Bank of America 2008 Annual Report Download - page 61

Basel II
In June 2004, the Basel II Accord was published with the intent of more
closely aligning regulatory capital requirements with underlying
risks. Similar to economic capital measures, Basel II seeks to address
credit risk, market risk, and operational risk.
While economic capital is measured to cover unexpected losses, the
Corporation also maintains a certain threshold in terms of regulatory capi-
tal to adhere to legal standards of capital adequacy. These thresholds or
leverage ratios will continue to be utilized for the foreseeable future.
The Basel II Final Rule (Basel II Rules), which was published on
December 7, 2007, establish requirements for the U.S. implementation
and provide detailed capital requirements for credit and operational risk
under Pillar 1, supervisory requirements under Pillar 2 and disclosure
requirements under Pillar 3. We are still awaiting final rules for market
risk requirements under Basel II.
The Basel II Rules allowed U.S. financial institutions to begin parallel
reporting as early as 2008, upon successful development and approval of
a formal Implementation Plan, which was approved during the third quar-
ter of 2008. During the parallel period, the resulting capital calcu-
lations under both the current (Basel I) rules and the Basel II Rules
should be reported to the financial institutions’ regulatory supervisors for
examination and compliance for at least four consecutive quarterly peri-
ods. Once the parallel period and subsequent three-year transition period
are successfully completed, the financial institution will utilize Basel II as
their means of capital adequacy assessment, measurement and reporting
and discontinue use of Basel I.
With the acquisition of Countrywide during 2008 and Merrill Lynch
effective January 1, 2009, the Corporation has 24 months from the date
of each acquisition to fully incorporate and transition all data necessary
to successfully complete the more robust Basel II calculations. We con-
tinue to work with the FRB, OCC, OTS and FDIC (collectively, the Agencies)
and with our transition team to meet these timelines and expect to meet
or exceed these requirements.
We continue execution efforts to ensure preparedness with all Basel II
requirements. The goal is to achieve full compliance by the end of the
three-year implementation period in 2011. Further, internationally Basel II
was implemented in several countries during 2008, while others will
begin implementation in 2009 and beyond.
Common Share Issuances and Repurchases
In January of 2009, the Corporation issued common stock in connection
with its acquisition of Merrill Lynch and warrants to purchase common
stock in connection with preferred stock issuances to the U.S. govern-
ment. For additional information regarding the Merrill Lynch acquisition,
see Note 2 – Merger and Restructuring Activity to the Consolidated Finan-
cial Statements. For additional information regarding the issuance of
warrants to purchase common stock, see Note 25 – Subsequent Events
to the Consolidated Financial Statements.
We may repurchase shares, subject to certain restrictions including
those imposed by the U.S. government, from time to time, in the open
market or in private transactions through our approved repurchase pro-
grams. We did not repurchase any shares of the Corporation’s common
stock during 2008 and we issued 107 million shares in connection with
the Countrywide acquisition and 17.8 million shares under employee
stock plans. In addition, in October 2008, we issued 455 million shares
of common stock at $22.00 per share with proceeds of $9.9 billion, net
of underwriting expenses.
To replace the expiring stock repurchase program, in July 2008, the
Board authorized a stock repurchase program of up to 75 million shares
of the Corporation’s common stock at an aggregate cost not to exceed
$3.75 billion that is limited to a period of 12 to 18 months. This program
is also subject to the repurchase restrictions.
For more information on our common share issuances and
repurchases, see Note 14 – Shareholders’ Equity and Earnings Per
Common Share to the Consolidated Financial Statements.
Common Stock Dividends
The table below is a summary of our regular quarterly cash dividends on
common stock as of February 27, 2009. In October 2008, to position our
dividend to better match our earnings, we announced a 50 percent reduc-
tion in our regular quarterly cash dividend on common stock to $0.32 per
share. In January 2009, we further reduced our regular quarterly dividend
to $0.01 per share. The declaration of common stock dividends is sub-
ject to restrictions that are described in detail in Note 14 – Shareholders’
Equity and Earnings Per Common Share to the Consolidated Financial
Statements.
Preferred Stock Issuances
In October 2008, in connection with the TARP Capital Purchase Program,
created as part of the EESA, we issued to the U.S. Treasury
600 thousand shares of Series N Preferred Stock with a par value of
$0.01 per share for $15.0 billion. In addition, in January of 2009 we
issued an additional $30.0 billion of preferred stock to the U.S. govern-
ment. Further, the U.S. government has agreed in principle to provide
protection against the possibility of unusually large losses on $118.0 bil-
lion in selected capital markets exposure, primarily from the former Merrill
Lynch portfolio. As a fee for this arrangement, we expect to issue to the
U.S. Treasury and FDIC a total of $4.0 billion of a new class of preferred
stock. For more information on the January 2009 issuances and the U.S.
government guarantee, see Recent Events beginning on page 22 and
Note 25 – Subsequent Events to the Consolidated Financial Statements.
Under the TARP Capital Purchase Program dividend payments on, and
repurchases of, our outstanding preferred stock are subject to certain
restrictions. For more information on these restrictions, see Note 14 –
Shareholders’ Equity and Earnings Per Common Share to the Con-
solidated Financial Statements.
Table 13 Common Stock Dividend Summary
Declaration Date Record Date Payment Date Dividend per Share
January 16, 2009 March 6, 2009 March 27, 2009 $0.01
October 6, 2008 December 5, 2008 December 26, 2008 0.32
July 23, 2008 September 5, 2008 September 26, 2008 0.64
April 23, 2008 June 6, 2008 June 27, 2008 0.64
January 23, 2008 March 7, 2008 March 28, 2008 0.64
Bank of America 2008 59