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Bank of America Corporation (NYSE:BAC)
Tuesday, November 15, 2011 8:00 AM ET
Company Conference Presentation Transcript
Brian T. Moynihan Chief Executive Officer, President, Director and Member of Executive Committee
Guy Moszkowski BofA Merrill Lynch, Research Division Steven Wharton JP Morgan Unknown Analyst
Date Created: Jan-06-2012
I just have a couple of housekeeping notes that I've been asked to mention by our conference staff. You had a slow -. Please remember to wear your name badge at all times. Guy. there are quite a number of which are pretty pervasive to the question of the outlook for the industry today. The conference is timely. let's get to the first order of business this morning. the resultant weakness in asset growth. Make sure that you picked up your updated one-on-one schedule at the corporate access desk on the second floor. Besides the company sessions. Director and Member of Executive Committee Thank you. I don't follow BAC. Guy and his team and also importantly the whole sales trading team. the impact of very stringent regulation in terms of capital and liquidity requirements. This is believe it or not. But there are many elements to it. but not as fast as we'd like them to grow.S. A plated lunch is going to be served in this room at 12:35 today and that'll be followed by remarks from Henry Kravis of KKR. Bank of America Corporation. housing market weakness. During my comments in which I'll give you an update about Bank of America. building reserves for legacy mortgage issues and other matters. Nov-15-2011 08:00 AM Presentation Guy Moszkowski BofA Merrill Lynch. and for the economy more broadly. Rebuilding our capital. during the conference please hold your questions until the microphone gets to you so that your question gets picked up on the webcast. Erika Pinnala [ph]. Obviously.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference.S. thank all of you for the work you do as our team. Date Created: Jan-06-2012 2 . And for obvious reasons there's not very much I can say in introducing Brian other than to thank him for his strong leadership of a very complex institution at a very critical time. Chief Executive Officer of our company. capital markets and universal banks analyst at Bank of America Merrill Lynch. And on behalf of my partners. Brian Moynihan. and good morning to everybody. And finally. especially continues to face the challenges of reputation and restoring its trust. there's been a sense that the worst was behind us. Brian Moynihan. lingering litigation. and on the future of mortgage servicing after lunch tomorrow. as CEO of Bank of America. The malaise was triggered. for both the financial services industry. They are growing. the risks of European contagion. These include: The very weak economic outlook. At each one of these conferences along the way. At Bank of America. President. Ken Bruce and Cynthia Mayer and the rest of our team. everybody. and of course. I'll also highlight some of the key issues that the industry faces that Guy touched on earlier. the likelihood of chronically low-interest rates. just please reach out to the event staff if you have any questions or concerns at all. But I that I would go into ahead and make a few opening remarks before I turn over the podium to our first speaker. though there's been -. it's my pleasure to welcome you to our 2011 Bank of America Merrill Lynch Banking and Financial Services Conference. and while I always hesitate to try to set a theme for a conference because every company has different issues. let me turn the floor over to Brian Moynihan. And with that.slow growth in the world's economies. the fifth conference since the onset of the mortgage-led financial crisis that started in the middle of 2007. I'd like to welcome you to the Bank of America Merrill Lynch financial services conference. My name is Guy Moszkowski. Certainly over the last couple of years. During Q&A. Brian T. Moynihan Chief Executive Officer. All of these are concerning and a fair number of them raise basic business model questions. With that. which is for me to introduce our first speaker of the conference. derivatives and mandated pricing. permissible trading activities. So certainly what I'll be listening for over the next couple of days is evidence that managements are developing effective strategies to deal with them. we have spent the last 2 years transforming our franchise. I'll just point out that we've lined up a couple of interesting panels on the outlook for M&A right after lunch today. And I'm the U. I know we're a couple of minutes ahead of 8. I've sensed the return to a greater level of unease and questioning of the potential for traditional sources of growth and really about the core earnings power for the industry. First.there have been persistent questions about how strong and sustained the recovery might be. The global economy continues to remain uncertain. continuing to shed businesses which aren't core to our customer base and won't stand us in good stead going forward. there's been a sense that there was considerable risk still present in the environment though at sometimes that sense has been more intense than at others. As I speak with investors today and really since midsummer. Research Division Good morning. I think by the debilitating maneuvering over the debt ceiling this side of the Atlantic and over the euro on the other side. Our industry in the U.
