what kind of level of risk you are comfortable with?

I guess I would start by saying, you are correct this is a market driven business, and you start every day at zero, is the way to think about.

In regards to the bias of our business, I think we saw very solid customer flows throughout the quarter.

Those flows continue this quarter, and that would be the bias.

Having said that, the VAR will increase when you combine the two platforms, not only because of the calculation methodology, meaning that you have got a lot of volatility in the history, but because there are positions, whether they are market making inventory and proprietary, that will always be part of the business, but I would say you should think of Tom's bias, as being the customer flow business first, and everything else off the back of that.

And would you give 4Q '08 for Merrill, based on these categorizations on page 16 at some point?

I am looking at Kevin to jot that down, as we think about when we put the 10-Qs out, okay?

Okay.

And then separately, there has been discussion of the PPIP, the bad assets held, those kind of programs.

Is that anything you are considering for exposures that you have?

I guess at this point, it has not been finalized exactly what the process will be, so we have got to first see exactly what it is.

I think any program that adds to price discovery, and adds to some pricing in the marketplace will be helpful.

At this point, our inclination would be to think about giving it a small trial run to see what it yields, and to see if the offers an additional avenue to Tom, to manage the businesses and assets, and see where we go from there.

So right now it is still a lot to go, before we make any final determinations.

Thanks.

We will go next to the site of Michael Mayo from CLSA, your line is open.

Hey, Joe.

Just to follow-up on first, the commercial problem assets.

Slide 26 of the presentation, Reservable Criticized Utilized exposure that went from $37 billion up to $49 billion.

Are these Criticized lines out there that are getting drawn down by the customers, or what is that?

Why is that going up so much, and what does that mean for future commercial losses?

First, actual draws or utilizations were flat to slightly down this quarter, Mike, so I think that a tad of that may be seasonal, but I think in general, you did not see any significant draw down across the board.

You saw a little bit of the opposite.

If you look at the increase that came, think of it as about, this is looking at about a $12 billion increase.

Think of about 3 of it coming out of non homebuilder commercial real estate, about 3 of it coming out of the Merrill Lynch addition, and then the rest coming out of your consumer facing industries in domestic, and I referenced a few when we gave the comments, but that is kind of the make up of it.

I would saying again, generally this classification is where we highlight the credits that need special attention or need more attention on them, and focus on them, and we segregate them for work out.

And so that is what you should read into it.

The loss expectations as I commented earlier, we will see some uptick in losses around commercial domestic in this weak economy, but nothing outsized at this point, is kind of our view.

Are you surprised at how good commercial loan losses are?

Just the tradition commercial, 56 basis points of loans in the first quarter.

If you think of what we have tried to do over time, we tried to migrate a lot of the weaker structured credits in the commercial book into the markets business.

We carry it on fair value option, hedge it there.

So if you took something, for instance, like some of the names you have heard, the majority of what is in our accrual book is on secured, whereas some of the unsecured paper is carried in the fair value option, or on the trading side, and we pretty actively hedge it.

I am not saying we haven't taken some charges over the last several quarters in that type of paper, but I think it is kind of what we decide to carry in the accrual book, probably has much to do with it.

Obviously we feel pretty good about the underwriting there.

Separately, on the consumer portfolio, you said seasonal factors several times, and showing some caution for the next couple quarters.

Is that indicative of your portfolio, or simply how you expect the industry to perform?

I guess I would say I would expect to see some of that across the industry, and to the extent that we have a little more favorability in a few of those early state, maybe that is telling us something, but again we are kind of managing as if it isn't, until we see that on a sustained basis.

And what are those seasonal factors?

Typical things.

Take something like an auto portfolio.

It is the way car buying happens throughout the year.

Some of these are masked a little bit by the economy, but it is those typical early spring, early year, early spring kind of factors, that you generally see some reductions in delinquencies.

And would the foreclosure moratorium be part of that at all, now that you can foreclose on homes again?

Well, realistically, not in this quarter.

The foreclosure moratoriums, you probably saw a build-up in some of our later stage delinquencies, as things were not referred to foreclosure from those standpoints, but that probably worked later stage, not earlier stage, and probably worked against you versus for you.

Alright.

Thank you.

We will take our next question from the site of Nancy Bush from NAB Research.

Your line is open.

Good morning.

Couple of questions here.

Could you just talk about the durability of the kind of gains, or kind of business that you are seeing at Countrywide going into the second quarter?

I know you had big origination revenues.

You did have, I think, a pretty good MSR adjustment gain.

