Bank of America 2007 Annual Report Download - page 37

Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Bank of America Corporation and Subsidiaries
This report contains certain statements that are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict. Actual
outcomes and results may differ materially from those expressed in, or
implied by, our forward-looking statements. Words such as “expects,”
“anticipates,” “believes,” “estimates” and other similar expressions or
future or conditional verbs such as “will,” “should,” “would” and “could”
are intended to identify such forward-looking statements. Readers of the
Annual Report of Bank of America Corporation and its subsidiaries (the
Corporation) should not rely solely on the forward-looking statements and
should consider all uncertainties and risks throughout this report as well
as those discussed under Item 1A. “Risk Factors” of this Annual Report
on Form 10-K. The statements are representative only as of the date they
are made, and the Corporation undertakes no obligation to update any
forward-looking statement.
Possible events or factors that could cause results or performance to
differ materially from those expressed in our forward-looking statements
include the following: changes in general economic conditions and
economic conditions in the geographic regions and industries in which the
Corporation operates which may affect, among other things, the level of
nonperforming assets, charge-offs and provision expense; changes in the
interest rate environment and market liquidity which may reduce interest
margins, impact funding sources and affect the ability to originate and
distribute financial products in the primary and secondary markets;
changes in foreign exchange rates; adverse movements and volatility in
debt and equity capital markets; changes in market rates and prices which
may adversely impact the value of financial products including securities,
loans, deposits, debt and derivative financial instruments, and other sim-
ilar financial instruments; political conditions and related actions by the
United States abroad which may adversely affect the Corporation’s busi-
nesses and economic conditions as a whole; liabilities resulting from liti-
gation and regulatory investigations, including costs, expenses,
settlements and judgments; changes in domestic or foreign tax laws, rules
and regulations as well as court, Internal Revenue Service or other gov-
ernmental agencies’ interpretations thereof; various monetary and fiscal
policies and regulations, including those determined by the Board of
Governors of the Federal Reserve System, the Office of the Comptroller of
Currency, the Federal Deposit Insurance Corporation, state regulators and
the Financial Services Authority; changes in accounting standards, rules
and interpretations; competition with other local, regional and international
banks, thrifts, credit unions and other nonbank financial institutions; abil-
ity to grow core businesses; ability to develop and introduce new banking-
related products, services and enhancements, and gain market
acceptance of such products; mergers and acquisitions and their
integration into the Corporation; decisions to downsize, sell or close units
or otherwise change the business mix of the Corporation; and manage-
ment’s ability to manage these and other risks.
The Corporation, headquartered in Charlotte, North Carolina, oper-
ates in 32 states, the District of Columbia and more than 30 foreign coun-
tries. The Corporation provides a diversified range of banking and
nonbanking financial services and products domestically and internation-
ally through three business segments: Global Consumer and Small Busi-
ness Banking (GCSBB), Global Corporate and Investment Banking (GCIB),
and Global Wealth and Investment Management (GWIM).
At December 31, 2007, the Corporation had $1.7 trillion in assets
and approximately 210,000 full-time equivalent employees. Notes to
Consolidated Financial Statements referred to in the MD&A are
incorporated by reference into the MD&A. Certain prior period amounts
have been reclassified to conform to current period presentation.
Recent Events
2007 Market Dislocation
During the second half of 2007, extreme dislocations emerged in the finan-
cial markets, including the leveraged finance, subprime mortgage, and
commercial paper markets. These dislocations were further compounded
by the decoupling of typical correlations in the various markets in which we
do business. Furthermore, in the fourth quarter of 2007, the credit ratings
of certain structured securities (e.g., CDOs) were downgraded which
among other things triggered further widening of credit spreads for these
types of securities. We have been an active participant in the CDO market
and maintain ongoing exposure to these securities and have incurred
losses associated with these exposures. For more information regarding
Capital Markets and Advisory Services (CMAS) results including CDOs,
leveraged finance and related ongoing exposure, see the CMAS discussion
beginning on page 52.
In addition, the market dislocation impacted the credit ratings of
structured investment vehicles (SIVs) in the market place. GWIM manages
certain cash funds which have invested in SIV transactions. We have
entered into capital commitments to support these funds and have
incurred losses associated with these commitments including losses on
certain securities purchased earlier from these funds at fair value. For
more information on our cash fund support, see the GWIM discussion
beginning on page 56.
In 2008, we continue to have exposure to those items noted above,
and depending upon market conditions, we may experience additional
losses.
Current Business Environment
The financial conditions mentioned above continue to negatively affect the
economy and the financial services sector in 2008. The slowdown of the
economy, significant decline in consumer real estate prices, and the con-
tinued and rapid deterioration in the housing sector have affected our
home equity portfolio and will, in all likelihood, impact other areas of our
consumer portfolio. We expect that certain industry sectors, in particular
those that are dependent on the housing sector, and certain geographic
regions will experience further stress. For more information on the impact
of the current business environment on credit, see the Credit Risk
Management discussion beginning on page 69.
The subprime mortgage dislocation has also impacted the ratings of
certain monoline insurance providers (monolines) which has affected the
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