美國銀行 (BAC) 2009 Q3 法說會逐字稿

Welcome to the teleconference.

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

(Operator Instructions) We will take questions in turn following the presentation.

Please note that today's call is recorded.

It is now my pleasure to turn the program over to Kevin Stitt.

Please begin, sir.

Before Ken Lewis 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 rate, 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.

Thanks, Kevin.

Good morning, and thanks for joining our earnings review.

Before we get started, I want to say a couple of things to the investment community.

This is the first time I have addressed you since my announcement to retire.

I just wanted to say thank you for the support you have shown me during my time with you as well as the support you have shown the Company.

It has been a pleasure to lead Bank of America and to interact with all of you.

As I have said before, we have a vast amount of talent in the Company, and we have market-leading positions in geographies, businesses, and distribution capabilities that are the envy of the industry.

I have no doubt that Bank of America will thrive.

In my absence will not slow the momentum that is starting once again to move this Company forward.

While it is never easy to talk about earnings when you are reporting a loss, there's several things this quarter that indicate that there are better days ahead.

Frankly, earnings this quarter were fairly consistent with the expectations we discussed three month ago.

We indicated in July that profitability would be tougher in the second half of the year versus the first half due to the absence of several unusual positive items that helped first half earnings.

As well as due to the normal seasonal drop in revenue that occurs in the second half.

We did experience the seasonal impact, and although revenue overall dropped in the third quarter, results were better in some businesses than the normal seasonal pattern.

Overall, the pace of deterioration and credit quality slowed and was somewhat better than expected in several portfolios.

On the negative side, earnings reflected the impact of the charge for terminating the government asset guarantee term sheet, associated with the Merrill acquisition, as well as the negative accounting impact associated with the improvement in our credit spreads.

But as I said last quarter, I would rather see the operating improvements and take the accounting loss that come with our Company's improving spreads.

For the third quarter of 2009, Bank of America had a net loss of $1 billion before preferred dividends, or a loss of $0.26 per diluted share after deducting preferred dividends of $1.24 billion, including almost $900 million related to the government TARP.

The termination of the government asset guarantee term sheet resulted in an expense of approximately $400 million in the quarter, the mark on the Merrill structured notes was a negative $1.8 billion.

The mark on the Company's own derivative liabilities was $700 million.

Total revenue on an FTE basis was in excess of $26 billion, while pre-tax, pre-provision income was approximately $10 billion, including the impact of the $3 billion of negative items just mentioned.

There was several positive trends in the quarter.

The balance sheet continues to be managed prudently resulting in lower risk-weighted assets, increased liquidity, and improved capital ratios.

As we experienced in the second quarter, Merrill Lynch continued to provide a significant contribution to operating revenue.

The capital markets environment was better than expected, and resulted in a 37% increase in sales and trading revenue and solid investment banking revenue although down seasonally from the previous quarter.

Results in global wealth and investment management reflected higher management asset fees, and brokerage income driven by increased client activity and stabilization among our financial advisors.

[New deposit] generation maintained its positive momentum with overall corporate-wide average deposits up more than $14 billion.

We continue to meet or exceed many of the milestones around both the Merrill and Countrywide integrations.

Finally, and not the least, we believe we may have peaked in total credit losses this quarter, although the levels going forward will continue to be elevated and certain businesses will still experience higher losses.

Unfortunately in the earnings impact of these positives this quarter were more than offset by continued high level of provision expense, lower customer activity due to the economic environment, and the other items that I have just mentioned.

Total credit extended in the third quarter was $184 billion, including commercial renewals, versus $212 billion has in the second quarter.

The larger components were $96 billion in first mortgages, $66 billion in non-real estate commercial, and $8 billion in commercial real estate.

The remaining $14 billion includes other consumer retail loans and small business loans.

Despite these new extensions, loan growth overall declined due to lower consumer spending and a resurgence in the capital markets, allowing corporate clients to issue bonds and equity, replacing loans as a source of funding.

Additionally, companies continue to be very cautious, and we are not seeing the level of seasonal inventory builds or capital expenditure spending at any meaningful level.

Provision expense in the third quarter decreased from the second quarter by $1.7 billion, but included a $2.1 billion addition to the reserves.

And that is versus a $4.7 billion in the second quarter.

Now before turning it over to Joe, let me make a couple comments about the current environment.

Merrill Lynch continued to be accretive to earnings year-to-date, as these market sensitive businesses offer diversifications to offset the core credit headwinds we are facing.

Although expected to peak this year, net loss levels will continue to remain high going into 2010.

Additions to the reserve will most likely continue at least through the fourth quarter, but as you saw this quarter, the level reserve addition is down substantially.

We continue to position the balance sheet to ride out the recession, which you can see in our delevering actions earlier this year, shrinking certain asset positions and substantially adding to reserve levels.

Our outlook for the economy is close to the consensus view with unemployment peaking around the 10% level.

We believe the pace of new bankruptcy filings for individuals have slowed somewhat but still see some additional pressure on home prices.

Based on this economic scenario, results in the fourth quarter are expected to continue to be challenging as we close the year.

While we still have several quarters before we can discuss actual normalized earnings, we believe that the economy is stabilizing and customer sentiment is improving.

At this point, let me turn it over to Joe for additional color and commentary.

Thanks, Ken.

I plan over the next few minutes to cover the performance of each of our businesses, credit quality, and some other topics.

But before getting into business results, let me highlight the large items that impacted earnings in the third quarter, and you can see these on Slide Five.

As most of you are aware by now, structured notes issued by Merrill Lynch which are mark-to-market under the fair value option, resulted in a hit to earnings of $1.8 billion on a pre-tax basis due to narrowing credit spreads.

If you remember, the mark was a negative $3.6 billion in the second quarter.

Now as a reminder, the impact of marking our cash liabilities does not impact Tier One capital.

Credit valuation adjustments on derivative liabilities -- and these are principally in our trading businesses -- were revalued resulting in a negative impact of $714 million, versus a negative impact of $1.6 billion in the second quarter.

Again, a good thing, but still negative to earnings.

Market disruption valuation adjustments this quarter in our global markets business were actually a net positive of $200 million.

On the CMBS and related exposure side in global markets, we took a charge of approximately $600 million related to exposures in the hotel industry and equity investments.

On our remaining CDO-related exposure, we recorded a loss of $138 million.

These negative charges were offset by positive marks in legacy assets, primarily on the recovery of value on exposures wrapped by monetary lines.

