Bank of America 2007 Annual Report Download - page 147

The Corporation also facilitates bridge financing (high grade debt,
high yield debt and equity) to fund acquisitions, recapitalizations and other
short-term needs as well as provide syndicated financing for clients. These
concentrations are managed in part through the Corporation’s established
“originate to distribute” strategy. These client transactions are sometimes
large and leveraged. They can also have a higher degree of risk as the
Corporation is providing offers or commitments for various components of
the clients’ capital structures, including lower-rated unsecured and sub-
ordinated debt tranches and/or equity. In many cases, these offers to
finance will not be accepted. If accepted, these conditional commitments
are often retired prior to or shortly following funding via the placement of
securities, syndication or the client’s decision to terminate. Where the
Corporation has a commitment and there is a market disruption or other
unexpected event, there may be heightened exposure in the portfolios,
and higher potential for loss, unless an orderly disposition of the exposure
can be made. These commitments are not necessarily indicative of actual
risk or funding requirements as the commitments may expire unused, the
borrower may not be successful in completing the proposed transaction or
may utilize multiple financing sources, including other investment and
commercial banks, as well as accessing the general capital markets
instead of drawing on the commitment. In addition, the Corporation may
reduce its portion of the commitment through syndications to investors
and/or lenders prior to funding. Therefore, these commitments are gen-
erally significantly greater than the amounts the Corporation will ultimately
fund. Additionally, the borrower’s ability to draw on the commitment may
be subject to there being no material adverse change in the borrower’s
financial condition, among other factors. Commitments also generally
contain certain flexible pricing features to adjust for changing market con-
ditions prior to closing. The Corporation’s share of the leveraged finance
forward calendar was $12.2 billion and $20.6 billion at December 31,
2007 and 2006. The Corporation also had unfunded real estate loan
commitments of $2.0 billion and $8.2 billion at December 31, 2007 and
2006.
Other Commitments
Principal Investing and Other Equity Investments
At December 31, 2007 and 2006, the Corporation had unfunded equity
investment commitments of approximately $2.6 billion and $2.8 bil-
lion. These commitments related primarily to those included in the Strate-
gic Investments portfolio, as well as equity commitments included in the
Corporation’s Principal Investing business, which is comprised of a diversi-
fied portfolio of investments in privately-held and publicly-traded compa-
nies at all stages of their life cycle from start-up to buyout. These
investments are made either directly in a company or held through a fund
and are accounted for at fair value. Included in the Corporation’s unfunded
equity investment commitments were also unfunded bridge equity
commitments of $1.2 billion at December 31, 2006. At December 31,
2007, the Corporation did not have any unfunded bridge equity commit-
ments and had funded $1.2 billion of equity bridges that it still intends to
distribute. Bridge equity commitments provide equity bridge financing to
facilitate clients’ investment activities. These conditional commitments
are often retired prior to or shortly following funding via syndication or the
client’s decision to terminate. Where the Corporation has a binding equity
bridge commitment and there is a market disruption or other unexpected
event, there may be heightened exposure in the portfolio and higher poten-
tial for loss, unless an orderly disposition of the exposure can be made.
U.S. Government Guaranteed Charge Cards
At December 31, 2007 and 2006, the unfunded lending commitments
related to charge cards (nonrevolving card lines) to individuals and
government entities guaranteed by the U.S. Government in the amount of
$9.9 billion and $9.6 billion were not included in credit card line commit-
ments in the previous table. The outstanding balances related to these
charge cards were $193 million at both December 31, 2007 and 2006.
Loan Purchases
At December 31, 2007, the Corporation had net collateralized mortgage
obligation loan purchase commitments related to the Corporation’s ALM
activities of $752 million, all of which will settle in the first quarter of
2008. At December 31, 2006, the Corporation had collateralized mort-
gage obligation loan purchase commitments related to the Corporation’s
ALM activities of $8.5 billion, all of which settled in the first quarter of
2007.
In 2005, the Corporation entered into an agreement for the commit-
ted purchase of retail automotive loans over a five-year period, ending
June 30, 2010. In 2007 and 2006, the Corporation purchased $4.5 billion
and $7.5 billion of loans under this agreement. Under the agreement, the
Corporation is committed to purchase up to $5.0 billion for the fiscal
period July 1, 2007 to June 30, 2008 and $10.0 billion in each of the
agreement’s following two fiscal years. As of December 31, 2007, the
remaining commitment amount was $25.0 billion.
Operating Leases
The Corporation is a party to operating leases for certain of its premises
and equipment. Commitments under these leases approximate $2.0 bil-
lion, $1.8 billion, $1.6 billion, $1.3 billion and $1.2 billion for 2008
through 2012, respectively, and $8.2 billion for all years thereafter.
Other Commitments
In the second half of 2007, the Corporation provided support to certain
cash funds managed within GWIM. The funds for which the Corporation
provided support typically invest in high quality, short-term securities with
a weighted average maturity of 90 days or less, including a limited number
of securities issued by SIVs. Due to market disruptions, certain SIV
investments were downgraded by the rating agencies and experienced a
decline in fair value. The Corporation entered into capital commitments
which required the Corporation to provide up to $565 million in cash to the
funds in the event the net asset value per unit of a fund declines below
certain thresholds. The capital commitments expire no later than the third
quarter of 2010. At December 31, 2007, losses of $382 million had been
recognized and $183 million is still outstanding associated with this capi-
tal commitment.
The Corporation may from time to time, but is under no obligation,
provide additional support to funds managed within GWIM. Future support,
if any, may take the form of additional capital commitments to the funds
or the purchase of assets from the funds.
The Corporation is not the primary beneficiary of the cash funds and
does not consolidate the cash funds managed within the GWIM business
segment because the subordinated support provided by the Corporation
will not absorb a majority of the variability created by the assets of the
funds. The cash funds had total assets under management of approx-
imately $189 billion at December 31, 2007.
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