since we began this journey 1. treasury management here. Date Created: Jan-06-2012 3 . our focus. core lending and all those other capital markets activities. In consumer banking. albeit in the U. Mortgage servicers and you're going to hear a panel tomorrow as Guy said. We are trying to add to the stability of the mortgage market. management. in capital and fixed-income markets around the world over the last couple of years. the ability to deal with the mortgage. You can see here. So it's that combination of the sales and trading profit.5 years ago. in M&A. making sure that everything we do is core to what our customers need from us. We. which was an issue we had last year. have modified almost 1 million mortgages over the last couple of years. And also as we address the new regulations that have reduced our revenues in this business. which is the business which provides treasury service and cash management or whether it's the -. and with the state and federal agencies to put the housing collapse behind us. As we lookout over the next year or 2. As we look at Global Banking and Markets. less complexity and more transparency.as we move to the research side of the house. and we continue to push forward as millions of consumers are involved in the process. Nov-15-2011 08:00 AM The steps we have taken that moved us in the direction of greater customer and client focus. First off. we have 3 groups of customers: people. you can see that on a global basis. along with the annuity streams and the corporate banking. To get the economy moving again. The stakes continue to be high in this. Now I'd like to address. We learned from the experience. The first slide here shows how we rank in M&A. You can see that our investment banking and business lending businesses and treasury service business. and improvements by the financial institutions themselves and the capital imposition. which are annuity-type businesses. we continue to focus our franchise greatly. And the key here is that we continue to increase our positions in equity. our institutional side and our company side. our company and industry are updating our product offerings and delivery channels as consumers look for even more convenience. investment banking and business lending business that makes this business profitable for us. because of the amount of detail in them.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference. and we'll continue to work to build the transparency and fairness of our pricing as we move forward and to provide a return for all of you. this is our conference and I'll tell you that we have a great business. our economy continues to move forward. narrowing in scope. all the way to the business of research and capabilities in sales and trading. and thanks to successful policy measures here and around the world. We are the premier financial services platform in the United States.parts of our business that serve you as customers. borrowers. As I've said. And around the world. The recent foray by our company and our competitors in the debit fee is an example here. dominate the revenue we get from these businesses. treasury. we have a very diverse franchise. Strong banks are a prerequisite to a strong economy. you can see that we've received awards in every area as shown: The quality of the franchise. As we move from an overall view to what we get from the company as -. But this basically talks about the external awards we've gotten from our teams. Mortgage Services continue to work with investors. provide some additional details on some of the core matters facing our company and industry. continue to help businesses and others grow and consumers prosper and engage in a recovery from the economic crisis. we continue to increase our position. As we look at that. the capabilities we have and the ability we have across serving companies for all their needs whether it's investment banking. We have leadership positions in our various products and geographies that are second to none.S. help mitigate the dislocation for homeowners and provide customers with the resolutions that are fair. companies and institutional investors. we need to get the housing market settled in. which for the year-to-date is totaled -has totaled about $28 billion. As I said earlier. we see the ongoing overhang of the financial crisis particularly in the housing market affecting what we do and what our industry does. at a slower pace than we'd like it to move. You have them in your books. whether it's our global corporate investment banking. how the revenue of diversity we have from those customers provides a great benefit for our company. at Bank of America. We also continue to face industry challenges. These slides are a little hard to read. the ability to restore consumer banking to the profitability it needs to be at. Importantly. more accessibility and more fair pricing from our providers. we have a great global corporate investment banking and sales trading capability. you can see the revenue diversity is also present here. fast and final. We continue and intend to continue to lead our industry and do all we can to contribute to the growth and prosperity in the United States and around the world. Sales and trading is an element of the profit here obviously. the ability to deal with the new capital regulations and the ability to manage expenses carefully. but it's about 15% of the revenues.
And then frankly. has shown up in the last couple of months. As you can see here. but this has been fairly consistent at the 6% level over the last 18 to 24 months. So it'll be 5 years long. But importantly. I'll talk about. The red line at the bottom of the chart.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference.is in 1 or 2 households in the country. we were up 7% in consumer spending on our cards this year versus last year's October. Nov-15-2011 08:00 AM Let's step back and take a few moments about the global banking environment. So we're going to talk just about consumer banking. This is not news to any of you. They've now sort of stagnated for the last 6 to 8 months at the 400. Third. you can see that even as initial jobless claims have stagnated. I'll talk about later. Durbin. they came down the redline being 9. on our plastic every month. The first issue that Guy mentioned earlier is the interest rate environment. long-term debt that we inherited through the many acquisitions. is focus you on reducing the high-cost. as Bank of America and all of our peers in the industry prepare our budgets for the next couple of years and think about what we're going to do. 10. the issues affecting are the low -. Now this is just the short-term side and the long-term side would mirror that. our credit quality continues to improve because the underwriting improvements we made 3 or 4 years ago are now holding in good stead even as the economy is not as strong as we would have predicted at the time. Key challenges facing the industry. if it turns out the market is right. the prediction is much longer for the duration of low interest rates. So that's the interest rate side. What's going on with consumers? As you know. The interesting thing is does that -. we're up 6%. And you can see on the slide here. Bank of America sees -. the operational process and the cost of getting through the housing bubble and its aftereffects. We see about $35 billion of spending a month. And we continue to have our teammates in the market everyday winning and fighting for business. which is to take deposits and the value of those deposits with over $1 trillion in deposits which is one of the largest deposit takers in the world. It makes it less valuable in the current environment. So what's interesting about this chart is the red line on the far right. What this does from the right to left-hand side is show you the various fed funds path at various -. I showed this chart to a group of you early in September. but less that in the current environment. and 11. the deleveraging by the consumer.S. Our Wealth Management business continues to do very