This enabled us to recover a portion of the valuation allowances against the reduced receivables from monolines.

Now the third quarter tax rate, or a tax benefit of the loss, was higher than statutory due to a shift in the geographic mix of our earnings globally.

In the fourth quarter, we expect the effective tax rate to trend toward statutory absent any unusual items.

Now let me quickly touch upon some highlights in each of the businesses this quarter.

In our deposits segment on Slide Seven, earnings were $798 million in the quarter, up from $509 million in the second quarter.

Net interest income of $1.7 billion was flat with the second quarter, while non-interest income of $1.9 billion increased to 10%.

Non-interest expense of $2.3 billion declined 11% due to the absence of the FDIC special assessment charge that was incurred in the second quarter.

Now on Slide Eight, you can see average retail deposit levels for the quarter, excluding Countrywide, were up almost $8 billion or 1.2% from the second quarter, which we believe is above industry growth.

We continue to see product mix shift from CDs to higher margin checking accounts.

Now Merrill Lynch continues to show momentum here as financial advisors provide the customers the benefits of an expanded product suite.

Checking balances now represent over 40% of our retail deposit base.

Now in late September, we announced changes to our overdraft fee policies.

These changes were intended to help customers avoid excessive overdrafts by better managing their finances.

As a result of these changes, future fee revenue streams will be negatively impacted beginning in the fourth quarter.

We are assessing proactive strategies to further strengthen consumer trust, and more evenly balance our fee structure across our entire customer base.

Additionally as most of you are aware, the Federal Reserve is expected to issue a final ruling in the fourth quarter addressing Reg E.

The proposed ruling may further impact our fee revenue on a go-forward basis.

We will be more explicit about the impact once the final ruling is known.

But as things currently stand, given the changes we made, absent any mitigating actions, I would expect revenue to be negatively impacted between $150 million and $200 million in the fourth quarter.

The Global Card Services is on Slide Nine.

Although a loss of $1 billion was recorded, this was an improvement over the second quarter results by almost $600 million, due mainly to lower managed provision expense.

Both managed revenue and expense levels were flat with the second quarter.

Provision dropped $766 million, due to reserve reductions of approximately $560 million this quarter, which occurred in consumer credit card, consumer lending, and small business, as delinquencies improve.

I will come back to this in a minute as we actually reduced reserves $1.2 billion, but we had to put up reserves about $600 million, associated with the maturing credit card securitizations.

Average managed consumer credit card outstandings were down 2.4% from the second quarter, to $168 billion.

In the third quarter retail purchase volume -- and this would be both debit and credit volume -- was flat with the second quarter, although down 7% from a year ago.

We continue to add new accounts.

700,000 new, domestic retail and small business credit card accounts in the quarter with credit lines of approximately $4.5 billion.

Home loans and insurance, and you can see this on Slide 10, experienced an increase in mortgage rates for most of the quarter, although we have seen a drop in the 30-year, fixed rate closer to 5% at the end of the quarter.

As a result, total revenue for the quarter was $3.4 billion, down $1 billion from second quarter levels due to lower production and lower MSR hedge results.

Production revenue decreased $565 million due to the lower volumes and margins.

Servicing income decreased $672 million, primarily due to lower MSR performance, net of hedge results, reported in the line of business.

As forecasted, HPI or the home price index improvements, hurt our MSR valuation.

HPI improvements increased the chance of repayment or refinance, thereby increasing projected pre-pay fees.

The capitalization rate for the consumer mortgage MSR asset ended the quarter at 102 basis points, down seven basis points from the second quarter.

Provision increased $171 million to $2.9 billion, and reflected an addition to the reserves of $900 million, most of which was associated with the home equity purchased and paired or the SOP 03-3 portfolio.

Total first mortgage fundings in the quarter were $96 billion, down 14% from second quarter, or $111 billion.

Approximately 39% of the fundings were for home purchases versus approximately 30% in the second quarter.

We continue to maintain strong market share during the quarter estimated to be in excess of 20%.

Now although we have seen -- or we have seen volatility in the rate environment has started to cause the re-fi volumes to trail off for most of the third quarter, we have observed volumes picking up with the recent decline in rates.

Global Wealth and Investment Management, and you can see this on Slide 11, earned $271 million in the third quarter, down from second quarter levels due mainly to higher provision expense.

Growth in asset management fees and brokerage income was more than offset by additional Columbia cash support to purchase all remaining SIV, or structured investment vehicle exposure, and other troubled assets, principally from certain cash funds.

Provision was up $277 million due to the charge-off of a single commercial client and higher additions to the reserve.

Assets under management ended the quarter at $740 billion, up $35 billion from the end of June, as the improvement in market valuations more than offset outflows from the money market funds.

We ended the quarter with approximately 15,000 financial advisors, flat with the end of June, and an indication of on going stabilization in that group.

Also as you already know, we finalized details on the sale of the long-term asset management business of Columbia to Ameriprise, that's expected to close in the second quarter of next year.

These in the low end of the range we disclosed.

Think of this as having minimal P&L impact, but monetizing nearly $800 million of goodwill and intangibles, thereby improving capital slightly.

Now Global Banking, you can see this on Slide 12, and remember it encompasses our commercial bank, corporate bank, and the investment bank -- essentially broke even in the quarter with $40 million in net income.

Down from the second quarter due to the absence of the gain from the sale of our merchant processing business to a joint venture.

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

Although commercial and corporate clients are being cautious given the economy, and balances are down.

We continue to see improved credit spreads as market prices reflect underlying risks.

Provision expense decreased 9% to $2.3 billion, but still included a sizable reserve addition in the quarter of $592 million, mainly associated with commercial real estate.

Average loans as it reported for the quarter were down 4% from the second quarter, as clients continue to aggressively manage working capital and operating capacity levels.

Significant bond issuance for loan repayment also impacted balances.

However, average deposit levels increased $10 billion, or 5% from the second quarter levels.

Investment banking fees, and this is across the Corporation, were down $392 million -- and this is detailed on Slide 13, to $1.3 billion versus the second quarter but still represented a strong quarter in our mind, given the seasonal trends.

The combined Bank of America-Merrill Lynch franchise ranked number one in high yield debt, leverage loans, and MBS.

Number two in ABS and syndicated loans and ranked number three in global and number two in US investment banking fees for the first nine months of 2009.

Global Markets on Slide 14, earned $2.2 billion in the third quarter, up $800 million or 58% versus the second quarter.

Strong sales and trading results, which you can see on Slide 15, combined with lower market disruption charges, drove the increase.