How do you see the second quarter shaping up?

Well, on the production side I think we are continuing, Barbara's team is continuing to see good inflows so I would expect that, quite frankly, to continue, for at least until you see some kind of significant change in rates, although as I pointed out in the comments, you are actually seeing a reasonable percent in purchased money, and so obviously that is helped by the first time homebuyer credit, and the level of rates, and all of those things.

On that side we would anticipate continuing to see some pretty good results.

On the MSR side, Nancy remember that we wrote down our MSR values in the fourth quarter by almost $7 billion, offset by hedges here.

You had a little bit of a reversion back up, and then hedge results were pretty good.

The way I kind of think of it, as I look back and say, where do we have the ending MSR value, and I think we are around 83 basis points, when most of the people that are out there so far this quarter are somewhere in the 90s.

So I feel pretty good that you are not going to get a surprise off of that, although it will be impacted by future rates and some of the administration's programs, so reasonably sustainable, but probably a little bit high this quarter.

Okay.

Second question would be the tenor of the deposit businesses here, account openings, that sort of thing, how are those tracking?

New account openings are actually doing very well, we feel very good about that.

We are seeing a little heavier closure both by, that we are affecting as well as consumers, and I attribute some of that to just kind of the general economic environment, but even on a net basis, Even from quarter to quarter we are up over, if you look back to the first quarter last year we are down slightly, but it wouldn't driven by the sales side as much as on the closure side.

We feel pretty good about that, some of the closures are low balance, less profitable, but also where customers are electing to consolidate accounts to save fees, things of that nature.

Just sort of the general tracking of deposit spreads?

I am sorry, Nancy?

Deposit spreads.

Have you kind of hit the wall here, in how far you can lower deposit costs?

I think reasonably speaking, yes.

It doesn't mean there is not room in certain markets and certain areas, but I think on an at-large basis you are correct.

Okay, thanks very much.

And we will go next to the site of Moshe Orenbuch with Credit Suisse, your line is open.

Thanks.

Can you talk a little bit in greater detail, expand a little bit, on the prospects for the credit card business, you lost almost $3 billion, with the 4-and-change billion reserve addition.

What is the prospect for the interplay, and what kind of steps have you taken in pricing, and how much of the increase in losses that you are likely to see, could that offset?

There is clearly unsecured consumer credit, mainly credit card, is where you feel the teeth of this slowdown.

We don't necessarily view that as a term kind of issue, from a strategic view for how you run the credit card business, although given all of the other regulatory changes in the winds, we will have to be responsive to those, Moshe.

The pricing, we have taken certain actions on pricing, and we have some in the works, although those are, think of those as risk based.

Think of those as less introductory, low rates, things of those natures, so I don't have a pegged percentage right now, of how much of that increased loss those will offset, and I think that is why you saw us building.

You have seen us build reserves to take care of a lot of our future expected loss in that portfolio, but I don't know, Ken, if you have anything to add.

I kind of look at it more as we are responsive to the changing environment, but we are also staying true to the core business.

I wouldn't add anything to that.

I agree.

Just a quick follow-up.

As you see comments kind of originally obviously from the Fed and UDEP, but now out of the Administration and Congress, any thoughts about the prospects for the revenue side of the business?

That is what, I guess Joe was referring to, going forward.

There are things of that nature, as you know probably better than we, that are causing us to step back and look at the business, and see what should we do differently, to kind of relate to that new operating environment, but that is kind of in the process as we speak.

Thanks.

We will go next to the site of Steven Wharton with JPMorgan, your line is open.

Hi guys, quick follow-up question.

You mentioned that the ring fence had not been finalized, and that that would lead to a 65 basis point increase in the Tier 1 ratio at quarter end.

Would that be a similar increase for the tangible common equity to risk weighted asset ratio, have you calculated what that impact would be?

I think that asset pool was carrying a 20% risk weighting, and that is what drives it, plus there is preferred issuance, but I don't have that handy right off, but it would have a rink weighted asset impact there.

Okay.

And is there a reason why it is taking so long to get it finalized, and will this be changed, or impeded at all by the stress tests?

I guess I would say it probably had something to do with the stress test, in that the Federal Reserve guys have been relatively busy this past quarter, but no greater linkage than that, to my knowledge.

I would look for us to try to address it in the second quarter.

Okay.

Thank you.

Our next question from the site of Meredith Whitney with Meredith Whitney Advisory Group.

Your line is open.

Good morning.

I wanted to ask a question related to this release versus last release, and the concentration issue, in terms of mortgage loans, and credit card loans and losses.

