美國銀行 (BAC) 2013 Q1 法說會逐字稿

Welcome to today's program.

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

(Operator Instructions).

Please note today's call is being recorded.

It is now my pleasure to introduce Kevin Stitt.

Please begin, sir.

Good morning.

Before Bruce Thompson and Brian Moynihan begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results and that these statements involve certain risks that may cause actual results in the future to be different from our current expectations.

And please see our press release and SEC documents for more reference and with that, let me turn it over to Bruce.

Great.

Thanks, Kevin and good morning, everyone.

I am going to start on slide 4 as we work through the presentation.

We earned $0.20 per fully diluted share during the first quarter, or $2.6 billion, up significantly from both the first and fourth quarters of last year.

The one item we want to highlight upfront, since it only happens once a year, is approximately $900 million of expense related to retirement-eligible stock-based compensation awards that we have had in the first quarter for the past several years.

We believe first-quarter results demonstrate significant progress towards the goals we have discussed over the past several quarters.

Global Markets client activity drove improved sales and trading results versus the fourth quarter of 2012 while investment banking performance remained strong.

Global Wealth & Investment Management reported record earnings post the Merrill Lynch merger.

Expenses in most of our businesses continue to decline, although they are partially offset by higher revenue-related incentive compensation and the impact of expense related to annual retirement-eligible stock-based compensation awards.

Capital and liquidity both continue to strengthen and are at record levels by most metrics.

The interest rate environment continues to be challenging, but moderate loan growth and reduced average long-term debt helped stabilize net interest income versus the fourth quarter.

Credit quality improved in almost all products and both consumer and commercial loss rates were the lowest in several years.

And we continue to make strides in resolving legacy issues as we just recently reached an agreement to settle three class-action lawsuits involving Countrywide-issued RMBS.

On slide 5, if we look at the balance sheet, you can see the total balance sheet was down from both the fourth quarter of last year, as well as the year-ago period, although total loans are up slightly.

If we look at commercial loans and leases, they are up 3% relative to the fourth quarter of 2012 and up 17% compared to the year-ago period.

If we move down to deposits, deposits were down slightly from the fourth quarter of '12 to the first quarter of '13, although up approximately $54 billion, or 5%, from the first quarter of 2012.

Tangible common equity ratio was up 20 basis points from the fourth quarter to 6.94% and tangible book value was up about $0.10 to $13.46 at the end of the first quarter.

As you know, we started reporting under Basel I incorporating the Market Risk Final Rule this quarter.

The change added approximately $87 billion to risk-weighted assets.

As you can see on slide 6, at the end of March, our Tier 1 common capital ratio under Basel I, incorporating this change was approximately 10.6%, up from what we would have reported had we incorporated the change at the end of last year.

Under Basel III, on a fully phased-in basis, Tier 1 common capital was estimated to be $131 billion, or 9.4%, versus the fourth-quarter estimated calculation of $129 billion and 9.25% respectively.

I do want to bring to your attention that effective January 1 of this year on a prospective basis, we adjusted the amount of capital being allocated to the business segments.

The adjustment reflects an enhancement to prior-year methodology and now considers the effect of regulatory capital requirements in addition to our internal risk-based economic capital models.

On slide 22 in the appendix, we summarize the adjusted allocations for you.

If we turn to slide 7, our global excess liquidity sources remain very strong at $372 billion.

Ending long-term debt did increase $4.1 billion from the fourth quarter of '12 as we funded the January payment for the Fannie Mae settlement and opportunistically accelerated our 2013 issuance plans.

While we issued $11.5 billion of vanilla parent company debt during the quarter, we still expect our long-term debt to decline over the remainder of 2013, as well as during 2014.

Our parent company liquidity remains strong at $100 billion and time to required funding was 30 months.

We would expect to continue to remain over two years of coverage.

If you turn to slide 8, net interest income, our net interest income increased from $10.6 billion, or a net interest yield of 2.35% in the fourth quarter, to $10.9 billion or 2.43% in the first quarter of 2013.

If we adjust these numbers for FAS 91 in hedge ineffectiveness, on the upper right-hand chart, you can see that net interest income was effectively flat at $10.6 billion, or 2.37% during the first quarter of 2013.

As we look at these results, we benefited obviously from the market-related premium amortization expense.

In addition, we also benefited from higher commercial loan balances, as well as the reduction in the average long-term debt, as well as the deposit rates paid.

Those benefits were partially offset by lower consumer loan balances and yields, as well as two fewer days during the period.

Let's move to slide 9 and look at expenses.

Total expenses were down from both the first quarter a year ago and the fourth quarter as we delivered on expense reductions in LAS, as well as ongoing cost savings in our other businesses from New BAC.

LAS expenses, excluding litigation in the IFR acceleration agreement, were down approximately $500 million from the fourth quarter to $2.6 billion during the first quarter.

This decrease marks the first quarter where the correlation between expenses and lower delinquent loan levels is visible.

Delinquent loan levels started to drop during the middle of last year, but as we have previously said, there is a lag of one to two quarters before you see the associated expenses decrease.

LAS headcount for March was down approximately 3000 from December while headcount, excluding LAS, was down approximately 1000.

As we have said previously, we believe that LAS expenses ex-litigation will be at $2.1 billion or lower in the fourth quarter of this year and we feel like the progress that we made during the first quarter in getting to that goal was quite strong.

Excluding LAS expenses, litigation and annual retirement-eligible cost, expenses in the quarter in the red box on the slide were $13.8 billion, an increase of $558 million from the fourth quarter of '12 and down $920 million, or 6%, from the first quarter a year ago.

The increase from the fourth quarter was due to higher revenue-related incentive compensation, approximately $800 million, which more than offset the impact of cost savings.

We continue to believe that we will achieve 75% of Project New BAC cost saves, or $1.5 billion per quarter by the fourth quarter of this year.

The effective tax rate for the quarter was 28% with nothing noteworthy to point out.

We would expect a slightly higher effective tax rate for the rest of the year, plus or minus any unusual items like another UK tax rate reduction.

This year's expected UK rate reduction of 3%, up from the previous assumption of 2%, should be enacted in the third quarter and will result in a charge of approximately $1.2 billion to write down our UK DTA in that quarter.

If we turn to slide 10, you can see that credit quality continues to improve.

Net charge-offs declined 19% to $2.5 billion during the first quarter, which is the lowest level in several years.

The consumer loss rate dropped 34 basis points to 1.7%, the lowest since the beginning of 2008 while the commercial loss rate declined 5 basis points to 25 basis points, the lowest since 2006.

Provision expense of $1.7 billion includes a reserve reduction of approximately $800 million, reflecting the improved trends.

NPLs and reservable criticized balances also continue to decrease.

In addition, 28%, or $6.4 billion, of our NPAs are current consumer loans that were modified and are now current after successful trial periods or our loans classified as NPAs due to regulatory guidance that was issued in the second half of 2012.

Our allowance coverage to annualized charge-offs increased from 1.96 times in the fourth quarter of 2012 to 2.2 times in the first quarter of 2013.