Risk-weighted assets declined 5%, reflecting a more efficient use of the balance sheet and market value changes.

As you can see on Slide 15, sales and trading revenue in the third quarter was $5.3 billion, versus $3.9 billion in the second quarter.

Lower credit valuation adjustments on derivative liabilities, which were an actual negative mark in the quarter of approximately $700 million -- and lower market disruption charges where we had an actual positive mark of approximately $200 million in the quarter -- helped this quarter.

But even so, results were better than we expected given the normal seasonal slowdown.

Structured products, rates and currencies, and equity trading all improved versus the second quarter.

Non-industry expense was down from the prior quarter due to merger-related cost saves and a change in compensation that delivers a greater portion of incentive pay over time.

We detail on Slides 16 and 17, a number of the most pertinent legacy exposure in the capital markets business.

I won't go into detail, but as you will see most of the exposure showed improvement or reductions versus the second quarter.

Not included in the six business segments is equity investment income of $886 million in the third quarter, due mainly to improved market valuations.

In addition on a consolidated basis, we had security gains of approximately $1.6 billion, partially offset by impairment charges on non-agency RMBS of $411 million.

Now let me switch to credit quality, and this starts on Slide 19.

Consumers continue to experience stress from higher unemployment and underemployment levels, ongoing high bankruptcy levels, as well as depressed home prices leading to higher losses in almost all of our consumer portfolios.

Likewise, commercial portfolios reported higher charge-offs as a result of the prolonged recession and the impacts of continued stress on the consumer and housing-related sectors and deterioration in non-homebuilder, commercial real estate.

Third quarter provision of $11.7 billion exceeded net charge-offs, reflecting the addition of $2.1 billion to the reserve, which was lower than the addition of $4.7 billion in the second quarter.

We even had reserve reductions in certain portfolios.

Consumer reserve additions were $1.5 billion.

$1.3 billion associated with the reduction in expected principal cash flows on the Countrywide, purchased impaired portfolio, $660 million for consumer real estate loans, $600 million associated with card securitizations that matured and came on the balance sheet during the quarter.

Offset by reductions in the allowance for credit cards that were already on the balance sheet, and where delinquencies improved $600 million.

And a reduction in the allowance for consumer lending and dealer financial services of $530 million.

Commercial reserve additions were approximately $600 million, essentially all earmarked for commercial real estate, although a decrease of $140 million in reserves for small business were offset by an increase in other non-real estate commercial.

Our allowance for loan and lease losses now stands at $35.8 billion, or almost 4% of our loan and lease portfolio.

Our reserve for unfunded commitments now stands at $1.6 billion bringing the total reserves to $37.4 billion.

Now we expect some reserve increases, including reserves for maturing card securitizations for the next quarter or two.

But as Ken said, at levels reduced from the current quarter.

Even though the economy has shown some signs of stabilization that point toward recovery, the ultimate level of credit losses and reserve additions will be dependent on whether the stabilization is sustained as well as the duration of the credit cycle.

I should note here that my comments about future reserve additions do not take into account the impact of FAS 166 and 167 that will be implemented next year and will result in the consolidation of certain assets such as the credit card trust on the balance sheet.

Now on the held basis, net charge-offs across all businesses in the quarter increased $923 million, or 49 basis points from the second quarter levels, to 4.13% of the portfolio, or $9.6 billion.

On a managed basis, overall consolidated net losses in the quarter increased $1.2 billion to $12.9 billion.

Of the $1.2 billion increase, the consumer increase was almost 60%, or $720 million.

Now due to the reduction in balances, principally in unsecured products, the loss rates are somewhat distorted.

That's why I am talking in dollar terms.

Credit card represents 53% of total managed, consumer losses.

As you can see on Slide 21, managed consumer credit card net losses were $5.5 billion compared to $5 billion in the second quarter.

Losses increased due to a jump in early stage delinquencies in late 2008 and early 2009.

If you couple that with the 180 day charge-off policy, you can see why losses increased this quarter.

30-day plus delinquencies in consumer credit card decreased $868 million, the second consecutive quarterly drop, leading to the reserve actions that I mentioned earlier.

Now we continue to be cautiously optimistic, that delinquency trends signal a stabilization in losses.

However, as I mentioned earlier, delayed recovery in the US economy beyond expectations or unforeseen events could obviously keep pressure on this performance.

Credit quality in our consumer real estate business continued to deteriorate in the third quarter.

But before I get into the individual consumer real estate products, let me remind you of a couple of important drivers as I did last quarter.

Total consumer NPAs, which are highlighted on Slide 22, increased to $1.9 billion in the third quarter, compared to an increase of $3.2 billion in the second quarter, and now total $21 billion.

This is primarily comprised of consumer real estate with the lion's share being first mortgage.

There are a number of things affecting this portfolio, but as a reminder, we generally place consumer real estate on non-performing at 90 days past due and take charge-offs at 180 days.

At which time, we write the loans down to appraised value.

We perform quarterly valuation refreshes, taking additional write downs as needed.

We also have troubled debt restructurings, or TDRs, which we explained last quarter that reflected as NPAs even though most were not 90 days past due when the restructuring or modification was made.

While our efforts are to responsibly keep borrowers in their homes and paying -- we think that reduces the overall costs -- the impact is that the NPA number is elevated.

Formal moratoriums on foreclosures have been lifted as the MHA program and other modification efforts are now up and running.

Therefore, once a loan has been evaluated under all the various programs, if no other alternative exists, that loan will be released into foreclosure.

Our residential mortgage portfolio -- I'm on Slide 23 now -- showed an increase of $162 million in losses to $1.2 billion, or 205 basis points.

An increase of one half as much as we saw in the second quarter.

Much of the increase was driven by a revision of our estimate of the impact of the REO process and what that has on that realizable value.

Absent that catch up adjustment, charge-offs were virtually flat at $1.1 billion or 180 basis points.

30 plus delinquencies rose $1.9 billion, representing the repurchase of delinquent, government-insured or guaranteed loans from securitizations.

Excluding the repurchase, 30-day delinquencies were up slightly, about $139 million.

Now the nonperforming asset front, we saw an increase of $2 billion, less than the $2.8 billion in the second quarter.

Nonperforming TDRs increased $841 million in the quarter.

Approximately 60% of the new TDRs into nonperforming were performing at the time of reclassifications.

Of the $16.5 billion of residential mortgage and NPAs, TDRs make up 18%.