well. Date Created: Jan-06-2012 4 . So let's dive in a little bit the consumer banking model. But importantly. it doesn't mean it won't be invaluable over time. we have to manage the expenses down. the gray line. And last. In October. the CARD Act. there's more credit card spending. We continue to shed all non-core assets to take all the capital we have and put it against the core business. We've been changing the way we've been doing business in the consumer banking model. So consumers continue to spend. on the lending side. which show you how far the predicted duration of low interest rate environment is. we have to be very careful to manage the OCI risks as we go into the new Basel rules and the ALCO and the asset liability management practice to keep the duration of our balance sheet very short and we continue to do that. Second.slow U. is we have to continue to manage our capital carefully in a changing environment. the change in the regulatory actions whether it's Reg E. We have to reposition the consumer banking model and I'll talk a little bit about that. we have to continue not only to deal with the reserves and reps and warranty issues that we've talked many times about. But the difference is as we look at budgets and look at the preparation this year as an industry is the duration is predicted to be 2 years out and that will require us to behave differently and focus on cost. The second thing is it dictates how you run your balance sheet.at year end over the last several years and now. you can see it coming down. on the left-hand side. So what are we doing about it? We're going to -. the blue line goes 9. the housing market and mortgage issues. There so you can see on the chart. not wealth management. In November month-to-date. many others.we've repositioned our consumer banking model.000 on a weekly basis. at this time this year. in other words. And you can see that consumer spending continues to get better year after year after year. especially one where the rules are still becoming clear. With the view of interest rates being so low. On the right-hand side. So what does that do to us? That obviously takes the profitability of one of the core things that we do. And the gray line and the blue line. We continue to manage the balance sheet very carefully for the OCI risk as I talked about.has that had an impact on our credit quality? And in our industry and our company. economic growth. which really reflects in the interest rate environment. Now this is consumer banking without our Wealth Management business. The third thing it does and I'll talk about this later. the debit credit mix. Interestingly enough. We continue to drive the reserves we have for rep and warranty and other litigation issues up on a quarterly basis.
The housing prices have stabilized. our purchase mortgage servicing rights as we look forward to the Basel III requirements. Nov-15-2011 08:00 AM The economy continues to improve and the mitigation efforts that we've rolled out will recover the lost revenue over time. We continue to make good progress there. we've reduced that asset substantially and it will continue to be mitigated by the fact that we don't have the corresponding in wholesale businesses. we have 42 million retail customers and many for those. We also prepared for a day in which the market will change for the GSEs and the other change will go on over time here and we're prepared to run the business in a way that we can control our destiny and serve our customers even if we have to use our balance sheet to do it. you can see is much more profitable and represents 8 million customers. you can see how we focused the business in terms of driving for the places that we have good opportunity and good profitability. the issue of continued sluggish housing market continues to affect our industry.won't be part of the core franchise going forward. but you can see -. We've added 500 small business bankers this year and have a goal of adding 1.who provide a great return for us and make sure that we have no attrition of those customers who aspire to get there. mortgage delivered and we transformed into the business that is going to be integrated in our consumer franchise whose sole goal it is to bring mortgages on time in a great way to our customers. We're going from a one-size-fits-all service model to a differentiated model to help protect the customers who are very -. in here. We continue to drive the small business area because it's an area of great potential profit for us. Our legacy as a servicing business is down about 25% and 60 plus delinquencies over the last 3 quarters and we'll continue to push that. Doesn't mean they're going to go anywhere. As I said earlier. We're in the areas of improving profitability in the lower left-hand corner. overcome their cost of serve. again we're talking about our non-global wealth investment management clients.S. And this has all worked over the last couple of years and we've seen an improvement in sales and net customer growth for the first time -. When we go to the housing side of this. don't contribute to the cost of service. Well. you continue to see housing price stability. In addition to everything we've done. As you can see. Bank of America. how we run the business. how we segment the business and how we drive our analytics. those 2 items also helped reduce our PMSR. our preferred business. But the idea is that those 4 or 5 million customers don't fit the profile who have going forward. They've reduced the units of 60plus delayed delinquency including the new flows into the portfolio by about 25% over the first 3 quarters of 2011. to recognize is that costs us about $2 billion in core operating costs a quarter. And if you've seen.continue to see stability where the process of getting through the inventories has gone on. you can see the foreclosure inventory.in the last 3 quarters for the first time in a couple years. this is what we're doing. which you're well familiar with. legacy Asset Servicing is doing a good job of getting through this. through our customers and we continue to do a great job for them. which was built to have mortgage market share and recognize its value on how much it delivered as a percentage of U. buying closed loans from third parties.75 of deposits in retail banking. The consumer banking model. And on the right. We divide this in these 3 groups to analyze and make sure that we're focused on it. emblematic the transformation we've done at Bank of America overall.much of the profitability is going to involve a lower expense base and a deeper wallet share per customer and all this credit quality is going to help drive that. On the other hand. But importantly. They're bumping along at a low level and as we continue to see markets. which is doing loans for brokers. you can see the house prices. We took a business. competitors and the fact wholesale mortgage banking. making sure that we do a great job holding those customers. On the left. which services loans that don't -.000 in 2012. where we have been able to get the market back and settle to normal. The -. And so as we look forward Date Created: Jan-06-2012 5 . We continue to push through the process of cleaning up the delays and foreclosures. what we've done in mortgage business is a. which have about 0. our retail preferred and small business customers.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference. we split the legacy Asset Servicing business. it won't be quite the same as it was at Bank of America and around the industry. So as we think about transforming our model. for those who have low opportunity and lower profit. In the upper right. and we believe that consumer banking will continue to offer attractive returns today as a return basis but will begin to offer and reaccumulate the gross amount of profitably we had in the past over the next few years. But it's going to be a smaller platform. We are now focused on the relation-based metrics reporting. To do that we got out of the business of correspondent mortgage banking.