If we turn to slide 11, we highlight the results of Consumer & Business Banking.

Starting this quarter, we have combined business banking and deposits for reporting purposes.

Pretax earnings for Consumer & Business Banking increased 4% versus the fourth quarter driven by improved credit costs, as well as lower expenses.

However, net income was relatively flat due to a higher tax rate.

Average deposit balances increased 4%, or $18 billion compared to the fourth quarter driven by $11 billion of organic growth and $7 billion related to transfers from Global Wealth & Investment Management.

As you know, we periodically move customers across business segments after an evaluation of how they can be best served by us.

Rates paid on deposits during the quarter declined 3 basis points due to pricing discipline and a mix shift in our deposits.

Brokerage assets increased $6.7 billion from the fourth quarter, or 9% due to market appreciation and increased customer flows.

We reduced banking centers during the first quarter as we continue to optimize the delivery network.

Our mobile banking customer base reached $12.6 million, which is up 5% from the fourth quarter and 30% from a year ago.

Combined credit and debit card purchase volumes had a seasonal decline of 6% from the fourth quarter, but increased 3% from a year ago.

US consumer credit card retail spend per average active account increased 7% from first quarter a year ago.

Average loans did decline $1.6 billion from the fourth quarter due to seasonality and continued noncore portfolio runoff.

And as I mentioned earlier, credit quality continued to improve with some of our credit quality indicators at historic lows.

If we turn to slide 12, we address one of the two businesses within our Consumer Real Estate Services area, home loans.

As you know, the home loans business is responsible for first lien and home equity originations within Consumer Real Estate Services.

First mortgage retail originations of approximately $24 billion were up 11% from the fourth quarter and were up 57% compared with retail originations from a year ago.

We believe these increases are reflective of improvements in our retail marketshare.

Consequently, we are adding employees to improve our sales and fulfillment capacity, which is the driver behind higher expenses in home loans during the quarter.

However, given lower margins realized during the first quarter, core production income decreased from the fourth quarter.

If we turn to slide 13, Legacy Assets & Servicing had a loss of $1.4 billion in the quarter, a significant improvement from the fourth quarter that was impacted by our settlements with Fannie Mae.

The provision for reps and warranties in CRES was $250 million during the quarter.

The MSR asset ended the quarter at $5.8 billion, up slightly from the end of the fourth quarter.

Although we announced the sale of mortgage servicing rights in January, the accounting sale will be recorded throughout the year as the servicing asset is transferred.

MSR results, including hedges, were positive for the quarter.

The capitalized MSR rate ended the period at 61 basis points versus 55 basis points at the end of the year and 58 basis points a year ago.

Results did include approximately $700 million of litigation during the first quarter of '13, as well as a similar amount during the fourth quarter of 2012.

As you can see from our press release this morning, as well as on slide 24 in the slide presentation, we did reach an agreement in principal to settle for $500 million three class-action lawsuits involving Countrywide-issued RMBS.

We feel very good about resolving these exposures, which addressed original principal balance RMBS that exceeded $350 billion, or what we believed represents approximately 70% of the unpaid principal balance of all MBS as to which securities disclosure claims have been filed or threatened as to all Bank of America-related entities.

Servicing income decreased 17%, or $182 million, compared to the fourth quarter.

47% of this decrease was related to the legal sale of MSRs in connection with the sales that we announced in January, together with other smaller MSR sales.

The balance reflected payoffs that exceeded originations in the portfolio due mainly to our exit from the correspondent channel in late 2011 combined with the seasonality and the timing of mortgage payments.

The number of loans in our servicing portfolio totaled approximately $6.5 million at the end of March, down 866,000 from the end of the year due to actual transfers of approximately 570,000 and the rest due to payoffs.

60-plus day delinquent loans dropped from 773,000 units at the end of December to 667,000 units at the end of March, of which a third of the decrease is associated with transferred servicing.

We continue to believe that our 60-plus day delinquent loans at the end of this year will be at 400,000 units or below.

If we turn to slide 14, Global Wealth & Investment Management had a very strong quarter.

Earnings increased 25% to $720 million from the fourth quarter and continued to set post-merger records in several metrics.

The pretax margin of approximately 26% was impacted by low credit cost and a higher contribution from corporate ALM activities, some of which we would not expect to continue.

Overall client activity in the wealth management business in the quarter was strong across all categories.

Client balances were up $82 billion, or 3.8% from the fourth quarter, due to higher market levels and net positive flows offset somewhat by the net migration of deposits to consumer and business banking.

Period-end deposits dropped $26 billion driven by $19 billion of net migration once again to Consumer & Business Banking.

The rest of the decrease reflected year-end seasonality heightened by the fiscal cliff in client investment activity, including long-term assets under management activity.

Ending loan balances were at record levels and long-term AUM flows were a record $20 billion, the highest quarterly amount since the Merrill merger and the 15th consecutive positive quarter.

Net income in Global Banking, slide 15, was $1.3 billion versus $1.4 billion in the fourth quarter and down from the first quarter of last year primarily due to higher provision expense due to loan growth and asset quality stabilization.

Revenue increased 2% from the fourth quarter reflecting increased business lending revenue.

Asset quality continues to improve.

Net charge-offs declined $117 million, or 51%.

Reservable utilized criticized exposure declined 6% and NPAs dropped 20% to $1.7 billion.

On slide 16, you can see corporatewide investment banking fees increased 26% from a year ago, but were down slightly from a record-setting fourth quarter in debt issuance.

Per Dealogic, Bank of America-Merrill Lynch gained marketshare compared to the fourth quarter of 2012 and based on our reported peer results, we believe at $1.5 billion in investment banking fees during the first quarter of 2013, we were a very strong number two.

Average loans increased almost $12 billion from the fourth quarter, driven by growth in C&I, as well as within commercial real estate.

Ending loan balances continue to be higher than average balances reflecting the momentum that we saw throughout the quarter.

Average deposit balances at $221 billion for the first quarter declined approximately $21 billion compared to the fourth quarter, partially impacted by the expiration of TAG.

If we switch to Global Markets and flip to slide 17, net income of $1.4 billion increased approximately $1 billion, excluding DVA from the fourth quarter reflecting increased sales and trading activity.

We did record DVA losses of $55 million in the first quarter of this year versus losses of $276 million in the fourth quarter and losses of $1.4 billion a year ago.

Total revenue ex-DVA was up $1.9 billion, or 58% from the fourth quarter and was down 11% from the first quarter a year ago.

Sales and trading revenue ex-DVA increased $1.9 billion from the fourth quarter driven by our FICC business due to improved market sentiment.

FICC revenue ex-DVA was up 85% from the fourth quarter due to improved customer activity across all product categories.

Versus a year ago, FICC revenue was down 20% ex-DVA as market-making opportunities and credit products were reduced due to spread tightening being much more significant a year ago than what we experienced in the first quarter of this year.

Also contributing to the decline was a gain in credit products in the first quarter of last year that did not repeat and a decline in commodities revenue.

In equities, excluding DVA, results increased 61% from the fourth quarter due primarily to improved trading performance and increased volumes in cash markets driving higher commissions.

