Bank of America 2007 Annual Report Download - page 55

resulted. In several instances, commitments were either terminated by
the client or interest rate concessions (e.g., an increase in the stated
coupon) were obtained from the borrowers, thereby increasing the value
of the loans, in each case negating the need for any writedown. At
December 31, 2007, the Corporation’s share of the leveraged finance
forward calendar that consisted primarily of senior secured exposure
was $12.2 billion and our funded position held for distribution was $6.1
billion. In addition, we had limited investment grade exposure that was
in line with our normal exposure levels.
ŠStructured products losses were $5.2 billion, with a decline in revenue
of $6.6 billion in 2007 compared to the prior year. The decrease was
driven by $5.6 billion of losses resulting from our CDO exposure, $125
million of losses on CMBS funded debt and the forward calendar and
$875 million related to other structured products. See the detailed CDO
exposure discussion to follow. Other structured products, including resi-
dential mortgage-backed securities and structured credit trading, were
negatively impacted by spread widening due to the credit market dis-
ruptions during the second half of the year and by the breakdown of the
expected hedge correlations. For example, the divergence in valuation of
agency-based mortgage products, principally derivatives and forward
sales contracts, used to economically hedge non-agency mortgage
exposure resulted in losses on our residential mortgage-backed secu-
rities trading positions. At the end of the year, we held $13.7 billion of
funded CMBS debt of which $6.9 billion were floating-rate acquisition
related financings to major, well known operating companies. In addi-
tion, we had a forward calendar of just over $2.0 billion of which $1.1
billion were floating-rate acquisition related financings.
ŠEquity products revenue decreased $273 million primarily due to lower
client activity in equity capital markets and equity derivatives combined
with reduced trading results.
Collateralized Debt Obligation Exposure at December 31, 2007
CDO vehicles are special purpose entities that hold diversified pools of
fixed income securities. CDO vehicles issue multiple tranches of debt
securities, including commercial paper, mezzanine and equity securities.
We receive fees for structuring CDO vehicles and/or placing debt
securities with third party investors as part of our structured credit prod-
ucts business. Our CDO exposure can be divided into funded and
unfunded super senior liquidity commitment exposure, other super senior
exposure (i.e., cash positions and derivative contracts), warehouse, and
sales and trading positions. For more information on our CDO liquidity
commitments refer to Collateralized Debt Obligations as part of Off- and
On-Balance Sheet Arrangements beginning on page 60. Super senior
exposure represents the most senior class of commercial paper or notes
that are issued by the CDO vehicles. These financial instruments benefit
from the subordination of all other securities, including AAA-rated secu-
rities, issued by the CDO vehicles.
Bank of America 2007 53