During the third quarter as you know. The CCB sale we closed. But the sale would generate Tier 1 Common of about $3 billion or 24 basis points added to our ratio this quarter. growing the deposits and you can see that the rate paid on those deposits continues to be very favorable. Our Tier 1 common ratio has doubled from 4% to above 8% over the last couple of years. But we always want to remind people that there is a long phasein period in and as we approach from going from Basel I to Basel II to Basel 2. They begin being phased in. The first bar in the left is 2013 when it becomes effective. including building substantial reserves for rep and warranty. which is the other major contributor to that. our goal was to be at 6% tangible common equity. And finally.a substantial part of our remaining ownership in CCB. it shows how it builds over time. We've shown you this chart many times. which we have exceeded in the third quarter and 8. We plan to bring it down by another $70 billion to $120 billion by the end of 2013. which includes a $1 trillion plus in deposits. As you know.5%. over a relatively short period of time we've grown capital nearly 60% in the 3 years. to use up the DTA. As you can see. It's still a strategic relationship with us. we are selling our Canadian Credit Card business. well you've seen what we've done with the MSR asset. litigation and other matters. We're reducing this debt as we shrink the balance sheet through the proceeds of those asset sales and cash flow. we announced the sale of our remaining -. the sale of the first half of the China Construction Bank and the other work we're doing. The tangible common equity ratio at September 30 at 6. We thought we'd get to both those by year end this year and we've gotten through them. and building up the percentage of assets that are dedicated to the right from both funding and asset side to the core balance sheet. our capital levels remain well above the regulatory minimums and we continue to raise our capital to new levels.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference. one of the ways that we've helped build improvement in the margin despite the low interest rate environment is to continue to reduce long-term debt. we've also been driving our core deposit franchise. and as we shrink the balance sheet and reduce non-core assets. which is how to bring its costs down in the context of the revenue potential for the industry going forward. Now we reduced long-term debt as you can see over the last 4 quarters by about $80 billion. So it's a combination of paying off the debt on the left. we improved the financial condition while lowering our overall risk levels and building substantial reserves for rep and warranty and other matters. we have reduced our short-term funding to nearly 0 -.the issue on the right-hand side in the box is the capital numerator deductions. How have we done that. So we talked about restructuring consumer banking and the realities of the profit dynamics of the huge group of our customers.our comments last week about retiring the preferred stock both at TRUPS and regular preferred for common shares and senior debt will result in higher levels of Tier 1 common and lower interest dividend cost for our company. We have -.I'll just make a few comments on that. in 2014. and in fact higher than 8% on a reported basis. and our goal is to continue to mitigate the impact of those on the company's capital at the time.then we talked about funding costs and how to handle a rate environment but that really brings us to the key issues our industry faces. we continue to position ourselves for Basel III in 2013. Date Created: Jan-06-2012 6 . Switching to capital. A couple of words on capital. Nov-15-2011 08:00 AM and one of the ways that we have to get the cost down in the company is we bring that 4 million units down over time. and any exchange will all add to capital this quarter. Our goal is to be substantially above that. you've seen what we've done with selling the CCB asset. We think going Tier 1 common capital through this exchange is a proven way to manage capital in an evolving environment as the market presented the opportunity as spreads widened in the fall this year. Slide 20 shows you where we are and gives you a sense of where we came from.5 to Basel III at the beginning of 2013. Over the past 7 quarters.our commercial paper funding at the parent to nearly 0 over the last few quarters. At the same time.5% to 9% Tier 1 common. It's a great company and we'll continue to support it. The required ratio minimum is 3. you see how we continue to do. on the Basel III let's have -. and now -. which we also exceeded in the third quarter. Looking back. we talked about the capital. Liquidity is also at an all-time high of $363 billion. As we told you last year at this time. we'll be able to bring the cost down. As we look forward to what we're trying to do and restructuring the balance sheet. At the end of the third quarter. Yesterday as you know. You've seen these requirements many times before. we talked about the issues regarding the mortgage market and what we're doing there. we increased our Tier 1 common ratio through the investment by Berkshire Hathaway. If you have -. As we told you. It is still our single largest asset after we sell this in our private equity -or our equity portfolio in the company. We expect that to close this quarter.25 is the highest we've had in 15 years at our company.