Versus a year ago, equity results were up 8% due to increased client financing balances.

Average VAR of $81 million in the quarter is down from $100 million in the fourth quarter and effectively flat with the year-ago period.

On slide 18, we show you the results of all other, which to remind you includes our global principal investments business, the non-US consumer card business, our discretionary portfolio associated with interest rate risk management insurance and the discontinued real estate portfolio, as well as the international wealth management business.

The loss of $867 million was driven mainly by first-quarter annual retirement-eligible costs.

The $1.7 billion decline in net income versus the prior quarter was driven by the annual retirement-eligible costs in the absence of tax benefits that were recognized in the fourth quarter of last year.

With that, let me turn it over to Brian.

Thanks, Bruce.

Before we take questions, I thought I would leave you with a few thoughts about the quarter.

As you can see on slide 19, we continue to work to stabilize the revenue streams and begin to build the strength to drive in the future.

At the same time, we continue to work on the cost structure, both reducing costs, at the same time investing in business, as Bruce talked to you earlier about the 4000 people we put to help drive our mortgage production or the 1000 more loan officers are examples.

That in turn will help increase our profitability now and in the future.

We continue to see continued momentum in driving balance growth across all our customer groups.

When you look in the consumer side this quarter, we were pleased with the growth in deposits, the continued stabilization and profitability of the credit card business and the ability to continue to drive the mortgage activity, the production activity the way we want to, up 50% plus year-over-year.

As you can see in our Global Wealth Management businesses, we have had a record level of assets under management come in from our industry-leading business and they had strong performance, including operating margins.

As we think about the commercial lending business, you can see both year-over-year and linked quarter, we have had strong commercial loan growth as those businesses continue to produce strong profits for our Company.

We remain strong in our investment banking revenue, as Bruce said, a number two positioning and we continue to drive our positioning in that business.

When you look at our capital markets business, as you can see, we continue to show good profitability and a strong increase from the fourth quarter, but we continue to maintain the low risk that's, in the methodology which you run that business, driven towards the customers we serve and making sure that we balance risk and reward at any turn.

We still have a lot of work ahead of us as a company.

We feel good about where we are and the progress we made this quarter.

We will continue to drive the earnings forward to deliver the results that you expect of us and we expect of ourselves.

So let's open it up for Q&A.

(Operator Instructions).

Glenn Schorr, Nomura.

Hi, thank you.

So good loan growth on the commercial -- C&I and commercial real estate side.

Just curious what kind of yield is that bringing -- being brought on and from what I understand there's pretty reasonable competition for those new loans.

So just curious on how you balance the growth and [marginal] pressure in the markets.

Good morning, Glenn.

It is interesting, if we look at the commercial loan balances across the platform, the spread on the new originations was actually up slightly relative to both the fourth quarter of last year, as well as relative to the first quarter of last year.

And it is interesting in that the loans that came on, not only were the spreads wider, but based on our internal risk ratings, the credit quality of what was being brought on was also stronger.

So we feel like we are doing -- the loans that we are bringing on, we are doing in a prudent way and you can see that, as you look at the -- in the supplements -- that a decent chunk of the loans that are being brought on are international, not any real concentrations, but both international, domestic and really across all products.

That's great.

I appreciate that.

I wanted to get -- your thoughts on the expenses from slide 9. I wanted to make sure that I understood.

Should the starting point -- being that the retirement-eligible is a first-quarter phenomenon, is the starting point, the 18.12 less the 900 or so, as we think about second quarter and then folding in the New BAC incremental efficiencies?

Yes, I think, Glenn, that's exactly right, that that $18.2 billion included the 900 from the retirement-eligible employees that only happens once a year.

So you're right.

As you go to the second quarter, the starting point should be $17.3 million.

The two other things that I would point out once again is that if you look at the compensation expense in the first quarter relative to the last couple quarters of last year, it was elevated by about $800 million based on the revenues that we saw within the sales and trading, the Global Banking and to a lesser extent the wealth management business.

So we hope those repeat, but I would just highlight that that is a delta relative to the last several quarters of last year.

And then obviously, from that starting point, we would look to continue to drive down expenses based on the work that we have spoken about with New BAC that we would expect to achieve throughout the year.

Perfect.

I appreciate that.

And you also mentioned your long-term debt is down $75 billion year-on-year and you expect more maturities in '13 and '14 in the 20s.

I guess that is perfectly straightforward.

Does that include any adjustments for what is coming down the pike with OLA or do you just have to take a wait-and-see attitude on what those rules are?

I think we obviously are paying close attention to the different OLA proposals.

I think if you look at the mix between the Merrill debt, as well as the BAC debt and you compare those dollar amounts relative to risk-weighted assets and you compare us relative to our peers, at least all the work that we have done suggests that we are at the very high end of the amount of debt and related instruments that we have relative to risk-weighted assets.

So the rules obviously are not clear at this point.

We feel like we are positioned very well based on what we understand the different proposals are that are out there realizing it still is moving around.

So as we go throughout the year, we would expect, as I said, to continue to drive that footprint down not only in 2013, but throughout 2014 and we continue to be very focused on that, Glenn.

Glenn, I would add that there is also a rationalization of the footprint.

Remember this was put on by various companies, not by one company that we have been restructuring.

So even if there is an amount outstanding, the cost can come down because you can string it out.

The rates paid are fairly high because they are different environments than we [bid] in and expect to be in the next couple years.

So there is even value even if you said the notional wouldn't move as far based on some interpretation of the rules that gets the debt footprint more rational, more spread across time than it is today.

All right, thank you both.

I appreciate it.

Matt O'Connor, Deutsche Bank.

Good morning.

Just to follow up a little bit on the fixed income trading results, obviously, it can be lumpy quarter-to-quarter, but it was down a little bit more than we saw elsewhere.

You talked about some of the mortgage areas.

Was there a particular gain last year that was unusual or is it just activity?

No, as I said, we referenced three things.

The first was there was a gain that, as you look at that decline that was in the area of $250 million that I would categorize more quite frankly as a recovery than a gain that we had highlighted during the quarter last year.

So a decent chunk of that was a gain that did not recur.

Then I think it is important, if you go and look at during the quarter what we saw, the financial spreads, which tend to be a fairly significant part of any FICC trading business, tightened significantly in the first quarter of last year and during the first quarter this year, start to finish, actually widened.

So that was the second piece of it.

And then the third piece, as we referenced, is that commodities had a particularly strong quarter last year and did not have as strong a quarter this year.

So those three general things.

I would say flows generally continued to be very strong and as you look at where we were relative to the fourth quarter of last year, I actually think we continue to make good progress, but it was a little lumpy in the first quarter of last year.

And Matt, I would add that, as you think about how we are running the Global Markets business, if you look at our VAR and our risk-taking, we are keeping a balance relative to the rest of the Company.

And so there will be times when people do better than we are and times when we will do better than them, but we are keeping a balance.

The second thing that Tom Montag and the team have worked on is the expense side.

So you can see the operating leverage when you look across the first quarter last year and this year and importantly the fourth quarter of last year to this year.

