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Appendix
I
lr¡nr¡
To!
suùJrr!
D¡C
n¡acnaaor:
IO¡trLLKgb¡i
f!ül!-U¡trÙ
D.bo.âh
P
F
¡ls
EqgEJqQh;
cwåm
sl4ñrF4;
Williâm
n,rt¡4";rrtrui
rnoul";
Bdtñ
9.rÈr:
lEm¡ferEums:
Ëð-ÁûlÊOd,Ba0Óüt5-filË3û3f,
Sd*t Àleår'!Upôts
on
B
C-ilt
tut9l2m8
02t9
Prl
Tlre
followlng
lsa
quld(
uPdateandsome
pr€llm¡naryvlews
ln
advance
of
the
call
at
3:30
bday.
WeGRB
Rlchmond,
FRB NY
and
Board
staff)
are
cont¡nu¡ng
to
gather
needed
info
for
fù[
assessmentbf
ML
though
Bank
ofAmerica
(BAC)
managemençthough
plolectionfur
Qahavlng
gotten
slgnlficantly
uàrE
cunenüyworklng
to
updateare views 0nthemselvesiroæd
thé
oÜrdr
nþht
at our
meet¡ng,even on a
stand-qþile
basls,
the
firm
is
very
thinlycapitalized
iñterms
of
tangiblé
common
equity(l'CE)
relative
b
assets
and
exposures.
.
It
is
notable
that
a
quickanalysisof
the
TCVassetsratlos
of
BAC
and
ML
issue
here.
Th¡s
'ts
largelY
the
re
and
üre
fact
that
most
caPitalin
t
BAC.
s
numbers
is
Ürat
ML
does
not
appear
to
arger markdo$,ns
-
though
we
cant
yetn,
.,nìiijo.$e
size
ofthe
losses/writedowns
of
the
acquisi
of
the
'nevf
$4blllion
of
loses
are
beingsought
rig
in
the
analysisonce
weget
a
bit more
clarity.
among
manyof us
working
on
thls
is
that
glvenmarket
ral months
and
the
dmr
slgns
ln the
data
we
have
that
been
oboervabh
rey
have beendolng
the
duedlllgence
for
months
and
having
e-files
wouldhave
made
that
much simplerand more
effectve
for
them.
May have
helpedlimit
heir
current
sutPrise.l
As
perour
meet¡ng
with
management
the
other
nlght,
BAC
management
has
ldei¡tlfled
a
$78
bll-llon
portfolio
of
posltions
and
epoouresthat
are causing
the
problems
at ML.
Those
are
as
follows:
BOG-BAC-ML-COCR.00009
tlenil
Lynch'LcçacT
Pordolb'
S
mllions
LererãgedFhenceCREABS
CDO(SuperSenior)
Residenlial
Mongages.largely
N
on'US
GurrentÉrposule
tõ
FinancialGuerantors
(net
of
CVÁi/reserue)CPI/PCG
lrwestmeflt
Porüolio7,3095.013
776
4.0089.3253.428
20.968
Appendix
I
Current
Exposure
to
Credit
DeÍvelives
Roduct
Companies
3.732
Pdvate
Equity
[nel]
10-784
nssdBedodt;ndúalffi
E'513
NY
Fed
iswod<ing
today
to
analy¿e.theke
how
much
furthei deteiloration
islikely or
firm
has
substantialcontinu¡ngnotional
he
($53blllion)
and
ddve erpæurædowns
in
the
val
Weplan
to
finalize
the
analyses
described
ln-this note
tod-ay/tonight
and..wot
ttt!:
weeiand
to
crcate
a
forward-lookingviewoftheextentofthevulnenbllltiesfor thecom¡ine¿entity,
which
we
wiìl
shoo-t
b
wrapup
bySunday
nlght
andprovlde
the
fullanalpis
Monday
momlng,
please
forward
to
any
rele\rant
part¡es
I
mayhave accidentally
leftof
thedistribution
andlet
meknowif
you
hâve
any
quest¡ons
tim
T'lm
P.Clarlt
Senfor
Aô¡lsor
BankingSupeMslon
&
Regulatlon
Fedenl
Reserue,
Board
of
Govemors
BOG-BAC-ML-COCR-000
10
Anaþsis
of
Be¡k
of
A¡rericr&
Merrill Lylch
MergerRest¡ctcd
FR
(Second
Druft)
December
21,2008
L
Summ¡rv Overview
Ba¡k
of
Amcrlca
(BAC)
h¡¡
sufficient
r€sourcesto consirmm¡te the merger
with
Merrilllynch
(MER).
.
Upon cousummation
of
the
mergcr,
based
on
cunent
projectionsforboth
firms,
the
combined
entþ
would
have
an
8.6%TierI risk
based
capttalratio
and
a
Tiø
1
lcverage :,zlio
of
5.2o/o.
Hower¡er,the amount
of
tangible commonequlty
at
the
combined
firms
will
be
among
the
lowestof
thelarge
BHC
at2,2Vo
ot
day
one
oftheacquisition.
r
An immediate
rnrlnerability would
be
BAC's
access
to ma¡ket
funding.
On
a
stand
alonebasis,
BAC
has
a
sigrificant
short
term fr¡ndiog
depelrdence.
MER
has
sigrificant
depende,ncc
on
the
governmeirt
fiurding
progfams,
and
will
likely
increasetheshort
term
firndingpressure
ontbe
combined
fi¡m.
,
Theprincipal
vulnerabilityofttre
combined
firm, similarlyto
otherlarge
BHCs,
would
be:
o
Potential
losses
fiom BAC's
q)nsumer
and commercial credit
portfolios,which
will
be
continge,nt
uponthe
economic
environm€ntgoing
forward
and
will
be
rcalized,
over time.
o
MER
has
the largestexposrxe
to
finansial
guarantorsaøoss US
tnancial
instih¡tions.Unlikq
the
timing
of
loss
recognition in
theloan
portfolios,
lossesass'ociated
with
finansial
guarantorexposurescould
be
realizcd
in
a
more
compressed
timefr¿rne,Moreover,
the
tinring ofpote,utial
losses
ûom
theseexposures
is
highly
uncertain.
I'rom
tåe
penpectiveof regulatorT
capitrl,
B¡nk
of
America
(aBAC')currently
cxcccds
regulatory
oinim¡
for
well-capitalized
on
a
st¡¡d-elonc
basls,
with
anerpected
Tier
I
capitel
ratio
oI9.2To
et
year-end2008.
Eowever,only
¡bout
one
thlrd
of
the
fi¡n's
Tier
I
capitrl
is
in
the
form
of
tangiblecomdon equity,
¡
When
viewed&om
thestandpoint
oftangible
cio¡nmotr
equity tototal
assets
(the
TCE
ratio) the
firm
is
among
the
mo¡e
ihinly
capitatized of
ttre
five
largest
domætic
BHCs.
Thisratiois
closely watched
by
analystsand ínvestors
and
further
deterioration
of
the
fimr's
TCE
ratio
would likoly
causeincreased
uncertaintyamong
markaparticþants
about
the
6rm's
prospects,Since
September,
continued
economic
dcterioration
¡nd
subst¡nd¡l market
dlsnrptÍonr
have weakened
fùe
co¡dldon
ofboth
firms.
Appendix
2
BOG-BAC-ML-COGR-OOO36
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