I don't think it'd be as quite as fruitful as Phase I. I'd like to take questions. This goes across our $70 billion-plus expense base. global corporate investment banking and sales and trading and then we have the business that we're selling. more simple and do what we need to do for our 3 groups of customers. Over the last 6 years or the last 5 years. And then the last thing is that we are really focused on cost and we'll continue to drive that. our companies. We have to be a little careful. our consumers. people's predictions the economy was starting to move the normal year out another year or 2. we'll have a like opportunity. An example of that. So if you think of 7% being the base level plus the SIFI buffer. As you think about the debt structure of the company. So I think we're mindful of that and that's why we're driving the number up as high as we can as fast as we can. So as we think about the issues facing the industry whether it's consumer banking profitability. continue to work through the million modifications we have. But I think things have changed. But that's what they've told us. out there as a separate system for 13 years. So we have lots of opportunity to save money and drive the efficiency of our company. And I think they've been clear at least in the conversations with us and frankly with the speeches they've given that this is a phased-in period. we could get 18% out of the first bucket. The -.just in the last month. but also need to bring down and get the process through foreclosure in the amount of what our investors are paying us to do. it being wealth management in the global Capital Markets. with a goal of getting $5 billion in expenses at the end of '13. And so I think our near-term goal is really Basel I related.we've set 6. you got to think how the company got here. continue to work. but it will be fruitful. Honestly it's to get through 9 and up to 10. we built the capital up to levels and we continue to drive that forward. This has been. the -. as we talked about the key really in other businesses and the 2 buckets of the bottom is to get to the legacy Asset Servicing which is $2 billion a quarter down dramatically. especially in light of the fact that the -. Nov-15-2011 08:00 AM So what we do? We started on an effort called New BAC earlier this year. And so. we're following the orders. The expense base. the complexity and things that came with that is what we've been working against. it changed.75% or 7% fully phased in as if all the rules were effective to start. So I think there will be some view of what a minimum is that you have to be at far in excess of 3. 5 or 6 years we completed mergers that brought in 150.at that time.I read the same things that you read and they've been clear that the phase-in was meant to be a phase-in. liquidating and then we have the other less controlled expenses like FDIC expense. so those are the 4 buckets we're working on. we continue to do what's fair for the customers. we continue to work on that. When we think about this. the nature of the business is different. Moynihan Chief Executive Officer. Unknown Analyst Date Created: Jan-06-2012 7 . Question and Answer Steven Wharton JP Morgan What gives you so much confidence that the regulators will allow a gradual glide path towards the Basel III targets including the SIFI buffer? Brian T. But I think you're going to have to be at a certain level to start out.5. Phase II is the relationship business. And I think it's the scheme across the world that makes it consistent. yes. And with that. which has nothing to do with what we've done over the last 5 years. As we think about capital. We told you early September.as you think about the cost buckets.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference. our goal is to -. So we started on the cost. and the full run rate for '14. Last year this time. But as we looked at it earlier this year. there's been one view on what the SIFI buffer might be. which then equates into the 7 and that's what we're driving at and that's why we've been -. Whether it's the mortgage business. As we look down the other businesses.000 people into our company.think of it as the consumer nonrelational business is Phase I. So in conclusion we are continuing in the later stages of the transformation of this company. we converted the Northwest platform that serves the State of Washington and Idaho and other states to our core deposit system. The 4 buckets are really the -. We're managing the expense of the company to continue to flatten them and bring them down. that's what we're following. to make it more clear. we have 4 buckets we're working against. and our institutional investors. we said we need to accelerate the effort. As we go to Phase II. President. We divide these expenses into the 4 buckets. Director and Member of Executive Committee I think. we continue to reduce that to help drive net interest margin going forward. Steve.continue to accelerate any action we can to get the capital where we want it. the interpretation's changed. is the -.
