Bank of America 2007 Annual Report Download - page 6

TO OUR
SHAREHOLDERS
2007 was a disappointing year for our company. While our financial performance was very strong in
the first half of the year, results in the second half were severely depressed by rising credit costs and
the impact of the unprecedented turbulence in the financial markets.
Despite the short-term fallout from the so-called credit crunch, I remain confident and optimistic about
our competitive position and our ability to generate attractive financial results in the future. Our long-term
growth strategy is working and has not changed: We are using market insight to drive innovation that
creates opportunity and value for our customers and shareholders.
Our earnings power from our core business activities is strong and growing. We are bringing innovative
new products to market, taking market share and expanding customer relationships across the company.
We plan to invest more in growth initiatives in 2008 than we did in 2007. And we have taken steps to build
up our capital strength and liquidity, enhancing our ability to be opportunistic in the future.
This was the first down year our company has suffered during my time as chief executive officer.
And although I take comfort in the fact that our diversity of income, tremendous scale and efficiency will
help us weather this storm better than most, it has still been a difficult time for our company.
While the credit crunch and housing market recession in the United States have hit the entire industry
hard, we offer no excuses for our performance. We escaped direct losses from subprime lending, which we
had exited years ago. But we did experience large writedowns in the value of structured products backed
by such loans, and our trading results were poor.
As these issues became apparent, we moved decisively to mitigate our losses and reposition our
businesses for growth. In October, we launched a strategic review of our capital markets business, the
results of which I discuss below.
In my career, I have not experienced a business cycle in which size, scale, revenue diversity and the
ability to execute have been more important. Each of these attributes is a strength of our company. Each
will play a role in determining the winners in our industry. And we are leveraging each of these strengths
to our greatest advantage.
I will review some of the ways we are pursuing our vision for Bank of America in this letter, and you can
read in more detail about our work in the articles that follow. First, I’d like to review our financial results
and the market developments that affected our performance so profoundly.
A challenging year. The story of the 2007 subprime mortgage meltdown and credit crunch is well docu-
mented, so I won’t recount it in great detail here. Suffice it to say that over the past several years, a combina-
tion of low interest rates (which helped to create excess liquidity), looser home loan underwriting standards
at many mortgage origination companies, the rapid growth of innovative and complex financial instruments
in the capital markets, and ratings methodologies that often, with hindsight, did not reflect the true risks
embedded in these securities led to rapid price inflation in U.S. housing — a bubble that had to burst.
4 Bank of America 2007
Insights Innovations Opportunities
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