Now about 57% or $9.4 billion of the NPAs are greater than 180 days past due and have been written down to appraised values, which should be considered when evaluating reserve adequacy.

I should also note that we saw stability in both severity and average size of charge-offs this quarter.

Our reserve levels were increased on this portfolio in the quarter and represent 1.87% of period end loan balances versus 1.67% in June.

Given the weakness in the economy and the continued pressure on home prices, we may see continued deterioration in this portfolio.

And therefore, may add further additions to the reserve.

Now switching specifically to home equity, and I am back on Slide 24.

Net charge-offs increased $131 million to $1.97 billion in the third quarter.

However, we accelerated charge-offs of $223 million during the quarter related to an adjustment to our loss severities due to the protracted nature of collection under some insurance contracts.

Excluding that adjustment, net charge-offs would have dropped in the quarter.

30 plus performing delinquencies are up $184 million, or 15 basis points, to 1.4%.

Nonperforming assets and home equity, principally loans greater than 90 days past due, decreased to $3.8 billion.

A decrease of $146 million, which is the first decrease since the start of this credit cycle.

As I explained last quarter, we have been working with borrowers to modify their loans to terms that better align with their ability to pay.

When we do that under most circumstances, the loans are identified as TDRs.

Nonperforming TDRs in home equity increased $218 million.

Almost 90% of the modified home equity loans were performing at the time of reclassifications into TDRs, elevating NPA levels.

To give you some color, TDRs, where we have improved the likelihood of repayment, make up 43% of home equity NPAs.

In addition, about 17%, or $656 million of the NPAs are greater than 180 days past due and have been written down to appraised values.

We increased reserves for this portfolio to $9.7 billion, or 6.39% of ending balances.

And that would be 5.12% excluding the purchased impaired loans.

Due to further deterioration in the purchased impaired portfolio and continued elevated levels of delinquency on the rest of the portfolio.

While delinquency growth has slowed versus the previous quarter, delinquency levels continue to be elevated.

Now on Slide 25, we provide you details on our direct and indirect loans, which includes the auto and other dealer-related portfolios as well as consumer lending.

Net charge-offs in dealer finance decreased 3% to $194 million, or 1.85% of the portfolio, as we have experienced improved collateral values.

We saw the expected leveling off in consumer lending charge-offs and expect them to decrease due to the improvements in delinquent amounts.

Slide 26 shows the details of the purchased, impaired Countrywide portfolio, which shows lower charge-offs but with actual trends of frequency and severity.

Continuing to follow-up our expectations, we added $1.3 billion to the allowance on this portfolio.

We provided more details on the slide for you given the charge this quarter so I won't go through that in detail.

Looking forward, I would say this portfolio's valuation -- and remember the purchased impaired portfolio is a LIFO loan reserved portfolio, is more sensitive to HPI and our success under the modification programs.

We would also expect a lion's share of the charge-off to come through in the next few quarters.

Similar factors for the drivers behind our valuation of non-agency CMO securities which drove the OTTI charge that I mentioned earlier.

Switching to our commercial portfolio, you can see this on Slide 29.

Net charge-offs increased in the quarter to $2.6 billion, or 309 basis points, up in dollar terms about 25% from the second quarter.

Net losses in our $18 billion small business portfolio, which were reported as commercial loan losses, increased $23 million, or $796 million compared to an increase of $140 million in the second quarter.

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

However, we think we are close to the peak in small business losses as indicated by several linked quarter declines and 30 plus delinquencies as well as 90 plus delinquencies which are down more than 10%.

Our current allowance for small business stands at 15% of the portfolio.

Excluding small business, commercial net charge-offs increased $505 million from the second quarter to $1.8 billion, representing a charge-off ratio of 228 basis points.

The losses in the quarter were split almost equally between non-real estate, which was about 52% and real estate.

Of the $261 million increase in non-real estate losses, 72% was driven by two fraud-related losses.

And within commercial real estate, net charge-offs increased $244 million to $873 million representing a charge-off ratio of 4.67%.

This is the first quarter that non-homebuilder losses now constitute a majority, or 57%, of our commercial real estate losses.

The increase in net charge-offs from the non-homebuilder portion of the portfolio was driven primarily by multifamily rental and multi-use property types.

Commercial NPAs, and this is detailed on Slide 30, rose approximately $1 billion, an increase of just about half of the second quarter to $12.9 billion, or $12.7 billion excluding small business.

44% of the increase was due to commercial real estate driven by non-homebuilder exposures.

Homebuilders actually dropped again this quarter.

Let me give you some color behind the make up of our commercial NPAs.

Commercial real estate makes up about 59% of the balance, or about $7.6 billion, with a little less than half of that being homebuilders.

Outside of commercial real estate, the balance is concentrated in housing-related and consumer dependent portfolios within commercial domestic.

NPAs are most significant in commercial services and supplies -- think realtors, employment agencies, office supplies, et cetera at 6% of the total commercial NPAs followed by individuals and trusts at 4%, and vehicle dealers and media at 2% each.

No other industry comprised greater than 2%.

Just over 90% of commercial NPAs are collateralized and approximately 34% are contractually current.

Total commercial NPAs are carried at about 75% of original value before considering loan loss reserves.

The reservable criticized -- utilized exposure in our commercial book increased $2.9 billion in the third quarter, compared to an increase of $8.5 billion in the second quarter and is the lowest increase since the fourth quarter of 2007.

However, it was still an increase and reflected of the continued deterioration in the US economy with about 60% of the increase being real estate.

Commercial real estate, criticized increased $1.7 billion to $22.9 billion.

While homebuilders with $6.7 billion still represent the largest concentration, we actually saw a reduction there of about $670 million.

The largest increases were in office, multifamily rental, and multi-use properties.

Outside commercial real estate, we saw further weakening.

And again, housing-related and consumer dependent businesses.

85% of the assets in commercial reservable criticized or secured, of which approximately 10% is our highly secured asset-based lending business.

While we obviously will see some continued deterioration, our past rated credit discussions over the past couple of quarters have felt much better, which is translating into lower flows into criticized.

As I mentioned earlier, we added to commercial reserves in the third quarter, of which almost all was related to commercial real estate.

Total commercial reserve coverage at the end of September increased to 2.76% of loans.

Now let me move from credit quality and talk about net interest income.

Here, I'm on Slide 32.

Compared to second quarter on a managed and FTE basis, net interest income was down $356 million.

Managed core NII dropped approximately $283 million while market-based NII dropped by $73 million.

