Bank of America 2008 Annual Report Download - page 144

Credit Card Securitizations
The Corporation maintains interests in credit card securitization vehicles. These retained interests include senior and subordinated securities, interest-
only strips, subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts. The following table summa-
rizes selected information related to credit card securitizations for 2008 and 2007.
Credit Card
(Dollars in millions) 2008 2007
Cash proceeds from new securitizations $ 20,148 $ 19,851
Gains on securitizations 81 117
Collections reinvested in revolving period securitizations 162,332 178,556
Cash flows received on residual interests 5,771 6,590
Principal balance outstanding
(1)
114,141 114,450
Senior securities held
(2, 3)
4,965 –
Subordinated securities held
(2, 3)
1,837 424
Residual interests held
(4)
2,233 2,766
(1) Principal balance outstanding represents the principal balance of credit card receivables that have been legally isolated from the Corporation including those loans that are still held on the Corporation’s balance sheet
(i.e., seller’s interest).
(2) As a holder of these securities, the Corporation receives scheduled interest and principal payments accordingly. During 2008 and 2007, there were no significant impairments recorded on those securities classified as
AFS debt securities.
(3) Held senior and subordinated securities issued by credit card securitization vehicles are valued using quoted market prices and were all classified as AFS debt securities at December 31, 2008 and 2007.
(4) Residual interests include interest-only strips of $74 million. The remainder of the residual interests are subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts
which are carried at fair value or amounts that approximate fair value and are not sensitive to favorable and adverse fair value changes in payment rates, expected credit losses and residual cash flows discount rates.
The residual interests were valued using model valuations and are classified in other assets.
At December 31, 2008 and 2007, there were no recognized servicing
assets or liabilities associated with any of these credit card securitization
transactions. The Corporation recorded $2.1 billion in servicing fees
related to credit card securitizations during both 2008 and 2007.
During the second half of 2008, the Corporation entered into a liquid-
ity support agreement related to the Corporation’s commercial paper
program that obtains financing by issuing tranches of commercial paper
backed by credit card receivables to third party investors from a trust
sponsored by the Corporation. If certain criteria are met, such as not
being able to reissue the commercial paper due to market illiquidity, the
commercial paper maturity dates can be extended to 390 days from the
original issuance date. This extension would cause the outstanding
commercial paper to convert to an interest-bearing note and subsequent
credit card receivable collections would be applied to the outstanding
note balance. If any of the investor notes are still outstanding at the end
of the extended maturity period, our liquidity commitment obligates the
Corporation to purchase maturity notes in order to retire the investor
notes. As a maturity note holder, the Corporation would be entitled to the
remaining cash flows from the collateralizing credit card receivables. At
December 31, 2008 there were no maturity notes outstanding and the
Corporation held $5.0 billion of investment grade securities in AFS debt
securities issued by the trust due to illiquidity in the marketplace.
Sensitivity Analysis
Key economic assumptions used in measuring the fair value of certain residual interests that continue to be held by the Corporation in credit card
securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are as follows:
Credit Card
December 31
(Dollars in millions) 2008 2007
Carrying amount of residual interests (at fair value) (1, 2) $ 2,233 $ 2,766
Weighted average life to call or maturity (in years) 0.3 0.3
Monthly payment rate 10.7-13.9% 11.6-16.6%
Impact on fair value of 10% favorable change $8 $51
Impact on fair value of 25% favorable change 22 158
Impact on fair value of 10% adverse change (6) (35)
Impact on fair value of 25% adverse change (14) (80)
Weighted average expected credit loss rate (annual rate) 9.0% 5.3%
Impact on fair value of 10% favorable change $ 296 $ 141
Impact on fair value of 25% favorable change 741 374
Impact on fair value of 10% adverse change (26) (133)
Impact on fair value of 25% adverse change (57) (333)
Residual cash flows discount rate (annual rate) 13.5% 11.5%
Impact on fair value of 100 bps favorable change $3 $9
Impact on fair value of 200 bps favorable change 4 13
Impact on fair value of 100 bps adverse change (5) (12)
Impact on fair value of 200 bps adverse change (10) (23)
(1) Residual interests include subordinated interests in accrued interest and fees on the securitized receivables, cash reserve accounts and interest-only strips which are carried at fair value or amounts that approximate
fair value.
(2) At December 31, 2008 and 2007, $74 million and $400 million of residual interests were sensitive to favorable and adverse fair value changes in payment rates, expected credit losses and residual cash flows
discount rates. The amount of the adverse change has been limited to the recorded amount of the residual interests where the hypothetical change exceeds its value.
142 Bank of America 2008