You can see that, with a little bit of revenue, you generate a lot more profit.

And so the idea is we are keeping this business so that we can make good money at a $3 billion -- some money at a $3 billion trading revenue level in the aggregate in the business, a lot of money at the $5 billion level and you are seeing that play out.

So if you think about it, we made money I think every trading day in the quarter.

The VAR was down and so I think we should be careful to think that we may not roar as much as some people might, other people might because this is one of the many businesses we have and we drive it for the benefit of the investing customers and also the issuing customer.

Okay, thanks.

That's helpful.

And then just separately, in terms of your capital actions, I think many were positively surprised by the CCAR Fed approval for buybacks of both common and preferred.

Just any commentary in terms of the pace of the common share repurchase and on the preferred side, the timing of that and do you have to issue any to replace what you are calling?

Yes, two things on that.

The first is you probably saw -- I believe on April 1, we actually went ahead and issued the redemption notices for the $5.5 billion of preferreds that are outstanding.

It is just under $500 million of preferred dividend savings that we will have on that and there was no requirement to issue to replace that.

So as you look at that redemption, that is a good redemption where you can look at those savings.

As it relates to the common, we would expect to be balanced and work through the share repurchase throughout the year and really don't have much more to comment on than that.

Okay, thank you very much.

Chris Mutascio, KBW.

Thank you, Bruce and Brian, for taking my call.

Bruce, I have a question.

In the release you talk about -- I mean we have gone through expenses in terms of the stock compensation, if you will, in the quarter and also higher first-quarter compensation related to revenues.

And you can kind of back that out and see what the run rate is for second quarter.

But you also mentioned that you expect to achieve $1.5 billion in cost saves per quarter by fourth quarter of 2013 related to Project New BAC.

How do I account for that third piece of the pie?

I know the stock compensation in the quarter, I know the overall compensation being high because of revenues.

How do I account for New BAC and getting to a run rate of second quarter?

Sure.

So what we have said, it's a good question, we have said that, at the end of 2012 on a quarterly basis, we would achieve $900 million per quarter of New BAC cost saves at the end of in the fourth quarter of 2012.

So as you look to adjust your models, we will take that $900 million a quarter that we would have had in the fourth quarter and that will grow to $1.5 billion by the fourth quarter of 2013.

Some of that we achieved during the first quarter and we would expect to continue to achieve that throughout the year.

And then the second piece, outside of the more one-timers that we've talked about in the first quarter, were the LAS expenses where we have said we will get that number below $2.1 billion by the end of 2013 and we obviously got that from$ 3.1 billion in the fourth quarter down to $2.6 billion.

So in addition to those compensation-related items, we have got those two levers to continue to drive expenses down during the balance of the year.

And just to be clear, the $1.5 billion in New BAC by fourth quarter 2013, what are the cost saves running in this quarter on New BAC?

So with the delta I can kind of gauge.

We have not given an exact number.

I think what you should do is, if you go back to slide 9 and look at the red bar, we have said that there was $800 million of increased incentives in that $13.8 billion.

That gets the number down to $13 billion.

You should assume that part of the benefit between $13.3 billion and $13 billion related to New BAC, but we have not given an exact number.

That's great.

Thanks so much for the color.

Meredith Whitney, Meredith Whitney Advisory Group.

Hi, good morning.

I just wanted some commentary on sequencing of litigation reserves and what has been -- what has already been factored in in terms of the bulk of litigation settlements and then what is on the horizon.

Thanks.

Sure.

It's a good question.

One of the things, and I am going to walk through the different pieces and as it relates to overall litigation, as well as the rep and warrant, and I would ask you to flip back to slide 23 where we lay this out.

And I think one of the things, Meredith, that we feel very good about the progress during the quarter is, if you walk through what we have laid out at the bottom of page 23, if we start with the reps and warrants, between the settlements at the beginning of 2011, as well as the Fannie settlement that we had at year-end, you can see that, as we lay out here, we are generally through the GSE exposure as it relates to rep and warrant.

You then go down to the monolines.

There are three significant monolines that we did business with, five in total.

We obviously have had previous settlements with two of those three monolines.

The one that obviously gets a lot of press is MBIA that continues to be out there.

You then go down to the private-label rep and warrant and obviously the most significant piece of that is the Gibbs & Bruns settlement that will work through -- continues to work through the court process and we would expect the outcome of that to be during the third quarter of this year.

So as you look at reps and warrants, we are through a significant portion of that.

We then -- if you then flip to the securities litigation, which is the other significant piece of the litigation expense, one of the reasons that we think the settlement that we announced today was significant is as I referenced.

If we look at the original unpaid balance companywide of all of the securities that were underwritten, this settlement today relates to companywide about 70% of that.

So I don't think anyone is going to ever, at this point, declare complete victory.

We do think that between the Fannie and related settlements and the lookback in the fourth quarter, as well as the settlement that we have announced today, that we are moving through in a pretty meaningful way this pipeline of items.

Got it.

Thanks.

That seems to be the big question for investors.

Thanks so much.

Sure.

Thank you.

John McDonald, Sanford Bernstein.

Hi, thanks.

Bruce, just following up on that, you have, on that same page, the range of possible loss above additional accruals of up to $4 billion.

There was some concerns that some of the recent legal decisions in the monoline cases, particularly around the causation issue, might have impacted your estimates there and it doesn't look like it did.

Could you tell us why that hasn't changed any of your outlook on that RPL number?

Sure.

Once again, the RPL that we have within the rep and warrant will continue to be up to $4 billion.

As we have said before, we cover -- at this point given we don't have repurchase history with the monolines, the monolines are covered within our litigation reserves and we have both litigation reserves, as well as range of possible loss for litigation and you should assume that there was some additional monies during the quarter in litigation expense that was set aside for the monolines.

Okay.

And then you noted that the settlement that you announced today covers 70% of issuance on which claims have been made.

Is that what you said?

That is correct.

Not only -- claims or threatened claims, John.

Got it.

So what does that leave some of the higher profile government (inaudible) like FHFA and some of the things that we know about?

Yes, the two most significant that are out there on the securities litigation that have been more public would be FHFA, as well as AIG.

Okay.

And on the Gibbs & Bruns, the final hearing is in late May.

I guess the deliberations could extend for a few months after that.

Do you have any idea -- I guess you said third quarter.

You hope to get the final resolution in the third quarter?

That is our best sense.

Far be it from us to forecast that process, but our best estimate, to your point, would be the third quarter.

Okay.

And then switching gears on the net interest income, Bruce, do you expect maybe to do better than the core $10.6 billion now that you have a little bit of loan growth in the day count or do you expect to kind of stay around that level?

Yes, I think, at this point, where we have guided is we have said that with the work that we have done that, ex any market-related impacts, that $10.5 billion is a good starting point.

That number can bounce around, but I would continue to look at that $10.5 billion in the near term as the right starting point.

Okay.

And how about on credit cost?

You had a nice move down this quarter.

Do you still have capacity to take the reserves down further and do you expect the provision to make further progress below the $1.7 billion that you did this quarter?

Yes, it's a good question, John.

