Bank of America Corporation Q4 2010 Earnings Conference Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Betsy Graseck - Morgan Stanley - Analyst : Hi, good morning. I wanted to talk a little bit about the tail risk on the mortgage and the clean up that you mention, Brian, at the beginning of the call. You'd indicated that you could range private label $7 billion to $10 billion based on your assumptions. Why not take a large reserve against that and kind of be done with it in the next quarter or two?

Question: Betsy Graseck - Morgan Stanley - Analyst : You do have some private-label experience though, right, that you have paid out on? What's the reason for why that experience that you have had so far isn't sufficient?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And the litigation reserve or the litigation costs that you had in the quarter, should we take that as a run rate for the foreseeable future, or is there any color you can give us as to expected volatility in that line?

Question: Betsy Graseck - Morgan Stanley - Analyst : And then last on FIC, in broad strokes could you give us a sense as to how much of the FIC decline was due to either actively managing down due to Basel III, passively allowing things to roll off because of Basel III in DBA, or just the market being difficult?

Question: Betsy Graseck - Morgan Stanley - Analyst : Is there any DDA in there? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And you outlined how much that is?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Thank you.

Question: Paul Miller - FBR Capital Markets - Analyst : Yes, I know -- you guys have been giving out guidance on core pre-tax pre-provision numbers? Because that's one of the numbers that we really like to look at and I think numbers have tended to be all over the street. Can you help us out a little bit on how we should be looking at those numbers?

Question: Paul Miller - FBR Capital Markets - Analyst : And just one quick follow-up on Betsy's question. How much exposure do you have to the whole loan sales in the private-label? In other words, how much -- do you ever disclose how much you've sold out there? Because I know -- and I think you disclosed last quarter what you've paid out on private-label. I didn't see that disclosure this time around; I might have missed it.

Question: Paul Miller - FBR Capital Markets - Analyst : But I was just wondering, do you actually disclose how much you sold in whole loans to private-label? Because I know if we get some insight on mortgage finance we can get the overall private-label exposure. But what's the exposure on the whole loan side? Because that's what you've been paying out at this point, am I correct?

Question: Paul Miller - FBR Capital Markets - Analyst : Okay. Thanks a lot, gentlemen.

Question: John McDonald - Sanford Bernstein - Analyst : Hi. Another clarification on the private-label. Chuck, in the illustrative scenario of the $7 billion to $10 million, when you say "over existing accruals", I just want to clarify. Which existing accruals are you referring to? Is that litigation reserves or the rep and warranty reserve?

Question: John McDonald - Sanford Bernstein - Analyst : Okay. So there's some contemplation of private-label losses in both of those?

Question: John McDonald - Sanford Bernstein - Analyst : Okay, and where did the litigation reserves stand at year end?

Question: John McDonald - Sanford Bernstein - Analyst : In terms of the SCAP test, do you know if this upper range illustration that you gave today is what the Fed will accept as the adverse scenario outcome for that component of the SCAP?

Question: John McDonald - Sanford Bernstein - Analyst : Okay. Can you give any more color on what kind of magnitude of a drop in NII we might look for in the first half of 2011 or how much the hedge results helped in the fourth quarter?

Question: John McDonald - Sanford Bernstein - Analyst : Then all of that goes away? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: John McDonald - Sanford Bernstein - Analyst : Okay. And then also just on the expense that you talked about -- what adjustment should we make to the fourth-quarter expense level to get to a sense of what the run rate is going into 2011? Could you help us with that, just kind of think about the expense run rate?

Question: John McDonald - Sanford Bernstein - Analyst : Okay. And last thing here just back on the private-label. Can you give an update on the status of discussions with the group that had a letter in October, the PIMCO Blackrock Group? Is there a late January deadline for resolving that and will we know when that's over?

Question: John McDonald - Sanford Bernstein - Analyst : Okay, thank you.

Question: Matt O'Connor - Deutsche Bank - Analyst : Hi, guys. If I could circle back on the FIC revenues and I guess just bigger picture as we think about implementing all the changes for Basel III, what do you think the longer-term impact is versus a more normal run rate? And maybe I'll just throw out there, maybe an annual level of FIC revenues are in the $10 billion to $12 billion range, Basel III would reduce that by 10%,

Question: Matt O'Connor - Deutsche Bank - Analyst : Okay. And sorry, the $4.5 billion to $5 billion of sales and trading, that's a quarterly level including both equities and fixed income?