The core NII decrease was mainly due to lower loan levels, almost across the board due to weaker demand and the impact of our earlier deleveraging of the ALM portfolio, partially offset by the impact of the favorable rate environment and improved pricing.

Also impacting our net -- our net interest income was the drag from asset quality, both nonperforming as well as interest reversals.

This negative impact on core managed NII in the third quarter was $1.15 billion due to nonperforming assets, approximately $330 million in interest reversals approximately $820 million.

Combined, this impact was approximately $40 million worse than second quarter.

Most of the interest reversals relate to the credit card business.

The core net interest margin on a managed basis decreased 6 basis points to 3.65% due mainly to lower loan levels and higher yield in assets such as cards.

Now turning to our interest rate risk position, we continue to be asset sensitive, where we benefit as rates rise and are exposed as rates decline.

As you can see from the bubble chart on Slide 34, which as you know is based on the forward curve, our interest rate risk position is slightly more asset sensitive relative to how we were positioned three months ago.

The change in sensitivity is primarily due to the lower levels of rates.

Given how low rates are, we remain flush with liquidity and believe an asset sensitive position makes sense as we are positioned to benefit as rates rise in the future.

Let me say a few things about capital, and you can see this on Slide 37.

The Tier 1 capital ratio at the end of September was 12.46%, up 53 basis points from the second quarter, due mainly to managing the size of our balance sheet.

Our Tier 1 capital level is $100 billion in excess of a 6% well capitalized, minimum requirement.

Tier 1 common increased 35 basis points to 7.25%, while our tangible common equity ratio increased to 4.82%.

Tangible common equity rose as a result of the improved valuations and securities available for sale, which increased OCI.

As a reminder, the appreciation above our current carrying values for either BlackRock or China Construction Bank, is not included in OCI.

Preferred dividends this quarter were $1.24 billion, of which almost $900 million is associated with TARP-preferred, or $0.10 per share per quarter given no tax benefit.

Our non (inaudible) is up from the second quarter due to the preferred exchanges for common in the second period which recognized the discounts from the exchange.

This level of preferred dividends in the third quarter is expected to remain about the same next quarter.

Now going forward into the final quarter of 2009 and in line with Ken's remarks, we believe we are at a peak in total credit losses, or at least very close to it.

Having said that, it is difficult to call a specific quarter when credit costs start to drop substantially from the peak.

Excluding the purchased impaired portfolio and the amount we put up for maturing securitizations, reserve additions would have been minimal this quarter.

Once we hit the inflection point on losses, where we no longer have to build reserves, we should get some lift.

We improved our strong balance sheet again this quarter with a robust and even more conservative liquidity position, stronger credit reserves, and higher capital ratios.

With credit losses possibly peaking soon, we believe the level of our reserves in revenue generation over the next several quarters will enable us to get through the period with minimal impact on capital levels.

Merrill Lynch once again contributed positively to earnings as it has done so over the first nine months of the year.

The Merrill Lynch integration effort is on track and continues to make headway.

With Countrywide, we are in the process of launching significant system conversions over the next several quarters and plan to finalize the Countrywide integration by June of next year.

Cost saves at Merrill were approximately $1 billion this quarter, or $2.2 billion for nine months.

So we are well on our way toward exceeding 45% of the total cost saves, which were projected at $7 billion annually in 2009 and well ahead of our original 2009 goal.

We continue to see decent business momentum this quarter, and with further stabilization in both the economy and credit quality, we can continue to improve our competitive position, which should enhance the bottom line.

Now 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 Chris Kotowski from Oppenheimer.

Your line is open.

Hello.

A couple of things.

One is, I was wondering -- and looking at the consolidated P&L, we still see other than temporary impairment losses on AFS debt securities.

Just about every credit spread that we look at improved during the quarter.

And I was just curious, why are there still losses there given the environment?

Losses there were, Chris, driven principally off of two places.

One was the -- as I mentioned in the remarks-- in the non-agency CMOs, that principally came over from either Countrywide or some from the Merrill Lynch investment portfolio.

And as we recalibrated the severities and the cash flow expectations off of all those, that is what drove the impairment for us from that standpoint.

And the other -- probably, the other third -- it is probably two thirds or maybe closer to half-half, related to some of the market disruption charges that I mentioned in the markets business where the CDO charges.

Some of those securities, and you can see this in the supplement or if you go back in the 10-Q, have a piece of them carried in the available for sale.

And it was related to that same charge.

Okay.

Again, just because all the markets seem to have improved.

The other thing was the $277 million reserve to a single client out of Global Wealth Management.

In general, I think of that as a granular, non-credit, intensive business.

Can you give some color on that, and give us comfort that there aren't others like that in there?

The charge -- I think you are referring to the total change in credit cost as opposed to just the particular charge.

It was probably half of that.

It did relate to a fraud-related item.

One of the larger credits, but a fraud-related item.

Okay.

It is coming in commercial credit.

It is a commercial credit, I'm sorry, too, Chris.

Okay.

And then I don't know if there's any comment you or Ken can make about announced timing on the succession announcement?

No.

I can just say that there's an appropriate sense of urgency, but combined with obviously wanting to make the best decision, it's the most important decision a Board can make.

So I am assured that there's the proper balance in getting it right but also doing it with a sense of urgency, but I can't give you a date.

Okay.

Thank you.

We will go next to the site of Betsy Graseck with Morgan Stanley.

Your line is open.

Thanks.

Good morning.

Hello, Betsy.

Hello.

A couple of questions on credit and earnings power.

On credit, if I back out what you provided for in the CFC -- provision that you did this quarter which is it fair to say that that's a catch up provision, and you would think that you are done with that?

Is that a fair assessment?

I am thinking this whole downturn, Betsy, I have learned never to be done with anything.

But we tried to lay out on the slide, the detail characteristics so you can see the delinquency improvement and the trends on it in the package.

So if we are not done, that should be the lion's share.

But it is sensitive to home price indexes, or home price out into the future, and then also modifications.

But the lion's share should be behind us.

What are you thinking about in terms of home price change one year forward?

Because I think that's what you would be reserving for is your forward-look for one year?

For [03], it is a life of loan thing, so you look forward.

But we are pretty consistent with the case [shiller] details on both the state level as well as nationally.

So is the provision that you would get to about $10 billion, ex the CFC, a core run rate for this quarter, do you think?

Or -- ?

Well, if you just did the math and took that and said what did you build I think I made this comment in the remarks.

If you took that out, the 0303 provision, and then you took maturing securitizations.