I think as we look at the charge-off and the move in charge-off -- to have almost a 20% decline in charge-offs I think speaks to the quality of the portfolio and the work that we had said had been done back in late '08 and early '09 as it relates to consumer underwriting.

We have previously said that, as we look at provision, charge-offs will come down about the time that the releases also come down to get you to a level between 1.8 and 2.2.

If you look at what we experienced this quarter and with what we are seeing as a trend, it clearly feels like we will be at the low end of that going forward.

Yes, I mean this quarter you were below the range, right?

Yes.

So are we setting a new range or you still think we should think about that range of 1.8 to 2.2?

I would think about it at the bottom of the range at this point.

Okay.

And then --.

And John, as it is clear, it is all about the home finance side now.

You see the credit card businesses continue to make some incremental improvement, but it has made a dramatic improvement from the high points going back several quarters.

But it is really about mortgages and everything you hear about in the market that we are witnessing in our portfolios in terms of house price improvement.

Activity level continues to -- will bear well on that as we look forward.

Okay.

One more thing on, Bruce, on the revenue side.

The servicing, mortgage servicing revenues seem to take a step down from the MSR sale.

What should the cadence of that be going forward?

Is part of the decline kind of built in from the phased-in sale?

Yes, I think what we said is that roughly -- I think it was roughly $90 million to $100 million of the decline in servicing revenue was the result of the sales.

We've said that we think, as we get to the end of the year, the sales will ultimately lead to a reduction in revenues of about $200 million related to the MSR sales.

We obviously had a fair bit of that given that a decent chunk of the performing sales had an effective closed date on January 31.

So we have clearly taken a piece of that and there's probably another $100 million a quarter to come relating to those sales by the end of this year.

Obviously, as you look at, and we tend not to just look at the revenue number, but we look at the contribution from a pretax perspective and obviously, as you see the work that we are doing within Legacy Assets & Servicing, we continue to think that the opportunities there are significant.

And one more follow-up.

How do you guys think about the ultimate target of MSR size and maintaining a balance between origination and servicing in the mortgage business for when rates eventually rise?

Yes, I think as we look at, at this point, the MSR balance was roughly $5.8 billion at the end of the first quarter.

If we were to pro forma those sales throughout the year, assuming rates stay where they are, it gets you down to about a $5 billion number from an overall capital perspective.

Plus or minus that feels about right.

Obviously any change from that is going to be a function of the opportunities to originate things that make sense versus any type of accelerated prepayments that may or may not happen.

But I think $5 billion from an MSR balance perspective is not a bad number to be looking at.

John, from the origination side, the first order of business was to, after we got out of the correspondent business, was to kind of get the business on an upward trajectory and if you go back and look starting in the fourth quarter '11, we've basically grown retail originations quarter after quarter after quarter.

In this quarter again, we had another 15% odd off the fourth quarter last year.

But if you actually look at the headcount that you see on the pages, remember that we have got 1000 plus loan officers working this quarter that we didn't -- that weren't here last year that are trained and getting up to speed in the closing [rate].

So the next order of business is how to overcome the HARP refinancing levels, which we have in the portfolio and sort of get to a core run rate.

But there is no cap on us in terms of retail origination.

We will do as much as we can do for our clients and you have seen us drive it forward every quarter and now we have more people, more trained, more up to speed, 4000 more people in the fulfillment area and we don't see the pipeline slowing down.

Okay, thank you.

Brennan Hawken, UBS.

Good morning, guys.

So in wealth management, just hoping to dig in.

You guys highlighted a couple things that helped the margins move a bit higher, which it seems you don't think they are going to repeat.

About how much of a tailwind were those items?

And if we are looking ex -- how much of -- it seems as though maybe we might have enough draft anyway because we are looking at like a 500 basis point increase year-over-year and quarter-over-quarter.

Yes, a couple things.

If you look at the -- we talked about credit costs.

Credit costs, I think within the business there was roughly a $30 million reserve release during the quarter that we wouldn't assume is necessarily going to continue.

But I think if you look at overall pretax margin, we have been at kind of in the 20%, 21% area.

This quarter was 26%.

I think the assumption going forward is that we will clearly be north of the 21%, but I wouldn't expect that in the near term we run at 26% either.

Sure, sure.

I think you also highlighted the ALM as a tailwind too.

Is there any way to quantify that and can you, forgive the potentially ignorant question, but can you help me understand the mechanics of how ALM will run through GWIM?

Yes, I think the easiest way to look at it is, if you look at deltas, we had some of the market-based benefits that we quoted that were roughly $300 million during the quarter.

A portion of that gets allocated to GWIM and if you look at the GWIM business, you can see that the net interest income was up about $100 million.

So I will give you those pieces of data, but we are not going to quote exact numbers as to how we allocate that out, but it is a piece of that.

Okay, that helps.

Thanks, guys.

And then last one, and sorry, it's a little bit technical, but on the NPAs, I guess you guys had said that 20% were from MODs or regulatory requirements.

And we have run through the regulatory requirements before.

Just hoping to understand on the MODs, it was my understanding that, after about six months of payments, the TDRs are reclassified as current.

Do you guys account for TDRs differently than that or can you help me maybe understand how that works?

You are exactly right that once a borrower goes through the trial MOD period and gets to a permanent MOD, they need to be current for six months before we would look to bring those back in.

And when you consider that number, realize that coming out of the National Mortgage Settlement, there was heightened modification activity during the third and fourth quarters in particular of last year.

So we clearly would expect some of those to cross the six-month period during the second quarter, but realizing, if you go back to, I believe it was the third quarter when we adopted the regulatory guidance, the biggest of that $6 billion plus, north of $4 billion of that is the regulatory guidance that was given.

So that is going to be the bigger piece of the two things.

Okay, thanks.

That helps.

Betsy Graseck, Morgan Stanley.

Hey, good morning.

A couple questions, one on mortgage.

You indicated in the past that you were interested in increasing the mortgage origination share and you have done that.

I am just wondering how close you are to where you want to be or are you still in the process of building out what capacity you want to have there?

As you can see, Betsy, on the page, you can see that the mortgage loan officers are up about 1000 year-over-year.

We are still adding as we speak.

The success of putting them in into the branch environments where you have the mortgage loan officer and FSA, personal bankers is multiples of the success in other branch environments and so we are just driving at that.

So I don't have -- the pipeline is still as strong as it has ever been.

We are still -- we had thousands of people to get them closed on time and we are still working our tail off to get mortgage loans closed in time.

I don't think there is any -- honestly there is any cap on where this could go.

We still have tremendous opportunity within our client base that are unserved.

The people, our clients go elsewhere to get their mortgages.

So we have seen it drive up 50% plus year-over-year, another $3 billion increase in (inaudible) production fourth quarter to first quarter.

So I challenge the team, they have got to outrun the HARP at some point because that will die off, although it has been extended.

But I just -- I wouldn't tell you there is any sort of cap.

I think we should be able to drive it up to more of our natural share in things like deposits and stuff, which is more than the 10% level over time.

Great, okay.