Question: Matt O'Connor - Deutsche Bank - Analyst : Okay, that's helpful. And then just separately, I guess on the whole kind of broader foreclosure issue for the industry, I'm personally surprised that it's kind of lasted this long. It feels like there's a lot of incentive for everyone to figure out some sort of settlement and move on. I know when you're in discussions it's hard to talk about these things publicly, but any color you can give on maybe timing of putting this issue behind the industry or maybe what needs to happen to get people at the table to hammer out an agreement here?

Question: Matt O'Connor - Deutsche Bank - Analyst : And then just lastly on the debit card. You're starting to have more banks come out publicly and say there are offsets or -- I think one bank said they think they can offset it 50%, one bank said 100%, one bank is claiming it's illegal. Just any updated thoughts you have on that in terms of how this plays out when all is said and done?

Question: Matt O'Connor - Deutsche Bank - Analyst : Okay. All right, thank you very much.

Question: Ed Najarian - ISI Group - Analyst : Good morning, guys. My first question has to do with credit. I guess we saw obviously improvement in the charge-off ratio and in [NPAs], but 90-day delinquencies were flat and we saw only pretty modest improvement in 30-plus day delinquencies. So I'm wondering if you have any comments sort of on your outlook for the pace of credit quality improvement going forward. Looking at the delinquency trends it seems like it's likely to slow down relative to prior quarters. Any comments there?

Question: Ed Najarian - ISI Group - Analyst : Okay, thanks for that. And then secondarily, just going back to page 10 with all the one-timers, we add that all back and get sort of a $0.17 core EPS level this quarter excluding all those one timers, it annualizes to $0.68. I guess the question would be given that annualized core earnings run rate and knowing that we've got some revenue headwinds on the way, you talked about lower NII and we know Durbin is on the way. Is there any thought to launching somewhat of a more broad-based efficiency improvement initiative over -- at least at some point over the next 12 months? I know you talked about the idea that credit-related operating costs and those 13,000 people LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. would come out over time. But is there -- is there a desire to try to launch something more substantial in terms of efficiency enhancement or would you say there's just too much going on within the Company right now to get into some kind of a plan like that?

Question: Ed Najarian - ISI Group - Analyst : So maybe a more formal plan is more like a 2012 event than a 2011 event?

Question: Ed Najarian - ISI Group - Analyst : Okay. And then finally, you've eluded a couple of times on this -- once on this call and then in a prior call to potentially raising the dividend at some point in 2011. And I guess I'm wondering, A, like some other banks are willing to, are you willing to disclose what you think your Basel III based Tier 1 common ratio is? We'd be interested in that. And given that and your discussions with the regulators, what gives you confidence that you can raise the dividend this year?

Question: Ed Najarian - ISI Group - Analyst : And just can you tell me one more time, the 8% by the end of 2011, can you just -- what was that again?

Question: Ed Najarian - ISI Group - Analyst : Oh, I see. Thank you, that's helpful.

Question: Chris Kotowski - Oppenheimer - Analyst : Yes, hi, I'm trying to navigate between page 20 and page 38. And when you put a number like $7 billion to $10 billion out there it's just kind of natural to ask how did you come up with that? And so I'm wondering is the concept behind it that your risk is primarily in the bucket that's less than 13 payments? And I mean that $7 billion to $10 billion would be like about a quarter to one-third of that amount there? Is that the guiding operating assumption behind that $7 billion to $10 billion.

Question: Chris Kotowski - Oppenheimer - Analyst : Okay. And then going back to page 18, if you look at the new claim trends in the lower left, I noticed that there's an uptick in the pre-2005 claims and then the 2005 claims and the 2006 claims. And so it's early kind of pre-crisis vintages that seem to be ticking up. And is that -- A, is that a trend? And B, is that driven by the private label and monoline claims -- I assume?

Question: Chris Kotowski - Oppenheimer - Analyst : Okay. And then just a little net -- or a question. I noticed in the supplement, page 25, mortgage production revenue is up from $70 billion to $81 billion, but production income was down. Is there a story behind that? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. Unidentified Company Representative Yes, Chris, we book it when we lock the loan and the production is driven by the funding and that's just the difference. So production without the actual locked loans were down.

Question: Chris Kotowski - Oppenheimer - Analyst : Okay, thank you.

Question: Glenn Schorr - Nomura - Analyst : Thanks very much. So I hear you on the production revenue being booked when you lock the loan. Can you give us an idea of how much of the pipeline you got through between late third quarter and early fourth quarter? I guess the industry in general is down to about 40% looking for first quarter, is that in the ballpark of right? Unidentified Company Representative We'll get back with you, Glenn, I don't -- we don't have the number.