Everything else kind of netted off, is a way.

But we are not suggesting that charge-offs have absolutely peaked.

We think we are near or somewhere near from that standpoint.

And then hopefully if the economy can continue to show stability and improve, we would not have the level of reserve builds on top of that.

I think that's the way to think about it.

Reserve build really is a function of NPA growth.

Is that fair?

It differs by the pieces.

So it is less about NPA growth and more about our view of the forward-looking charge-offs on the consumer products.

And then principally on the commercial corporate side, it is pretty much loan by loan and risk rating driven.

So take out the reservable criticize.

That is driving a big piece of that.

Okay.

And how do you think about what your reserve does over the next couple of quarters or the next couple of years?

Probably tripes economic activity.

The better the economy -- if you think about credit quality in general, the core is where the charge-offs go.

And obviously, as the economy continues its path of stabilization and growth, we ought to be able to track that.

That would suggest to you that at some point those are not needed.

But right now, it is too early to call that.

Okay.

And then in the earnings power question, it seems like you are indicating that as rates rise and as demand for credit comes back, you have got some earnings power.

The other question has just from the liquidity that you indicated -- a significant amount of liquidity at this stage.

What would drive you to put some of that excess liquidity back to work sooner?

Well, earlier it was probably as much about making sure we got the Merrill Lynch - BAC or BAS platforms put together, understood contingent liquidity requirements and things of that nature.

We are through that exercise, and now it has probably as much to do with opportunity and maybe a little of the other still leftover.

And so you will see us put some to work in what I would call a liquidity portfolio.

We have done some of that this quarter, but the duration will probably stay reasonably short until we see the curve in appropriate position.

And is there anything associated with TARP repayment?

Are you holding any excess liquidity to pay back TARP?

Obviously, the most beneficial thing would be to take the TARP dividend out with some of that liquidity.

And so that is obviously one of the things in the thinking, yes.

Is there any expectation that you can give us on time frame for that?

I didn't hear you, Betsy?

Is there anything you can give us with regard to expectation for repaying TARP?

All I will say is we are supplying all of the information and doing everything we can on our part.

But you probably heard that some more specific guidance is supposed to come out from the regulators regarding repayment criteria very shortly.

We will need to make sure we meet those criteria, but nothing else has changed from what we have said in the past.

That's our goal.

Would you use any excess liquidity to pay down debt as opposed to issue?

You have got some issuance coming due over the next year?

Yes.

This quarter if you looked at what we did, we had probably had about 3.5 to four times the maturity than we had issuance.

We were out in market.

We issued part of showing that we could, and then where we wanted to keep the avenues open.

So you would probably see us do a little more of that over time, too.

Thank you.

We will move next to the site of Matthew O'Connor from Deutsche Bank.

Your line is open.

Hi Ken, Joe.

Loans continue to climb at a pretty rapid rate both to the overall industry and for you as well.

I am just wondering with some signs that the economy is bottoming, is your appetite to make loans and keep them on your balance sheet increasing at all?

Well, we -- I would just say that we have actively looking for every good loan we can make.

Obviously, it's the core of how we make money.

So the attitude hasn't changed, but if the economy starts to get better and there's demand then we will be there to supply credit.

Do you have thoughts of where we might first see that demand?

Which categories?

I don't think so, do you think -- ?

My guess -- I am thinking on the commercial side, you would probably see it first in middle market areas because once business confidence comes back and you see the middle market companies begin to build -- build their inventory and spend more on CapEx, put people back to work, et cetera.

That's probably the -- on the commercial side where you would see it more so than maybe large corporate which would tend go into the marketplace a little more.

On the consumer side, it is probably first mortgage and areas of that nature versus home equity and things of that nature that you would see it first.

Okay.

And then just separately, I just had a clarification question.

On Slide 15, where you show the sales and trading revenue, obviously both periods are being impacted by this CVA write downs as well as the market disruption noise.

If we look at the equity income line?

Is that a pretty clean number quarter to quarter?

I figure there's not that much noise in those two numbers.

The only reason I am hesitating, Matt, is to see how much derivative liability impact you had in there.

It shouldn't be -- it should not be a whole lot.

But it is probably a little bit.

But I think compared to fixed income, that one is pretty apples to apples.

Okay.

Lastly, if I may, and I apologize.

If you addressed this, I missed it.

But the Tier 1 common dollars actually went up $2 billion quarter to quarter even though net income was negative.

I was just trying to figure out, is there more deferred tax assets that are now being allowed?

Or what is driving that increase in capital?

There was a piece of that that relates to deferred tax assets where our carry back capacity -- where we refined our carry back capacity and had some incremental ability.

So there was a piece of that, and I will come back to you, or get Lee or Kevin to on anything else that was main.

But that was one the bigger drivers.

Do you know offhand how much additional DTAs being excluded that could come back in over time?

We don't have a lot of haircut DTA there.

We do have some remaining for GAAP purposes, and therefore, it is not in the DTA inutilized.

Or let's call it reserved against carry forwards.

And so, it is more of that.

But count it in -- count it in several billion not a ton more than that.

Okay.

So the regulatory capital from here will be mostly driven by net income, and then whatever happens in the balance sheet.

Yes, and you do have volatility from the DTA to the extent that over time you move out of carry back into carry forward.

A lot of moving parts on it.

You could get a little there, but it shouldn't be that big of a number.

Okay.

Alright.

Thank you very much.

The next from the site of Paul Miller from FBR Capital Markets.

Your line is open.

Thank you very much.

I had a question, mainly on the credit card.

Can you talk about how -- if you are loan-[modding] some of those credit cards, and are they coming up in the TDRs?

And how they are impacting both the NPAs and the credit card portfolio and the reserve methodology.

When you talk about modifying-- there's a lot of different ways you can modify credit cards.

There's two principal ways that you think about it.

Those that are in early stage collections or something, and those that you put on a fixed plan.

And in both of those cases, the reperformance period is, I think, three and four months respectively, from that.

So, you are not really -- you would only see it after -- you would only see it, quote, change in the delinquency stats after they met the full minimum payment for those periods.

So that is the real impact.

Less impact on TDRs, that is more of a mortgage product-related thing for consumers.

And so are you -- the issue is we don't -- we are hearing a lot of anecdotal data about a lot of credit card modifications taking place.

And we are just wondering what -- are you loan-modding your credit card portfolio, and how much of an impact is it having on the overall performance?

Yes, we are trying to help our customers there, and we are modifying and trying to do various workout strategies with customers.