So go from 4% a couple quarters ago up to 10% to 12%?

Yes, but it's going to take time.

I mean we are talking about -- we have been about 0.2% increase in marketshare each quarter.

So this is a lot of activity, but at $24 billion of retail production, we are in the top couple there, top two or three and our view is we ought to be able to push that forward.

And so two follow-ups on that.

One is, on HARP you mentioned, how much of the production right now is HARP and how much HARP is in your footprint, your client base that you haven't done yet?

If we look at both combined MHA and HARP, that is just under 50% of the total for the quarter.

Okay.

And what is left in your client base to do that you haven't done yet?

I mean how many more quarters of this do you think you have?

Yes, I think, I would say generally there was more of it this quarter than we probably would've thought coming into the year and we are headed, not to give an exact number, but as Brian referenced, I would say overall pipeline in activity, as we went through the first quarter, continued to be very strong.

I would expect that component though is probably at a strong point right now and will come down over the next three or four quarters just because frankly as we sell some of the servicing, some of that opportunity goes away.

That was part of the transaction value that we got.

But the key is, if you look at the non-HARP/HAMP type production, the non-HARP type production on making homes affordable production, you are seeing that grow at as fast a rate.

Okay.

And you are just HARPing your current portfolio set?

You are not going after other peoples?

You have enough to do with your own portfolio.

We have got enough to do with our own portfolio.

Right, okay.

And then just separately, on page 6, you go through the regulatory capital.

Could you just remind us what your expectation is for RWAs going forward, passive mitigation, active mitigation?

Sure.

I would say generally throughout the quarter with some of the growth that we have seen, and I assume you are referring to Basel III, Betsy?

Correct.

I think we continue, as we go through over the next couple quarters, we would just say what we've continued to say, which is that with where we are from a DTA perspective as we go forward pretax should be the way that generally we are creating capital and I think as it relates to different mitigation opportunities, the biggest thing that we see out there is that as home prices continue to move up and we continue to see the home equity portfolio amortize, which has been about $3.5 billion a quarter, that there is a fairly significant tailwind as it relates to reductions in risk-weighted assets there.

As we go forward, the runoff of the structured credit portfolio that we have, we would expect to accelerate as we go into '14, '15 and '16.

And that will obviously be gone by the end of '17.

So that is an opportunity and then the third thing I would say is that we continue to work through, and you can see we made progress on the private equity portfolio this quarter and we will continue to wrap that up.

So I think -- but the biggest item as we go forward is just going to be the pretax income line.

But I do think that there will continue to be other opportunities to drive that as well.

And the runoff of the structured credit, how much is that right now?

We have not given an exact number that we would expect that to run off, but you should assume it is north of $20 billion of risk-weighted assets.

Today in 1Q?

That's correct.

Okay.

And then the last question is on how you get to the $5 billion ask that you had for CCAR that got approved.

Because with the 9.4% common Tier 1 ratio in [1Q3] and these RWA mitigation opportunities coming going forward, clearly you must know going into it that you were going to be well above the 8.5% FFC minimum that is out there and that you would be approaching the 10%, that kind of high end of the range scenario that people in business (inaudible) like yourself have targeted.

So just wondering how you got to $5 billion and how we think about capital ask going forward.

Sure.

Well, I think, and Betsy, as we have spoken, I think there are three different metrics and ways that you get to looking at capital allocation and capital return.

The first is obviously where your ratios are after stress through the CCAR process.

And as you look at the results that we had, we ended up just above 6% after our ask, which, relative to our peers, we think positioned us well.

The second item, which, as you referenced, you moved to Basel III and we feel like we have done a very good job on Basel III and to your point are above the minimums, above buffers and feel like we have done a good job there.

And then the third, which is what you have heard us talking a lot about, is just driving the core earnings as the third component.

And so we balanced all of those three.

And I guess the other thing I would say, as you look at the ask, obviously we have got $5 billion that will get returned to the shareholders based on our plan, but I think -- I don't think you should also minimize though the other $5.5 billion that will go to redeem preferred stock because that preferred stock had coupons between 8% and 8 5/8%.

It is not tax-deductible and we are not replacing it with other preferred stock.

Okay, thanks.

Nancy Bush, NAB Research LLC

Good morning, guys.

How are you?

A couple of questions for you on retail.

You have closed I think 262 branches if I am looking at the numbers correctly over the past year.

Can you tell me how that number looks for the coming year and if there is some, quote, optimal number of branches that you want to maintain?

So I think, Betsy, we were clear that we, a few quarters ago, we said we would do the 750, and I would say -- excuse me, Nancy -- you were at 750 and I think we're -- and you can see that that number is close to 5000.

So think about that as 5400 odd, getting down to 5000.

The point was, at the time, we did an optimization thought process, looked at it, looked at customer behavior and got that number and we are busily doing that in a very thoughtful way so that we retain a lot of customers, especially on the consolidation side.

And then also obviously, as you know, Nancy, we have exited some of the markets and sold community banks where they can get the leverage and the operations that we can't get in some of those markets.

So the question of what happens next I think is probably a question that we take up as we get into '14 and think about what the customer behavior change has been because we are seeing a fairly strong change in the behavior of the customers evidenced by the mobile volumes.

And so not only do we have a number mobile customers -- mobile customers goes up to about 10,000 a day to 12,600.

It is also what they do.

So 100,000 checks a day get deposited by people taking pictures of them and type the numbers.

So that behavioral change we have got to keep monitoring.

At the same time, we are building the centers to be these more destination with the [FFAs], which are brokers in branches, mortgage loan officers and so that configuration I think we are still testing.

So I don't know the exact answer, but because the near term is to get the other 400 changed that we are talking about through.

If you step back from it, look year-over-year, the branches are down, the customer satisfaction is up and the deposits are up strongly, which is a nice combination.

So what I hear you saying is that this, as you go into 2014, this 5000 branch number is not written in stone, is that correct?

Think of us as a retailer looking at what the best way to get the most out of the market and serve our customers best.

And that will always be a subject we will talk about and we are making massive investments in other ATM architecture, virtual ATMs in the mobile space to make sure that we are right with our customers.

And my second part to the question would be, Brian, in addressing all these changes in consumer behavior, etc., I mean has part of this program also been to address some of the service issues that you guys had encountered over the past few years as other stuff took more attention?

Absolutely.

And part of it is continuing to upgrade the system.

So if you look at our Company between 2009 and 2015, we will have rewritten all the systems and we will bring systems, which are more standalone product systems, into systems which are consistent with a customer approach, Nancy.

So the kinds of inquiries you get where we can see it first in one system, not in another system.

Those are going away, frankly getting out of multiple deposit systems helps and so our complaints are down a lot, our attrition is way down and so we are seeing the benefits of this as we go through it.

But absolutely, this is all geared at maintaining a customer posture, customer satisfaction posture, which is up year-over-year and driving it to places we haven't driven before honestly based on all the tools we have.

And one question, one final question for Bruce.

Bruce, the stock is down roughly about 3% in the market right now and there was some disappointment with the headline number.

But all the ingredients for the quarter look pretty good.