And so if you think about that.consolidated 60 branches in the third quarter. and you're seeing that market by market. So where you've had the ability to get a hold of the properties. The idea of pushing people to one product to another product really falls out naturally from what the product design. but on the other hand also the product redesign.once we get it cleaned up. to try to shift that mix a little bit to help? Brian T. bring us the revenue that we can afford it. 7%. we closed 60 -. the work we need to do in judicial and non-judicial states. That account structure's going in and what that does is allow you to have the same number of customers and more products and services that helps you on the revenue side. And so. given how it's behaved. keep the service quality. which we've really been Date Created: Jan-06-2012 8 . President. you are seeing the thing sort of bounce along a bottom with occasional [ph] kind of moving up a little bit down. it moves. If you're going to tell me that the core economy is going to slip backwards. watch for us to continue to drive the cost down dramatically in the retail franchise. you will have an account structure that which basically. Unknown Analyst Brian. 2%. So there's a huge market developing in that in a lot of these markets. just what my experts tell me and what the world tells us and the market you have a kind of bump along economy. and that's what we're working on. And having people utilize the service in a way that they use the lower cost channels through customers who want great personal service and are preferred. Moynihan Chief Executive Officer. that have out in the market. So if we believe the economy is in a sort of slow grind. is that if you get the experts in housing. 80% of our people don't pay fees today because they bring the whole relationship. whether it's other qualifiers. It's 60 to 90 days between -. very high. its going to take a lot longer. Ethan Harris and others have put that at a very low probability. But an average house is 3 bedrooms and an average apartment is 1. that's been very successful. We provide a great service and for customers and we have to be able to do that in a way that is clear and transparent to them. But once you get it. But on the other hand. we got to keep driving that forward. whether it's a credit card. But I think in our view. the process have been slower in Florida and other places because of the judicial process and getting us restarted as an industry. What are the things you guys are considering to replace that revenue or is it really more going to be driven by reducing cost? And then is there a way to push people more towards credit cards and away from debit cards. once we get on the market. get them back in the market. What we're seeing is that when we get hold of our property. you've seen that grow 6%. probably doesn't have a fee. We continue to work on expenses in the Phase I savings. they'll tell you that there is apartment demand.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference.5% depending on people's estimates. Director and Member of Executive Committee I think you can't separate housing from your overall view of the economy.5%. while there's a huge inventory out there and everybody talks about it. both the tech and ops teams and stuff so we'll continue to drive that down. which is low probability and Guy and the experts. And in that type of economy. the reality is. I talked about that as substantially driven by the -. can you maybe just comment for a minute or 2 on the housing market and your confidence that we're kind of hitting some stability point here. Tons of investor money coming in because the reality is. Director and Member of Executive Committee So 2 things. 6 to 9 days it's out. for example. they'll rent a house. So I think as we look forward. And I think we will see about half of our plastic spend is debit. those improvements come. once we got through the early 10 sort of lift from the various programs. 7 months. The question is how long does it take you to get a hold of the property through the work we need to do to with the customers on modifications. In terms of the expense side. make sure we can get return so we could continue to provide that service. that would change the view. you see it move pretty well.5. which is out in the market and have been sold is the way that you sort of design around the issues and have a fairness between you and the customer in terms of how they're going to pay. But given where we are. get them cleaned back up in the market. If the people can live in a house. how you can design the products. I think it was around 30 branches. I don't think people are going to change their behavior because they think about what they're doing with the cards differently. Moynihan Chief Executive Officer. you've seen us in the second quarter. And the year-over-year comparisons. they have moved. given what we've seen. it moves as fast now as it's ever moved. But we won't compromise the service. 1.what you think is a broad retail platform being the dominant part of it. Just your thoughts on the vulnerability to another pretty significant downturn if things don't pick up and confidence wanes again and just how much worse could it get? Brian T. whether it's their mortgage. Nov-15-2011 08:00 AM On the Durbin lost interchange revenue now you guys backing away from the debit card fee. We need to just keep driving the use of cards and plastic because it's a simpler payment methodology and it works and we do get revenue even a reduced amount of revenue. But in places like Arizona and California we're seeing it move through. moving around for the last 6. 2. 2% growth. frankly will start to mitigate as you move through the next couple of quarters because this is been where we've been at. So whether that's a core checking and direct deposit. And so it gives me -. So it's really what the customer needs. how you get the whole relationship and then how you work the cost structure. So it's everything you talked about. the places that are. is when you get a hold of property. so the idea is to be working this both in your structure for your customer relationships all electronic accounts. half is credit. It ebbs and flows on a given quarter.it's really based on my view of the economy. President. We had a account restructuring program going into that we've done a lot of work on and been selling now in pilot states for a period of time that would help really by saying to customers if you bring us your relationship.
