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Monday, July 18, 2011

Bank of America to Report Monumental Loss on July 19 (Financial Charts) *Financial Performance Review* BAC

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Bank of America (BAC) will report Q2 2011 financial results on Tuesday, July 19


Bank of America Financial Performance Review

Bank of America will be reporting Q2 2011 financial results on Tuesday, July 19, before market open. The conference call will be at 8:30 a.m. ET.

Bank of America financial performance charts for prior quarters have been posted on the Bank of America Financial Performance page and will be updated for this next quarterly report.

The Bank of America financial performance charts are:
Bank of America Performance by the Quarters
Earnings per Share (Diluted) and Cash Flow per Share
Net Revenues, Operating Income, Net Income
Operating Margin and Net Margin
Return on Assets
Income Statement Components
Asset Mix
Operating Expense Ratio

Monumental Loss Expected Bank of America has already stated on June 29 that a net loss of -$8.6 billion to -$9.1 billion was expected, about -$0.88 to -$0.93 per share, for Q2 2011. This is a result of ongoing disastrous mortgage and mortgage-related losses and legal settlements. Bank of America explained this monumental, and record-breaking, loss, "The key driver of the expected loss is the representations and warranties provision of $14.0 billion, including $8.5 billion for the settlement agreement on legacy Countrywide mortgage repurchase and servicing claims, and an additional $5.5 billion increase in the company's representations and warranties liability for non-GSE exposures and, to a lesser extent, GSE exposures." The press release is below in this post.

Basic Capital Ratio Adequate Barring unforeseen and undisclosed additional losses, even with this next disastrous loss, we project Bank of America's basic capital ratio (stockholders' equity to total assets) will be approximately +9.75%, which is adequate. This is based on a $9.1 billion loss, the prior quarter Q1 2011 stockholders' equity of $230.88 billion, and prior quarter Q1 2011 total assets of $2.275 trillion. Yes, Bank of America is that gigantic a bank. However, some are questioning if the future, higher capital requirements for the world's largest banks by the Basel Committee will force Bank of America to raise capital in future years. [Higher Capital Requirements for World's Largest Banks (Review) *Safety buffer for Too Big To Fail*]. In addition, the negative impact on financial regulatory Tier 1 capital and common ratios of Q2 2011 operations is unknown.


Bank of America Future and Past Financial Performance

Earnings per Share
Yahoo Finance Analysts Q2 2011: -$0.90 average, low estimate -$0.96, high estimate -$0.81, 18 analysts
Prior quarter Q1 2011: +$0.17
Prior year Q2 2010: +0.27

Prior Quarterly Net Income (Loss)
Bank of America has previously reported net income (losses) of:
Q1 2011 $2.05 billion "much improved"
Q4 2010 ($1.24 billion) "huge loss"
Q3 2010 ($7.30 billion) "colossal loss"
Q2 2010 $3.12 billion "continued improvement"

Prior Q1 2011 Financial Results
Bank of America will miss badly the prior quarter Q1 2011 financial results. These financial results are charted on the Bank of America Financial Performance page. Bank of America for Q1 2011, the 3 months ended March, financial results were:
Net Revenues $26.88 billion
Operating Income $2.78 billion
Net Income $2.05 billion
Earnings per Share $0.17
Operating Income Margin 10.34%
Net Income Margin 7.62%


Bank of America Announces Agreement on Legacy Countrywide Mortgage Repurchase and Servicing Claims

* Agreement Covers Nearly All Legacy Countrywide-Issued First-Lien Private-Label RMBS Exposure, Represents 530 Trusts With Original Principal Balance of $424 Billion
* Bank of America and Countrywide to Pay $8.5 Billion to Settle Claims; Will Provide an Additional $5.5 Billion in the Second Quarter of 2011 for Representations and Warranties Exposure
* At Quarter End Will Have Settled or Provided Additional Reserves for a Substantial Portion of the Original Principal Balance of Representations and Warranties Exposure
* With Settlement and Additional Mortgage-Related Costs, Company Expects to Report Second-Quarter 2011 Loss of $0.88 to $0.93 Per Share, Including a Goodwill Impairment Charge of $2.6 Billion
* Excluding Mortgage Items and Other Non-Operating Items, Company Expects to Report Second-Quarter 2011 Net Income of $0.28 to $0.33 Per Share

CHARLOTTE, N.C., Jun 29, 2011 (BUSINESS WIRE) --

Bank of America Corporation today announced that it has reached an agreement to resolve nearly all of the legacy Countrywide-issued first-lien residential mortgage-backed securitization (RMBS) repurchase exposure, representing 530 trusts with original principal balance of $424 billion.