Was it your sense that the $900 million in seasonal costs was built into most estimates or was this a point of variance do you think?

I think that there are probably two things.

I think that the $900 million built into the estimates, which we have every period as we look out there, I think it was in some, not in others.

So I don't think there was uniformity on that across.

And then I think the other item that was out there is, as we look at a lot of the analysts, as they look at core, they don't include any litigation number and obviously there was a $900 million litigation number.

We obviously need that to come down, but when I mentioned to Meredith's question, I think getting this class-action and shrinking the tale risk with respect to our mortgage-backed security litigation, tale risk was a significant item for us and we were able to get through that this quarter being generally in line with what you all had expected.

Okay, thank you.

Eric Wasserstrom, SunTrust Robinson.

Thanks.

I just want to circle back to the litigation issues for a moment.

And could you just help me understand what precisely at the upcoming hearing on the 30th is being debated?

Is it simply the amount of the settlement or is it more the actual legitimacy of the process by which the settlement was derived?

It's hard for us to predict what is going to happen on the 30th.

But I think, as we have spoken to, that the process, and we are obviously not a part of this.

This is Bank of New York Mellon in their capacity as trustee and obviously, the standard and what needs to be worked through is did they go through and were they prudent and did they follow a process to getting to the point to say that this settlement made sense for investors.

And so that will be the general topic.

We are not going to predict what exactly happens on the 30th besides that we obviously wouldn't have entered into the settlement if we didn't think that there was a basis for it.

Correct.

I am certainly not asking you to anticipate an outcome.

I just wanted to make sure it's not as narrow as the monetary settlement.

It is the broader issue of whether BONY followed the appropriate procedures in terms of determining a settlement, is that correct?

That's correct.

Okay, great.

Thanks very much.

David Hilder, Drexel Hamilton.

Thanks very much.

Just another litigation question.

Is it fair to assume that the Countrywide RMBS that were included in the settlement that you announced this morning are all included in the securities that were the subject of the settlement of the Gibbs & Bruns and Bank of New York as trustee process?

There is clearly a significant overlap.

I think as you look at the people that were part of the settlement today tended to be people that would have been original purchasers of the securities.

With respect to Gibbs & Bruns, they could have either been original purchasers or subsequent purchasers, but there is overlap and as we have said in the release that the people that were part of the settlement today, to the extent that Gibbs & Bruns gets approved, they will receive whatever they would have otherwise received as part of Gibbs & Bruns.

Okay.

But looked at from the perspective of the Countrywide securities issues, again, would all of the ones in today's settlement be included in the other -- in the Bank of New York as trustee settlement?

Yes, because, as we said in the release, this covers 80% of the Countrywide securities, of which Gibbs & Bruns was obviously a more than -- a very significant piece.

So you're absolutely correct in that.

Okay.

And then I don't know if there is anything you can say on this, but any prospective statement about the settlement or possible timing of resolution for the various alphabet soup of remaining litigation, MBIA, FHFA and AIG?

No, there is really nothing that we would say there.

I think I would just reiterate though that, as you look at the component of what we settle today from a securities litigation perspective, as it relates to current outstanding amount, as well as what was originally underwritten, it is obviously a significant piece of that.

We continue to want to resolve and get these legacy issues put behind us.

At the same time, between the capital that we have built and the number of them that we have put behind us, it has to make sense for the shareholders.

Great.

Thanks very much.

Moshe Orenbuch, Credit Suisse.

Great, just like on the trusts that were outside of the Bank of New York, you did provide, on a similar basis.

Is there anything you can say about the other lawsuits as to whether there is a provision that has been in there for them based upon some of the experience in the other cases?

I am not sure what you are talking about.

Well, I mean you just (multiple speakers).

Right, well you have had experience with some of the monolines.

I don't know if it is like a facts and circumstances when you think about MBIA or -- so how do you think about whether there has been a provision there or -- and the same thing for the FHFA lawsuits?

Are there elements of some of the others that cause you to have had some degree of provisioning for them or would that only happen once those get advanced?

They are all in the litigation reserves, which are not on that page.

Those are just the rep and warranty reserves.

The monolines, the FHFA and those are in litigation reserves because FHFA and AIG are RMBS cases.

Right.

But I mean the question is is there -- should we think about there having been a component of them or is that all going to be pending?

Well, the -- I want to make sure I understand the question.

So within the -- as you go through the litigation reserves, we have reserves for those litigation items that we have the basis to reserve.

To the extent that we don't have the basis to reserve, we have a range of possible loss.

So as it relates to these items, those are the two ways that we work through the reserves.

In the litigation reserves, as we have said before, are where we house reserves for litigation matters, as well as, as I said, the monolines reside within that litigation bucket as well because we are in litigation with them.

And then obviously as you move to the rep and warrant reserves, we have got the actual reserves and then we have also disclosed the range of possible loss for those items that we don't have the basis to reserve.

Okay, thanks.

I'll take that off-line.

Just a second question with respect to the mortgage business and the gain on sale.

The primary/secondary spread did end the quarter lower than where it was on average.

Talk a little bit about how you see that gain on sale trending into Q2 and as we go forward.

Well, I think that there is -- as we look, I would say that if we look at where we ended the quarter relative to where we started, I would say that it feels at this point that the spreads at this point have somewhat settled out.

But obviously those spreads are going to be a function of activity versus capacity and we will have to see how that unfolds over the quarter.

We have obviously built up, and as Brian referenced, have built up the capacity to do what we need to do for our customers and we will just need to see where those margins go throughout the quarter.

But, at this point, there was obviously a stepdown in margins during the first quarter.

It feels to some extent as if that has leveled out, but we will have to see how it plays out over the second quarter.

Okay, thank you.

Matthew Burnell, Wells Fargo.

Thanks for taking my question.

Most of my questions have been asked and answered already.

But just a quick question in terms of the deposit cost.

You have got your domestic deposit costs down to sub 20 basis points.

You have got somewhat higher costs outside the US, although obviously much smaller balances.

Is there any -- how are you thinking about being able to reduce though the non-US deposit cost, particularly in the time deposit categories over the next 6 to 12 months?

You are right.

The international component is obviously a very small component.

Those are large -- they are almost exclusively either wholesale deposits that are out there.

I am not sure you're going to see much movement in that.

I think to your earlier question, where the majority of the deposits are and where the majority of the cost of the deposits are those housed in the US.

And you can see that as we build up the core deposits, the amount of time deposits that we have here in the US, we would expect those to continue to come down.

And as those come down, all other things being equal, you would expect deposits here domestically, the cost of those to continue to move down.

Okay.

And now a bigger picture question on OLA.

You have got about $134 billion of long-term debt at Bank of America Corporation as of the end of the year, an additional $90 billion of Merrill Lynch debt.

When you are thinking about OLA, does any -- do you think about potentially explicitly agreeing to support the Merrill Lynch debt?

Does that help you at all under OLA or are you planning on just maintaining the status quo on that basis?

I think as I have said before, I think the OLA rules continue to evolve.

If you look out at our annual filings that we have put out there, we have said that we are looking at does it make sense to have a Mellon Co.

merged into BAC.