we're kind of looking at the same issues and 2 years from now.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference.50 AGs. gross is maybe more like no more than 1% a year over the next 5 years and we have a correspondingly period of continued very low interest rates. Other questions? Unknown Analyst I guess if you just step back and you look at the backdrop it seems like 2 years ago we were all worried about regulatory uncertainty and political issues and the economy weakening. I don't have anything new to report that you haven't read the papers. And -. Nov-15-2011 08:00 AM in for quite a while now. Now granted in that. At what point do you say that it's just time to take a lot more drastic action in terms of like eliminating huge chunks of thick businesses and other massive. it's quite likely we're going to be looking at the same set of issues. And now. we'll expect that you'll see that come down again this quarter as we continue to reduce heads. it's off. Over the last couple of years. can you give us an update on the AG settlement from your seat? We're seeing stuff back and forth. Unknown Analyst If U. the extra cost of goods sold for lack of better term. You add the deposits of 30 basis points. we shifted a lot to the international opportunity there. Director and Member of Executive Committee I mean it's a little hard to handicap its ultimate outcome just because you read in the papers what's going on. you can see that even before we started New BAC. And then the third is take that core base that's running say $15 billion plus or minus a quarter. financial service advisors. Because you're able to move the properties on the front end and the delinquency numbers have been coming down on the back end [ph]. but your stock's at $6 and a lot of guys are at 50%.everybody's just kind of going along with this.S. Can you give us an update there? Brian T.6 billion and there was about $900 million round numbers of litigation and stuff like that. honestly. we think we're one of the most efficacious. we're still adding Small Business Bankers. have actually started bringing it down and repositioning the franchise and you've seen that go on in the market. We got to keep driving that down. I'd still say it's up in the air.we are and so if you think about the cost in the third quarter are $17. preferred bankers. And the question is can you get it done in terms that make some sense? And then there's the federal level and the AG level and the AGs -. Unknown Analyst Brian. But we are -. If you look in the capital markets business. Our peak headcount was about 289. 60% of tangible book and it seems like we're just kind of hit the wall in terms of our ability to move forward. Moynihan Chief Executive Officer. And the New BAC has identified that. and it's been going on for a long time. President. Because the ebbs and flows on a given day based on people's viewpoints of what they want to achieve in the thing. Director and Member of Executive Committee Yes and that will -. And the delinquency numbers have come down on the front end in terms of total numbers of people that are delinquent.the thing come through. it's on. Our goal would be most of us would like to get something done so we could keep moving this thing forward. so obviously we'd like to push it through on reasonable terms. The second part is important. and we drive it. The legacy asset servicing is peaking as we speak in terms of operational cost per quarter as we're starting to see that -. we have to get after cost. And so I think as we finalize some of the thoughts in here we've got to make sure it's on reasonable terms. but that's going to take a few years. President.our job in this housing is to continue to push through and get this thing behind us where we could do it on reasonable terms. Brian T. it's at it -. but we're not where we need to be. So yes. Tom Montag and the team.but our view is we told you we've accrued for it. you've seen this thing improve slowly but surely. we've been taking the headcount down there. Yes. Our cost in our retail side are about 246 basis points. and drive that down to another place and that's what we're working on. do you then need to become much more aggressive on reducing cost? Brian T. financial advisors at Merrill Lynch so we are still growing the parts of the franchise that grow and that's going to be where you have to test as a management team is not to not take advantage of places that you have albeit narrowly focused and bring it down. And we've brought that down. That should go from where it is now to a number of a few hundred million a quarter over time. so our issue is really can sort out pretty quickly and that the litigation and other related costs have to keep coming down and they have to come down in the quarters after the second quarter to the third quarter obviously. What point -. I mean. And those 2 criteria gives us confidence especially in our portfolio as we see the delinquency still coming down even though the industry has mitigated a little bit. so it's very complex. But yes. Moynihan Chief Executive Officer.000. And so that's around about $60 billion run rate. Tom and the team.say it brings you down to 16. Moynihan Date Created: Jan-06-2012 9 . 7 [ph] and then if you back out the legacy asset service operating cost it's almost $2 billion. We need to get that down even further. everybody has to get after cost. putting it in the operating cost of retail over deposits.
let's think about the underwriting changes made in 2008 and early 2009. You can see us growing the areas that are. So we brought Countrywide and closed it in '08. 2%. especially we're going to face [ph]. If you look at the delinquency behavior of those loans now. Unknown Analyst Brian. But. And so we're not being complacent. which are core structures. he's made moves on this fall will continue to make moves. 20% down payments and things like that. It doesn't mean that -. type a number. Your point is real restructuring takes some analysis and making sure we're doing it the right way. 10% you'd have to get the exact 6%.000 people in the legacy Asset Servicing business. So that goes to your basic point.I mean there's still great opportunity even in the economy that grows at 1. And so it takes money to get this done in terms of repositioning. If you look at the. What was embedded in those things? For non-FHA VA type thing. how do you win in the market with the business you can win in. But if you look at what we've done is he has about 10. we'll get to the second phase and think about taking out another significant number and then running off the stuff. Brian T. President. are there states where you would need to adjust the structure of mortgages in order to be comfortable from a credit viewpoint. so you sort of get by the debate on reps and warranties and all that stuff. that's as $1 billion a quarter type of -. if you believe the economy that was predicted last year this time would have been true this year this time. But the key is to stop from going up so the rest of the expense save comes through. which has not behaved like would've been predicted at the time. so you got to keep on going on those. I wonder if I could turn a bit to your ongoing mortgage business. it doesn't mean it's going to come down dramatically in the fourth quarter but over time it will come down. I think if you look at -. He'll take it to a certain level and then we got to go and see if we can knock the work out and change the way we do business. Director and Member of Executive Committee Right. things like that. So in much different economic scenarios you were seeing the delinquency of the loans originating in '09 literally by quarterly profile as we track it at the top of the house. And so we've been repositioning for the opportunity and you can see our market shares are growing outside the United States at the same time we've been managing our overall expense base.that we're giving away to that we've got to make up some other way. presumably. What happens now for our company is that the legacy asset servicing piece quits going up. And so I think that's the thesis going forward is. substantial documentation. You would. you would have a fairly conservative underwriting. if you think about what we're saying is we're going to -. Currently. There's one right behind you. most of the mortgages go to the agencies. 