Bank of America 2008 Annual Report Download - page 25

on December 5, 2008. In October 2008, we reduced our regular quarterly
cash dividend on common stock by 50 percent. In January 2009, we fur-
ther reduced our regular quarterly dividend to $0.01 per share. In addition
in January 2009, we declared aggregate dividends on preferred stock of
$909 million, including $145 million related to preferred stock exchanged
in connection with the Merrill Lynch acquisition, and in the fourth quarter
of 2008 recorded aggregate dividends on preferred stock of $423 million.
For further discussion on our liquidity and capital, see Liquidity Risk and
Capital Management beginning on page 55.
In October 2008, prior to the U.S. Treasury’s announcement of the
TARP Capital Purchase Program previously discussed in Regulatory Ini-
tiatives, we issued 455 million shares of common stock at $22.00 per
share resulting in proceeds of $9.9 billion, net of underwriting expenses.
During 2008 we initiated loan modification programs projected to offer
modifications for up to 630,000 borrowers, representing $100 billion in
mortgage financings. In April 2008, we announced that the combined
company would modify or workout at least $40.0 billion in troubled mort-
gage loans in the next two years and estimated that these efforts will
assist at least 265,000 customers. Under this program alone, by the end
of 2008 Bank of America and Countrywide Financial Corporation
(Countrywide) had achieved workout solutions for over 190,000 bor-
rowers.
In October 2008 in agreement with several state attorneys general,
the Corporation announced the Countrywide National Homeownership
Retention Program. Under the program, we will systematically identify and
seek to offer loan modifications for eligible Countrywide subprime and pay
option adjustable rate mortgage (ARM) borrowers whose loans are in
delinquency or scheduled for an interest rate or payment change. Only
customers who financed their primary residence with subprime or pay
option ARMs originated and serviced by Countrywide between January 1,
2004 and December 31, 2007 are eligible for this program. In some
cases, these programs overlap as loans modified under the first program
include subprime and pay option ARMs.
During 2008, to help borrowers avoid foreclosure, Bank of America
and Countrywide had completed over 230,000 modifications.
In addition to being committed to the loan modification programs, we
continued to focus on extending new credit by extending approximately
$115 billion of credit during the fourth quarter including $49 billion in
commercial non-real estate; $45 billion in mortgages; nearly $8 billion in
domestic card and unsecured consumer loans; nearly $7 billion in com-
mercial real estate; approximately $5 billion in home equity products; and
approximately $2 billion in Dealer Financial Services consumer credit.
In September 2008, we announced an agreement in principle with the
Massachusetts Securities Division under which we will offer to purchase
at par ARS held by certain customers. Further in October 2008, we
announced other agreements in principle with the SEC, the Office of the
New York State Attorney General (NYAG), and the North American Secu-
rities Administrators Association. These agreements are substantially
similar except that the agreement with the NYAG requires the payment of
a penalty. These agreements will cover approximately $5.3 billion in ARS
held by an estimated 5,600 of our customers. As of December 31, 2008,
we repurchased $4.7 billion of ARS from our customers, more than 80
percent of our outstanding buyback commitment. In addition, during 2008
we recorded losses of $493 million in other income related to the buy-
back of ARS from our clients and also recorded a penalty of $50 million in
other general operating expense.
Recent Accounting Developments
On September 15, 2008 the FASB released exposure drafts which would
amend SFAS 140 and FIN 46R. As written, the proposed amendments
would, among other things, eliminate the concept of a QSPE and change
the standards for consolidation of VIEs. The changes would be effective
for both existing and newly-created entities as of January 1, 2010. If
adopted as written, the amendments would likely result in the con-
solidation of certain QSPEs and VIEs that are not currently recorded on
the Corporation’s Consolidated Balance Sheet (e.g., credit card
securitization trusts). These consolidations may result in an increase in
outstanding loans and on-balance sheet funding, higher provision and
allowance for credit losses as well as changes in the timing of recognition
and classification in our income statement. In addition, regulatory capital
amounts and ratios may be negatively impacted based on the outcome of
the FASB and regulatory agencies’ decisions. However, the impact on the
Corporation cannot be determined until the FASB issues the final
amendments to SFAS 140 and FIN 46R and the banking regulators pro-
vide guidance on how these amendments will impact regulatory capital.
See Note 1 – Summary of Significant Accounting Principles to the Con-
solidated Financial Statements for a further discussion of recently pro-
posed and issued accounting pronouncements.
Merger Overview
On January 1, 2009, we acquired Merrill Lynch through its merger with a
subsidiary of the Corporation in exchange for common and preferred
stock with a value of $29.1 billion, creating a premier financial services
franchise with significantly enhanced wealth management, investment
banking and international capabilities. Under the terms of the merger
agreement, Merrill Lynch common shareholders received 0.8595 of a
share of Bank of America Corporation common stock in exchange for
each share of Merrill Lynch common stock. In addition, Merrill Lynch
non-convertible preferred shareholders received Bank of America Corpo-
ration preferred stock having substantially identical terms. Merrill Lynch
convertible preferred stock remains outstanding and is convertible into
Bank of America common stock at an equivalent exchange ratio. The
acquisition added Merrill Lynch’s approximately 16,000 financial advi-
sors, $1.2 trillion of client assets and its interest in BlackRock, Inc., a
publicly traded investment management company. In addition, the acquis-
ition adds strengths in debt and equity underwriting, sales and trading,
and merger and acquisition advice, creating significant opportunities to
deepen relationships with corporate and institutional clients around the
globe. At January 1, 2009, Merrill Lynch increased our total assets by
$651.6 billion and total liabilities by $627.9 billion.
On July 1, 2008, we acquired Countrywide through its merger with a
subsidiary of the Corporation in exchange for stock with a value of $4.2
billion. Under the terms of the agreement, Countrywide shareholders
received 0.1822 of a share of Bank of America Corporation common
stock in exchange for each share of Countrywide common stock. The
acquisition of Countrywide significantly improved our mortgage originating
and servicing capabilities, making us a leading mortgage originator and
servicer.
On October 1, 2007, we acquired all the outstanding shares of ABN
AMRO North America Holding Company, parent of LaSalle Bank Corpo-
ration (LaSalle), for $21.0 billion in cash. With this acquisition, we sig-
nificantly expanded our presence in metropolitan Chicago, Illinois and
Michigan, by adding LaSalle’s commercial banking clients, retail custom-
ers and banking centers.
On July 1, 2007, we acquired all the outstanding shares of U.S. Trust
Corporation for $3.3 billion in cash. U.S. Trust Corporation focuses
exclusively on managing wealth for high net-worth and ultra high net-worth
individuals and families. The acquisition significantly increased the size
and capabilities of our wealth management business and positioned us
as one of the largest financial services companies managing private
wealth in the U.S.
For more information related to these mergers, see Note 2 – Merger
and Restructuring Activity to the Consolidated Financial Statements.
Bank of America 2008 23