That is ongoing work that continues.

We believe ultimately, as the Merrill debt runs off and to the extent there is reissuance, it's at the Bank of America level, so we pick up that benefit.

Like I said, as we look at any ratio, and as we consider the different rules, it feels like we will have more than enough in total parent company debt relative to risk-weighted assets.

Okay.

And then just one final question.

You had mentioned the time to required funding has come down a little bit from the end of last year and you intend on maintaining that at above two years.

Should we think about that coming down closer to 24 months over the next 6 to 12 months or is it too early to tell?

Two things.

The first is -- the one thing, when you mentioned it came down in the quarter, realize that one of the reasons why it came down is that we have included the $5.5 billion of preferred redemptions in the time to required funding, so that largely drove that.

But to your question, it is a good one.

We would expect over time that the amount of parent company liquidity that we have would tend to come down over time.

As we get through the '13 and '14 maturities, we still believe we can bring the parent company liquidity down, bring the cost of it down and you are right, we will keep time to required funding at at least two years.

Initially given we work through maturities, that will stay elevated in the high 20s, 30, but the goal is to obviously flatten out the maturities and have that become more in the two-year area, which is consistent with what we have been saying for some time.

Right.

Okay, thanks for taking my questions.

Mike Mayo, CLSA.

Hi, I had a question on litigation, but before we go there, just there was an article saying that, Brian, you were leading a revenue push at the Company and I was wondering if this is a tweak, a strategic change.

And as far as a revenue push starting from the top, is that because of what Bank of America is not doing or is it because of the weaker-than-expected environment or both?

We have been driving the Company and so there has been two basic pieces of strategy.

One is to continue to push the legacy issues and costs (inaudible) out of the Company.

At the same time, take the Company and drive the underlying business metric.

So that has been going on and as we clean up more of the former, then the focus of the Company is on the latter.

And involved in the latter -- in other words, driving the core Company was that we had say credit card, a big book of business that we were running off that, we are getting towards the end of that or less impact quarter-to-quarter and now we have got to grow the credit card business.

So this quarter, I think we did 900,000 plus credit cards, which is the highest amount we have done in a quarter since 2008 or something like.

70% of those are through the branch structure and through the preferred business and things like that.

So the goal is to continue to drive this Company and get the value of the combination of all the pieces of businesses through it.

It is not a new push.

It is just as the other issues go away, this is what the team has to be focused on.

So we are seeing great progress in some of the businesses and look at the GWIM business and look at the connectivity to the GWIM business.

We literally have millions of referrals that go between businesses a year.

We goal those at 30%, 50% increases every year and we see that number is being hit and it's tracked in every single market, 100 plus markets, with about 20 different pieces of business flows between businesses that we track and monitor on a monthly basis.

It is all geared to just driving the value of the franchise and frankly delivering the customers' entire franchise.

And it appears in all the businesses, whether it is in the commercial business bringing our 401(k) platform, which is new to the Bank of America structure since Merrill came in and we just see that -- wins in that happening every day.

It is bringing the capital markets expertise deep in our middle-market business.

It is bringing the personal side of the wealth management business to our business entrepreneurs.

It is all those things.

And so there is -- new is probably a word that overstresses it.

It is what we have to do to drive the revenue and continue to work the expenses to produce the bottom line we need.

All right.

So as you finish or move further along with the cleanup, just more external focus?

Yes, and I always -- Mike, one of the tough things is we have 260,000 people in this Company and a lot of them have been focused on this and it is just their time to shine and the rest of what Bruce and I have been working on and others, restructuring the balance sheet and getting the capital up, getting liquidity, legacy issues are starting to fade away.

And then a separate question, back to the litigation.

The 10-K and some 10-Qs say that if the courts disagree with the argument of loss causation then the reserves may need to go up and that has not taken place, your range of possible loss is about the same.

So I'm trying to reconcile those two thoughts because it seems as though, with Assured versus Flagstar, loss causation was shot down and some other comments in the courts.

So how do I reconcile what happened with Flagstar, some other court comments that shoot down loss causation with the comment in your 10-K?

I think that the -- the couple things that I would say is that the first is, and I am not going to drill into the Flagstar case, but I want to be clear, Flagstar gave a borrower fraud reference and that was part of that case, which is not something we have done.

But at a high level, Mike, I would go back to -- that is correct.

It is in the disclosure and as I said in my earlier comments, within the litigation reserve during the quarter, we reassess those every quarter and we did provide, within the litigation expense, some element of cost with respect to monolines during the quarter.

And the big question here is what happens if the $8.5 billion settlement doesn't go through?

And I asked Bank of New York that question this morning and the answer from Bank of New York is well it is up to the courts to decide.

But what if the courts decide the $8.5 billion agreement does not go through, what would be the impact on your reserves?

I think that the first thing is that the court is not opining on a number.

They are either opining on approving or not approving and obviously, if they don't approve, we have set up reserves within the Countrywide securities, assuming that every trust gets to the 25% threshold.

And so, obviously, if it doesn't get approved, this will revert back to going individual trust by trust and working through it.

But I don't think it is appropriate to comment on reserves on something that we don't even -- don't know what -- the extent it's not going to happen.

So you have $8.5 billion in reserves for the $8.5 billion settlement and that may change, but you will wait and see what happens May 30th?

That's correct.

And I think the other important thing is when we set up the $8.5 billion to the Countrywide, we also used that same methodology with respect to bank-issued securitization rep and warrant to set up reserves based on the same methodology across the Company.

All right.

Thank you.

Paul Miller, FBR.

Good morning.

This is actually [Thomas Laturneau] on behalf of Paul.

I have a quick follow-up and I just want to make sure I heard you guys right.

Did you say that 50% of your total originations were HARP and if so, would that imply that -- I guess what I am asking is do you think you can replace that with sort of normal retail volume if HARP starts to dissipate in the back half of the year?

To be clear, the 50% was both MHA as well as HARP.

Okay.

And it was slightly -- and in fact, if you think about it year-over-year, the growth rate of the non -- those activities -- has actually been as strong as the growth rate.

And that is the challenge going forward is just how do we keep an originated broader product set.

But right now, that is an opportunity, which is here and near and it goes away over time, but the rest of the production continues to grow at a fast pace also.

Okay, great.

That's helpful.

And one additional question real quick.

Can you tell me what type of products you are actually portfolioing right now?

Within the consumer mortgage business?

Yes.

Largely nonconforming.

And obviously we are not looking to go out -- what we want to do is to provide the mortgage product and balance sheet for that, which there isn't another alternative and we are pressing hard within the different businesses.

The mortgage activity within the wealth management business this quarter was very strong, as well as within the mass affluent client space.

So that is largely the focus.

Okay, great.

Thanks for taking my question.

Just on the underwriting of those though, you should be rest assured that the underwriting is consistent with very strong underwriting that is going on in the industry totally right now.

Okay, great.

Thanks, guys.

Okay, I think we are through the questions.

So once again thanks for joining us this morning and we will be talking with you next quarter.

This concludes today's program.

Have a great day.

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