3 years later. about $25 billion or $27 billion of it was in Phase I and we're taking out 18% plus and assume that we are pretty confident. if you start using your own balance sheet.9 billion. On the fixed income side or on the equity trading side and stuff. even when you had the growth.000 people in the sales trading business to give you a sense. Within your states.it was about $1. We'll spend $1 billion to get the expenses out next year. Which business. which is the underwriting and mortgages that has been done since the crisis has been done really back to the old days of substantial down payments. You got those where that's not the case. And when housing has gone down from the point those loans were made. substantial debt to income requirements. and so it takes a little more time. Thomas is working on that. Nov-15-2011 08:00 AM Chief Executive Officer. And then we continue to work on those in '08 and by early '09. You can see that the delinquencies are much lower than they would have been predicted in much tougher times. how you do it. And so that hill. wealth management business and areas. we'll put him through process come out the early spring and then we'll start to deal with but the difference between what he's doing now is just capacity reductions. And so we've got the plans in place. you've got those where your mortgages are full recourse obligation of the borrower and you can enforce it effectively. while the rest of the headcount in the company was coming down. systems development. We have -. but the reality is.5%. it's their decision what they accept.what I watch when I manage everyday is watch the headcount to make sure we're coming down so even in that headcount that peaked in really the month of August. how we're going to do them all that's on the table for Phase 2. it all starts with good downpayments and good debt to Date Created: Jan-06-2012 10 . but think 10% to 15% and unemployment that would've been projected at the time those loans were made would have been unemployment. And that's where -. I think 55% are outside United States now versus last year's 55% inside. And that has proved well in a market. I think that the -. or the borrower effectively has a put option on the house. Moynihan Chief Executive Officer. And I don't think we're any different than any other firm. President. you had a build up of 25. would've been 6% long-term projections as opposed to where it is now. And if you look at us really quarter by quarter by quarter sort of leaving out the 123 or one of the quarterly adjustments. We have been bringing it down. you'd see us come down a couple billion of dollars a quarter in expenses and we continue to drive that down. significant payments in.as we came into the year and got into the spring and said we just got to move faster. We are moving a big company. in my view. We immediately changed the underwriting practices.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference. age to paper and at that time sell to investors after it's aged. So we're not sitting here being complacent. But your point about the cost structure of the overall company. and I think appropriately. in terms of. sir.on a $70-odd billion expense. they're pretty much set to where they are today. 2 years later. you had a luxury of being a little more careful how you did or going about it more slowly. Director and Member of Executive Committee Your thesis -. we're getting that and you're starting to see that coming out as we speak. We realize that the cost structure in our industry has to be brought down. 9%. But we are not planning for anything but a tomorrow feels like today. where.if this is the interest rate environment.
And so I think we feel comfortable with the risk. And that's what we've been doing for a number of quarters. 1.25% or something like that. even though the reserves are being challenged in the press. Just to give you a sense of dimension. But my colleagues and I are all here to help America grow and help the world economies get back on their feet and do what we do as a financial services company to do that.5% of reserves on their $1 trillion portfolio? What risks does BofA have that the government won't reimburse you for those delinquencies? Brian T. the structure of the program was such that there's the credit behind it is a substantial credit. And that's going to be key for the whole industry. But it's like we aren't worried about it. And you can see that the percentages of delinquents there are way under you would have predicted. Wall Street Journal has an article today saying how they have less than 0.5% or whatever it would be and we're at 3. as we have a good couple of days. do a great job as I showed you on the slides. and that we are watching it careful. but it's a pleasure to talk to you. Thank you. Date Created: Jan-06-2012 11 . it's 50% less. Other questions? Let me close by thanking all of you for the business you do with the company as the sponsor. Remember. But more importantly. Director and Member of Executive Committee Those are loans that you buy out of the pools that's an economic trade to save the carrying cost because you have to advance the principal and interest and if you buy them you fund them on your balance sheet. We watch all our risk. Nov-15-2011 08:00 AM income coverage.our overall exposures coming down. in other words. Yes.Bank of America Corporation Presents at Bank of America Merrill Lynch Banking and Financial Services Conference. We have a great franchise. President. As Guy said. the industry faces issues. But thank you. we've actually slowed down the process of what we've done originations into various agencies and also the buying back the loans -. the credit of the treasury. Moynihan Chief Executive Officer. And if you've seen. sir? Unknown Analyst I think the BofA has about $20 billion of delinquent FHA loans. That's just good exposure management. I want thank you for all the business you do. and hopefully you have a good couple of days. he doesn't cover me. Guy and the team and Tom Montag's team. all GSEs and all related type parties as well all counter parties. if you look at the structure of the program. we're just continuing to mitigate it. So I think that program. So people like yourself see that we are watching our risks careful.
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