Question: Glenn Schorr - Nomura - Analyst : Okay, that makes sense. One more nitty-gritty. On the average balance sheet on 9 in the supplement. The yield on debt securities, first of all the book went up and the yield went up a lot, all things considered given the environment, it's up 36 basis points. I'm just curious, is that just taking a little duration risk as you had a spike up in the 10-year? Unidentified Company Representative We can get back to you, but we're not taking any different duration risk than we've done all year. So I think it's probably just we'll get back to you with the exact answer.

Question: Glenn Schorr - Nomura - Analyst : Okay. Unidentified Company Representative Our strategy during the year is to keep it relatively -- it's four and a half years. Unidentified Company Representative Yes, I think it's four to five years.

Question: Glenn Schorr - Nomura - Analyst : Great, I appreciate all the answers. Thanks.

Question: Mike Mayo - CLSA - Analyst : Good morning. The possible upper range of $7 billion to $10 billion, is that before or after tax?

Question: Mike Mayo - CLSA - Analyst : So, after tax would be maybe $0.45 to $0.65 hit to book value?

Question: Mike Mayo - CLSA - Analyst : Okay, no, what I was referring to -- that's helpful, but -- so if we think about it on a book value basis, I mean this might hurt -- give 10 billion shares. Just take 37% of the $7 billion to $10 billion, divided by 10 billion shares would be a hit of around $0.45 to $0.65 to book value to clean up the issue. I just want to make sure I understand what you're saying. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mike Mayo - CLSA - Analyst : Yes. No, it's Mike, by the way. And can you confirm that this is tax-deductible?

Question: Mike Mayo - CLSA - Analyst : Are these costs tax deductible?

Question: Mike Mayo - CLSA - Analyst : Okay. And then if you could elaborate on the statement, "the fewer payments made before default the higher level of risk". So in other words you said 58% of the non-GSE loans that defaulted made at least 25 payments. I just would like to understand the significance of that a little more.

Question: Mike Mayo - CLSA - Analyst : And then sticking to the same topic, Bank of York, on their conference call, they said that this is likely to be resolved in the next few weeks. Either it's settled, there's increased oversight over you I suppose, or that, an extreme scenario, the servicer would be replaced. Do you agree with those scenarios and what's the timeline? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mike Mayo - CLSA - Analyst : Okay. And then separate topic. Compensation was up 5% linked-quarter and you didn't highlight any one-time items on page 10. Is there anything unusual there, seasonal? It seemed like a big comp quarter given the revenues.

Question: Mike Mayo - CLSA - Analyst : And then last question. What was the actual loan utilization numbers third quarter to fourth quarter? And how much did the increase in loan syndications linked-quarter contribute to your loan growth? And just a little more color behind your comment, Brian, that you thought things were kind of picking up some.

Question: Mike Mayo - CLSA - Analyst : All right, thank you.

Question: Meredith Whitney - Meredith Whitney Advisory Group - Analyst : Good morning. If you'd indulge me in a few questions, please. My first is to Brian. As there is so much movement and so much really structural change in so many of your businesses, could you talk about your budgeting of talent and head count? So the last couple of years you've moved people into the collection efforts and the foreclosure restructuring modification efforts. As credit quality starts to improve where do you move those people? As it looks like US FIC is under a structural change and so much of European FIC is under structural change, where do you move those people? Can you talk about that on a one to three year outlook, please?

Question: Meredith Whitney - Meredith Whitney Advisory Group - Analyst : Okay, great. Thank you. And then just a couple of cleanup questions. On the put-back risk, which you've well detailed, what about the underwriter risk? So we have the GSE risk, we have the private-label risk, the monoline risk, what about the underwriter risk? Can you comment on that and how you would reserve towards that?

Question: Meredith Whitney - Meredith Whitney Advisory Group - Analyst : Okay. And then two more clarifications. On the -- moving from a four deposit base system to a one deposit base system, what's the timetable there? And then I assume you need to run redundant systems so it's more expensive to become ultimately less expensive?

Question: Meredith Whitney - Meredith Whitney Advisory Group - Analyst : Okay, got it. And the last question is, Chuck, you went through a comment on your reserves and you mentioned that you adjusted your home price assumptions. From what to what, please?

Question: Meredith Whitney - Meredith Whitney Advisory Group - Analyst : Oh, I meant overall on the price assumption.

Question: Meredith Whitney - Meredith Whitney Advisory Group - Analyst : Oh, I've got them. All right, thanks. See you soon.

Question: David Hilder - Susquehanna - Analyst : Good morning. Thanks very much, just a question. You mentioned that there was some litigation expense in the deposits business. And I was just kind of wondering what would give rise to that in that business.

Question: David Hilder - Susquehanna - Analyst : Okay. Thanks very much.