But once you do that, you still have to meet minimum payment standards and requirements.

And you have to meet -- they have to meet full reperformance for again, three to four months, before you see them change in delinquency status.

So I think what you are seeing -- any impact on the delinquency status that you are seeing I think is true performance driven -- sustained performance driven.

Thank you very much, gentlemen.

We will go next to the site of Ed Najarian with ISI Group.

Your line is open.

Good morning.

First is a quick question.

Joe, you made a comment about capital ratios right at the end of your remarks in terms of capital ratios staying relatively stable through the next several quarters.

And I was wondering, did you mean that to include with the impact of FAS 166 and 167, or excluding the impact?

If it is excluding the impact, what would you say 166 and 167 impact is on your capital ratios?

I was excluding -- I was talking about from an operating standpoint, Ed.

From a FAS 140 standpoint -- amendments to FAS 140, best we can tell right now we would project there to be about $125 billion that comes back on the balance sheet in January.

Think of about $70 million of that being in cards.

So you can make your own estimate on what you think the reserves would be.

The rest of it would be -- the delta between those two would principally be multi-seller and some home equity securitizations.

But lion's share of the reserve impact will come out of credit card.

And since that is on the balance sheet already for regulatory purposes, the risk-weighted impact really would exclude card that is already on there.

So think of that number -- again, if we were estimating, or if we were trying to call it today what we think it will be out in January somewhere in the $25 billion to $30 billion range for RWA.

Okay.

So that's additional RWA, and then you have the reserve impact as well.

You got it.

Yes.

And is there any way to quantify those two things together in terms of basis points on Tier 1 ratio?

The only reason I am hesitating is I would just assume you make your own view as to the reserve cost -- what the reserve requirement will be on the various components that come on because we are not settles yet on that.

But think of the $30 billion of RWA.

I am looking at Kevin.

I will come back to you on the exact number of RWA per basis point.

And then the other one would simply be the reserve impact.

So that's more of a dollar thing for you.

Okay.

And then, second question, kind of comes back to the issue with respect to declining loan balances.

I don't know if you can give any -- number one if you can give any sense of how many more quarters?

I know it is a tough question to answer.

Or to what additional extent you would expect loan balances to decline before they stabilize?

And as that is happening, what is your appetite to replace net loan run-off with investment securities or mortgage-backed securities given the very low rate environment on MBS?

I guess one way to think about further declines in loan balances is just to look at the ending balances versus the average because you can see that there's some categories where you still have got downdraft coming into next next quarter on it for a little while.

When that actually changes has probably got -- goes back to my earlier comment.

Probably has a little more to do with where business or economic activity is from a demand standpoint as Ken referenced, than anything else.

In the interim, kind of back to Betsy's question -- what's the best use of our excess liquidity during the period?

Clearly, repayment of some TARP will be on the agenda when we get approval for that.

Clearly, you can manage through some of this by reducing the debt footprint while you have excess liquidity and let maturities outrun new issuance.

And then when you get to deploy in excess liquidity and securities, the appetite -- I would say, we have some.

But we are not -- we are going be patient.

And then we probably -- if we do something shorter term, we probably keep the duration in reasonably well.

Your inventory level number is probably going be a key one going forward because you do have some companies with very, very tight inventory levels.

And as you start to get the economy improving, they are going to have to start building inventory levels.

And then, you will start seeing some -- at least working capital loans.

Okay.

Thanks.

I guess it would be fair to say that in the current rate environment -- in the near term with NBS yields this low that your first reaction in terms of the use of excess liquidity would be to pay down higher cost debt.

I don't know that I would put first, second, third.

I would just say that is one of the ones that you saw us do this quarter where we let maturities outstrip issuance.

Alright.

Thank you.

We will move next to the site of John McDonald with Sanford Bernstein.

Your line is open.

Hello, Joe.

Following up on the NII.

When you net together those balance sheet considerations with maybe a little bit better trend in interest reversals, is your hope to keep NII -- core NII, pretty flat going forward?

Yes.

You have got a couple of things.

It also depends on where short-term rates go because you have a deposit impact when you start coming out of this thing that will be favorable.

So I put the credit drag in the deposit side on the favorable piece.

And then the demand -- until demand picks up, that is going to be the challenge.

So over time, those are the factors that we are really going to deal with.

In the near term, I don't want forecast fourth quarter margin or net interest income on there.

But our goal would be to try to retain reasonable stability there.

Obviously, I have got some hedge and effectiveness and things like that that can work against me in the near term.

But that would be -- that is clearly the goal.

But demand of higher yield -- demand for higher yielding loans is the wild card on this.

Okay.

And in the reserve additions for card loans that are maturing, is that typical for these to come on with a natural maturation?

Or is this related to you supporting some of these trusts where the excess spreads have come down?

Natural maturities.

Yes.

Okay.

And we will have some more of that in the fourth, just FYI.

A question on Global Wealth Management.

Are we seeing leverage there to the improving markets.

Investor sentiment, obviously this quarter, was hurt by the provisioning and cash support charges.

But is that a business you feel like is underearning and should have some leverage as things get better here?

I am sorry.

Global wealth.

Retail brokerage.

Absolutely.

Once you take some of these things that [Sally's] business had to absorb this quarter out, and then start looking forward -- both the stability of the FA trends, the productivity levels that we saw out of that.

A lot of very positive momentum and you add that to market lift, and that should take us forward.

A question for Ken.

Since it is the first time, as you said, you have addressed the shareholders, the investment community since the announcement.

Maybe you could give us some thoughts on what drove your decision and the timing?

Nothing more than what I have already said.

That I came back from some time off, and I had reflected on my -- just my 40 years, or two thirds of my life being with the Company and felt like it was an appropriate time.

I always thought I would intuitively know that, and I did.

So it was just, 40 years with the same Company, and eight years as the CEO is enough.

Yes.

And also if I can ask, to what extent will you be involved in the screening and the selection process for a successor?

And do you have any views on whether an insider or outsider would be best for the Company and the shareholders.

I have voiced opinions, but there's a special committee that is looking at it and will look at all aspects of different ways to go.

And then, we will make a recommendation to the Board.

So I want to -- I probably should express my opinion privately.

But wait for the selection committee to make their recommendation to the Board.

Okay.

Thank you.

Yes.

We will go next to the site of Nancy Bush from NAB Research, LLC.

Your line is open.

Good morning.

Morning.

A couple of questions here.

You said that Merrill was accretive for the quarter and you talked about stabilization of FAs et cetera, et cetera.

