Bank of America 2008 Annual Report Download - page 155

Note 13 – Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of
off-balance sheet commitments. These commitments expose the Corpo-
ration to varying degrees of credit and market risk and are subject to the
same credit and market risk limitation reviews as those instruments
recorded on the Corporation’s Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan
commitments, SBLCs and commercial letters of credit to meet the financ-
ing needs of its customers. The unfunded legally binding lending
commitments shown in the following table are net of amounts distributed
(e.g., syndicated) to other financial institutions of $46.9 billion and $39.2
billion at December 31, 2008 and 2007. At December 31, 2008, the
carrying amount of these commitments, excluding fair value adjustments,
was $454 million, including deferred revenue of $33 million and a
reserve for unfunded legally binding lending commitments of $421 mil-
lion. At December 31, 2007, the comparable amounts were $550 million,
$32 million and $518 million. The carrying amount of these commitments
is recorded in accrued expenses and other liabilities. For information
regarding the Corporation’s loan commitments accounted for at fair value,
see Note 19 – Fair Value Disclosures to the Consolidated Financial
Statements.
Legally binding commitments to extend credit generally have specified
rates and maturities. Certain of these commitments have adverse change
clauses that help to protect the Corporation against deterioration in the
borrowers’ ability to pay.
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 subordinated debt tranches and/or equity. In many cases,
these offers to finance will not be accepted. If accepted, these condi-
tional 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 is 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 com-
mitments 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 commit-
ment. In addition, the Corporation may reduce its portion of the commit-
ment through syndications to investors and/or lenders prior to funding.
Therefore, these commitments are generally 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 mate-
rial adverse change in the borrower’s financial condition, among other
factors. Commitments also generally contain certain flexible pricing fea-
tures to adjust for changing market conditions prior to closing.
At December 31, 2008, the Corporation had no forward leveraged
finance commitments compared to $11.9 billion at December 31, 2007.
During 2008, the Corporation had new transactions of $10.0 billion,
funded and syndicated of $11.5 billion, closed but not yet syndicated of
$6.8 billion, and client terminations and other transactions of $3.6 billion
related to the forward leveraged finance commitments. The Corporation
also had unfunded capital markets commercial real estate commitments
of $700 million at December 31, 2008 compared to $2.2 billion at
December 31, 2007 with the primary change resulting from the $1.2 bil-
lion of transactions that were funded. The Corporation has not originated
any material unfunded capital markets commercial real estate commit-
ments subsequent to September 30, 2007.
(Dollars in millions)
Expires in 1
year or less
Expires after 1
year through
3 years
Expires after 3
years through
5 years
Expires after
5 years Total
Credit extension commitments, December 31, 2008
Loan commitments
$ 128,992 $ 120,234 $ 67,111 $ 31,200 $ 347,537
Home equity lines of credit 3,883 2,322 4,799 96,415 107,419
Standby letters of credit and financial guarantees
(1)
33,350 26,090 8,328 9,812 77,580
Commercial letters of credit 2,228 29 1 1,507 3,765
Legally binding commitments
(2)
168,453 148,675 80,239 138,934 536,301
Credit card lines
(3)
827,350 – – – 827,350
Total credit extension commitments $ 995,803 $ 148,675 $ 80,239 $ 138,934 $ 1,363,651
Credit extension commitments, December 31, 2007
Loan commitments $ 178,931 $ 92,153 $106,904 $ 27,902 $ 405,890
Home equity lines of credit 8,482 1,828 2,758 107,055 120,123
Standby letters of credit and financial guarantees
(1)
31,629 14,493 7,943 8,731 62,796
Commercial letters of credit 3,753 50 33 717 4,553
Legally binding commitments
(2)
222,795 108,524 117,638 144,405 593,362
Credit card lines
(3)
876,393 17,864 – – 894,257
Total credit extension commitments $1,099,188 $126,388 $117,638 $144,405 $1,487,619
(1) At December 31, 2008 the notional value of SBLC and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument
were $54.4 billion and $23.2 billion compared to $44.1 billion and $18.7 billion at December 31, 2007.
(2) Includes commitments to unconsolidated VIEs and certain QSPEs disclosed in Note 9 – Variable Interest Entities to the Consolidated Financial Statements, including $41.6 billion and $47.3 billion to multi-seller
conduits, $6.8 billion and $6.1 billion to municipal bond trusts, and $0 and $2.3 billion to CDOs at December 31, 2008 and 2007. Also includes commitments to SPEs that are not disclosed in Note 9 – Variable
Interest Entities to the Consolidated Financial Statements because the Corporation does not hold a significant variable interest, including $980 million and $1.7 billion to customer-sponsored conduits at December 31,
2008 and 2007.
(3) Includes business card unused lines of credit.
Bank of America 2008 153