The settlement with The Bank of New York Mellon (BNY Mellon), the trustee for the RMBS trusts covered by the settlement, is supported by a group of major institutional investors represented by Gibbs & Bruns LLP, and is subject to final court approval and certain other conditions. With this agreement and other mortgage-related actions in the second quarter of 2011, the company believes it will have recorded reserves in its financial statements for a substantial portion of its representations and warranties exposure as measured by original unpaid principal balance. The company also is estimating a range of possible loss for the remainder.

"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," said Bank of America Chief Executive Officer Brian Moynihan. "We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."

The agreement includes a cash payment of $8.5 billion to the covered trusts to be made after final court approval of the settlement. Bank of America also intends to record an additional $5.5 billion provision to its representations and warranties liability for both Government-Sponsored Enterprises (GSE) and non-GSE exposures in the second quarter of 2011.

Over the last six months, Bank of America and Countrywide have announced three agreements aimed at reducing exposure to legacy Countrywide mortgage issues.

In January, Bank of America announced agreements with two of its largest counterparties, Fannie Mae and Freddie Mac. The agreement with Fannie Mae substantially resolved the existing pipeline of repurchase and make-whole claims outstanding as of September 20, 2010 arising from alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide to Fannie Mae. The agreement with Freddie Mac extinguished substantially all outstanding and potential mortgage repurchase and make-whole claims arising from any alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide to Freddie Mac through 2008.

In April, the company and Countrywide signed an agreement with Assured Guaranty Ltd. to resolve the monoline insurer's outstanding and potential repurchase claims related to alleged representations and warranties breaches on 29 RMBS trusts where Assured provided financial guarantee insurance.

And today, the company and Countrywide announced an agreement that covers nearly all of the legacy Countrywide-issued first-lien private-label RMBS repurchase exposure.

Second-quarter results to reflect higher mortgage-related costs

As a result of the settlement, and other mortgage-related matters, Bank of America expects to report a net loss in the range of $8.6 billion to $9.1 billion in the second quarter of 2011, or $0.88 to $0.93 per diluted share. Excluding the settlement, other mortgage-related charges, and proceeds from asset sales, the company expects to report net income in the range of $3.2 billion to $3.7 billion in the second quarter of 2011, or $0.28 to $0.33 per fully diluted share.

The key driver of the expected loss is the representations and warranties provision of $14.0 billion, including $8.5 billion for the settlement agreement on legacy Countrywide mortgage repurchase and servicing claims, and an additional $5.5 billion increase in the company's representations and warranties liability for non-GSE exposures and, to a lesser extent, GSE exposures.

The company also expects to record $6.4 billion in other mortgage-related charges in the second quarter of 2011, including a non-cash, non-tax deductible impairment charge of $2.6 billion to write off the balance of goodwill in the Consumer Real Estate Services business, as well as charges related to additional litigation costs, a write-down in the value of mortgage servicing rights, and additional assessment and waiver costs for compensatory fees associated with foreclosure delays. The impairment charge will have no impact on reported Tier 1 and tangible equity capital ratios.

Settlement covers 530 RMBS trusts

The settlement covers 525 legacy Countrywide first-lien RMBS trusts and five legacy Countrywide second-lien RMBS trusts with mortgage loans principally originated between 2004 and 2008 for which BNY Mellon acts as trustee or indenture trustee. The settlement resolves representations and warranties claims, as well as substantially all historical servicing-related claims, including claims related to foreclosure delays and alleged mortgage documentation issues.

These trusts had an original principal balance of approximately $424 billion and total current unpaid principal balance of approximately $221 billion.