Could you just tell us, or give us some kind of color on whether you're at the place in revenue generation with Merrill that you would like to be right now?

Or whether some of the losses -- personnel, et cetera that were very well publicized in the last couple of quarters have actually cost you revenues that you now can start to recoup?

Well, it is hard to quantify any of that, Nancy.

I would say that just in terms of expectations, that we are are right where we thought we should be.

And of course, we are ahead on expenses.

I have been very impressed with Tom Montag's ability to attract really outstanding people when we have lost or needed to fill a position.

So we would be at a point now that's better than we were three months ago or six months ago.

I think each quarter you are going to see us more going toward our full potential than maybe the first and second quarters.

And things have settled down, obviously, a lot more.

And then you can say the same thing on the wealth management side.

I am very pleased with the things that Sally [Croshack] is doing.

And we do now see stabilization in that financial advisor network.

That was very important to get to that point.

Thank you.

And on the issue of loan demand, et cetera.

Can you just comment on utilization of lines?

Are we starting to see a flattening of the decline there?

Or is it still accelerating at an accelerating rate?

Nancy, nothing sticks out to me across on the utilized lines.

Clients are obviously conserving cash.

But as evidenced by some of our deposits, they're not using their lines.

Back in the disruption period, you clearly had a bounce in a couple of industries.

But if anything, you're seeing less utilization.

And in some cases in maturities, people actually permanently cutting down or coming in at lower overall amounts to, in essence, save their commitment fees.

Okay.

Joe, one question for you.

On the Tier 1 common ratio, it started out with, I think the regulators were saying 4% target, and then it became a 6% target.

And it might be a 7% target.

Do you have any sense at this point about where that number is going to need to go over the long term?

Can you bring it down?

Nancy, I don't know that I have a good prediction.

There are so many different opinions out there that you hear, and none are necessarily official.

I do feel like though the pressure will be on higher quality capital of your total capital structure and that the focus, while still on Tier 1, will be more acutely on Tier 1 common over time.

So the way we think about it when we run the Company is -- what is the baseline?

And if the baseline is 4%, fine.

Let's just define that, and then what's the cushion over that to absorb unexpected and to have room to be -- to operate.

And then, the question will be -- is there something on top of that?

And I think that's the discussion.

It will also be driven, obviously, by the business mix.

Especially to the extent that they increase the capital needs around certain trading activity and things of that nature.

Okay.

Thank you.

And Ken, best of luck in your retirement.

Thank you, Nancy.

We will go next to the site of Jefferson Harralson from KBW.

Your line is open.

Thanks.

I wanted to ask you some bigger picture questions in your credit card business.

Compared to peers, decently higher losses and less profitable.

Can you talk about where your credit card business is?

Any changes you are making from here?

Any comments you can make about loss expectations and timing to profitability in that business?

Well, I can't -- I can only say that we would acknowledge that the business has changed.

The inability to do risk-based pricing has caused us to look at things differently.

And so, we have a lot of people looking at the business.

Talking about the -- and looking at the changes that need to be made, both in infrastructure and other ways we can make money.

But it would be premature to tell you what it will look like in any exact form.

But it is going to be different.

We acknowledge that, and we are working on it.

Okay.

Thanks a lot.

We will take our next question from the site of Mike Daniels from CLSA.

Good morning.

Can you hear me?

Hi Mike, yes.

Okay.

First question.

Joe, you said consumer fees may go down $150 million to $200 million in the fourth quarter.

Did I hear that correctly?

I was talking about in the deposit business, given the changes that we instituted, Mike.

Without mitigation, that's the number.

So that would be the overdraft charges?

So we should face that decline in there permanently, or no?

Well, we are obviously looking for mitigation actions and other things we can do.

Some of those may be on the expense line.

Some of those may be.

But for right now, that's our best estimate of the raw impact of the changes we made.

Okay.

And then commercial real estate loan losses had a big jump from 3.3% to 4.7%.

How much of that jump would be due to say, refinancing?

How much from TDRs?

And how much from borrowers simply not paying?

Just a rough sense?

Mike, you have got a ton of feedback.

I can barely -- I could catch about half of your question.

Can you hear me right now?

That's better.

Sorry.

How much of the jump in commercial real estate loan losses related to borrowers not paying or refinancing or TDRs?

I would say the biggest -- I don't have the exact break down.

I will have to come back to you on stuff.

But think of the appraisal process as probably being one of the biggest drivers of the losses as we try to keep our appraisals counted in a couple of months in terms of how current we try to keep them.

And that, with property values falling as these appraisals have really come in.

That has been probably one of the biggest drivers.

What was the catalyst for a renewed appraisal process?

When something goes substandard, or when something goes into your classified categories, you clearly would do it.

Once it is in there, the formal requirement, I guess, is an annual one.

But we try to stay as current as we can on those.

And correct me if I'm wrong, even if the appraisal says the value of the property is way down, but the borrower is still paying and is expected to pay -- you don't have to write that down?

Is that correct?

Each credit -- there is some truth to that but each credit depends on the exact circumstances of the individual credit.

Okay.

The reliability of the repayment source.

All the other things.

Alright.

Then a very simple question with a tough answer.

Credit losses have peaked perhaps, by your estimate, with your assumption unemployment is 10%.

How much higher would the credit losses potentially go if unemployment goes to 11%?

Or just what is the ongoing sensitivity of your credit losses if unemployment goes higher than expected?

I don't have a good estimate for an overall number for you, like that.

I do -- it depends, because it is really net new claim that I think are part of -- or what we see as really driving it.

If you saw a gradual roll, I think it would be very manageable.

If you saw an instant spike, it would have a pretty big impact on us across the board because that would suggest the rest of the economy is very weak also.

Alright.

I am not sure if it is Ken's last conference call, but any lessons from the last year?

Five, 20 years?

Thoughts you want to leave us with, Ken?

No.

Mike, I sit here at the moment thinking that we have built the best financial franchise in world.

And I look forward, it would be from afar, I guess -- I look forward to seeing it play out in the next few years.

Alright.

Thanks a lot.

Thanks, Mike.

We will go next to the site of Jeff Harte from Sandler O'Neill.

Your line is open.

Hey Jeff, this is Kevin.

Unfortunately, we have to run to a meeting, and we will call you on the phone.

Okay.

You who haven't been able to get your questions in, we will follow up with everyone.

Thank you very much.

This does conclude today's teleconference.

You may have a great day, and disconnect at any time.