So it looks like the losses are spreading out through the rest of the county, as opposed to just concentrated from California and Florida.

The spread factor is an increasing factor, or in fact do you see Florida, California improving?

So what I am looking for is more color regionally, and then also, if you are seeing any type of either stabilization, or in fact another leg down with subprime from California and Florida, given the fact that it looks like another wave of contraction has been taken out of the system, or liquidity has been taken out of the system, with the shuttering of HSBC, with so many finally closing their subprime books.

I guess on a regional basis I would say, and look Meredith, it is too early to call stability probably, in this cycle, but I would say California feels a little bit better.

You are seeing signs of life in terms of certain markets, although they are clearly still MSAs that are severely under pressure.

So there I feel a little better.

I think Florida we will continue to see some pretty hard down draft, and that one I wouldn't point to any particular points of light at this time.

I think on a broader basis, your thought about this economic weakness is spreading much broader around the country is valid, and we are seeing the impact, although I would say both because of the size of those particular particular areas, as well as the size of the portfolio, our concentrations, we are still focused principally on those types of areas.

Okay.

So nothing further in terms of weak spots regionally, hot spots regionally, or exposures that you are worried about?

Like I said, more of a broader spread as opposed to real hot spots beyond that, but I would probably still put Florida at the top of our list of focus.

Okay.

And then would you update from last quarter your unemployment, and peak to trough home price assumptions?

As Ken said in his comments, at this point we don't see unemployment peaking into double digits.

We still see it in the high-single digits, is the way I would characterize that.

And likewise on his comments about GDP, from an [HPA] standpoint, I would say we are pretty close to Blue Chip consensus.

Think of it as still in that mid-30s peak to trough, think of it as having been through almost 30% of that, so quite a ways there, although different regions will act very differently in that.

When you think about our reserving policies, remember we reserve kind of on an incurred loss, so when I give you loss projections, or give you thoughts about where basis points of loss might be, that tends to incorporate our view on the home price outlook, moreso than the exact reserve at the point of time.

Thank you.

We will go next to the site of Jason Goldberg with Barclays Capital, your line is open.

Thank you.

Good morning.

Ken, during the course of the quarter, in the press we have seen you comment several times about your adequacy of capital levels.

Can you discuss that in terms of do you feel enough capital, particularly in light of this stress test, the quality of the capital, there is a lot of talk about preferred to common conversions, et cetera.

Well, first of all, with regard to needing additional capital, we absolutely don't think we need additional capital.

With regard to the second part of the conversion, we think we are fine but it is now out of our hands into others.

So from all of the ways we have looked at it we think we are fine, but again, this is in the hands of the regulators at the moment.

Can you comment in terms of where you think you are with respect to the stress test, or kind of what your views were in terms of what you submitted?

No, I think we have said before that we have submitted the information, and that is where we are.

It is now in their hands.

Okay.

Then secondly, appreciate the outlook on charge-offs, and thoughts around credit quality.

In terms of the 6.4 billion addition to the reserve, obviously a big number, I guess how do you think kind of the taste of reserve builds will progress as the year goes on?

You are right, that is an extraordinary reserve build, and I think as we look at a gain from CCB, or whatever, you have got to look at in the context of reserve build that big, at closely to the height of the recession.

So I think we will have to put these things in context.

But we would expect further reserve build, but not of that magnitude going forward, Jason.

Okay.

Thank you.

Our final question will be a follow-up from Christopher Mustacio from Stifel Nicolaus, your line is open.

Joe, I just wanted to clarify my first question, when I talked about the fair value adjustments in the quarter could be another gain of 1.5 billion, is that separate and aside from the investment security gains of 1.5 billion?

Yes, that would be component of counterparty risk valuation adjustment embedded in Global Markets.

Okay, so the large kind of gains in the quarter were the China Construction Bank, the investment security gains, the Merrill debt, and the fair value.

Then offset to that would be the merger related expenses?

Did you also mention you had some security losses in the quarter, and can you tell me what they were?

Equity losses, if you go back in our comments, you can see that when we talked about principal investing, there is somewhere in the 900 million range, but also we have got kind of ongoing business as usual charges embedded in Global Markets too, so what we tried to spell out for you, was the stuff that we viewed as more unusual.

Don't forget, Chris, that was the higher than usual was that $1.7 billion that Joe had mentioned.

That would be, we would view as kind of, not business as usual.

That is fair.

I appreciate it.

Thank you very much.

And this concludes today's teleconference.

Have a great day.

You may disconnect at any time.