The 22 investors that have committed to support the settlement include many of the major U.S. and foreign institutional investors in RMBS:

AEGON USA Investment Management LLC.
Bayerische Landesbank.
BlackRock Financial Management, Inc.
Federal Home Loan Bank of Atlanta.
The Federal Reserve Bank of New York's Maiden Lane entities.
Goldman Sachs Asset Management L.P.
ING Investment Management L.L.C.
ING Bank fsb.
ING Capital LLC.
Invesco Advisers, Inc.
Kore Advisors, L.P.
Landesbank Baden-Wuerttemberg and LBBW Asset Management (Ireland) PLC, Dublin.
Metropolitan Life Insurance Company.
Nationwide Mutual Insurance Company and its affiliate companies.
Neuberger Berman Europe Limited.
New York Life Investment Management LLC.
Pacific Investment Management Company LLC (PIMCO).
Prudential Investment Management, Inc.
Teachers Insurance and Annuity Association of America.
Thrivent Financial for Lutherans.
Trust Company of the West and its affiliated companies controlled by The TCW Group, Inc.
Western Asset Management Company.

Settlement includes agreement to implement servicing improvements

BAC Home Loans Servicing (BAC HLS) has agreed to implement certain servicing changes, including transferring certain high-risk loans owned by the covered trusts to qualified subservicers, benchmarking loan servicing against defined industry standards regarding default-servicing timelines (with the payment of agreed-upon fees if such benchmarks are not met), and addressing certain mortgage documentation issues. The trustee and BAC HLS have also agreed, with the support of the investor group, to clarify loss mitigation standards, reflecting a shared commitment to efficient and timely procedures to assist distressed borrowers.

Certain servicing and documentation obligations begin upon signing of the settlement agreement, while others, including potential payment of servicing-related fees, are conditioned on final court approval of the settlement. The company estimates the costs associated with additional servicing obligations under the settlement agreement to be approximately $400 million, which will contribute to the second-quarter 2011 valuation charge related to the mortgage servicing rights asset. The additional servicing actions are consistent with the recently announced orders with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.

Settlement subject to final court approval

The obligation of Bank of America and Countrywide to make the $8.5 billion settlement payment and to pay certain other money or fees under the settlement is subject to final court approval of the settlement and certain other conditions. In addition, the obligations of the trustee are subject to the satisfaction of the conditions in the settlement agreement.

BNY Mellon, as trustee, has determined that the settlement is in the best interests of the covered trusts and is seeking the necessary court approval of the settlement by commencing a judicial proceeding, requesting that the court approve the settlement as to all of the covered trusts. It is expected that the court will schedule a hearing on the settlement and direct a notice program pursuant to which BNY Mellon will notify certificateholders and noteholders in the covered trusts of the settlement terms. It is expected that certificateholders and noteholders will be given the opportunity to file objections to the settlement before a final hearing is held on the settlement.

The institutional investors involved in negotiating the settlement have committed to support the settlement by, among other things, requesting that BNY Mellon enter into the settlement, moving to intervene as parties in the settlement approval court proceeding in support of the settlement, and using reasonable best efforts to obtain final court approval of the settlement.

It is not possible to predict whether and to what extent challenges will be made to the settlement or the timing or ultimate outcome of the court approval process, which can include appeals and could take a substantial period of time. There can be no assurance that final court approval of the settlement will be obtained, that all conditions will be satisfied, or if certain conditions in the settlement agreement permitting withdrawal are met, that Bank of America and legacy Countrywide will not determine to withdraw from the settlement.

Other matters

After giving effect to the settlement and the additional representations and warranties charges expected to be recorded in the second quarter of 2011, the company currently estimates that the range of possible loss with respect to non-GSE investor representations and warranties expense could be up to $5 billion over expected accruals at quarter end. After giving effect to the additional GSE representations and warranties charges expected to be taken in the second quarter of 2011, based on its past experience with the GSEs, the company believes that its remaining exposure to repurchase obligations for first-lien residential mortgage loans sold directly to the GSEs will be accounted for in the recorded liability for representations and warranties for these loans at quarter end. The company is not currently able to reasonably estimate the possible loss or range of loss with respect to any such potential impact in excess of current reserves on future GSE provisions if the GSE behaviors change from past experience. In addition, future provisions associated with representations and warranties for both non-GSE and GSE exposures and range of loss estimates with respect to non-GSE exposures may be materially impacted if actual results are different from our assumptions regarding economic conditions, home prices and other matters, including counterparty behavior and estimated repurchase rates.

For more information about the terms of the settlement, the mortgage-related charges being taken in the second quarter of 2011 and the estimated range of possible loss related to non-GSE representations and warranties expense, see Bank of America's Current Report on Form 8-K filed today.


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