Bank of America 2008 Annual Report Download - page 8

management products, and securities
sales and trading.
We are already seeing business
activity levels beginning to pick up. We
now have leading positions in markets
all over the world, and our investment
banking team is among the most tal-
ented and experienced in the business.
On the far side of the storm we’re
in, I believe there is tremendous
opportunity in both of these acquisi-
tions. And I am excited about working
with our new associates to seize it.
Managing risk and reward
We are in the business of taking risk —
lending to individuals and businesses
to fuel the economy. It is also our
business to manage that risk. Our
industry as a whole did a poor job on
that front in the lead-up to our current
crisis. The institutions that did the
worst job are no longer with us. Those
that did a better job have endured.
But no one I know of in this industry
is crowing. We all have learned — or
relearned — hard lessons.
The challenges created by the
economic and market environment do
not excuse Bank of America’s perfor-
mance. But they do help explain it.
One of the biggest issues we faced
over the course of the most recent
growth cycle was the speed and degree
of fundamental, structural changes that
were happening throughout the econ-
omy. New market participants were
emerging and growing rapidly, including
sovereign wealth funds, hedge funds
and other global investors. Structured
products, thanks to advancing technol-
ogy, grew more complex by the day.
The speed and volume of securities
creation and trading increased expo-
nentially. Markets and risks grew ever
more interconnected. And the sheer
volume of information in the system
that needed to be tracked, monitored,
analyzed and understood led to a grow-
ing opacity — the opposite of what you
want when you’re managing risk.
As we work our way through the
current cycle, we’re applying the
lessons we’ve learned the hard way.
One lesson is that we must not rely
too heavily on mathematical risk model-
ing in assessing risks. The models are
sophisticated, but they are only as good
as the assumptions of the people who
create them, and only as well-informed
as the data we feed into them. We
have to balance our risk modeling
abilities with what we know at any given
moment about our customers, clients
and portfolios; a commonsense under-
standing of economic fundamentals;
and our knowledge of business cycles.
And we must have the courage to test
the former against the latter when
economic facts and risk assessments
seem out of balance.
Another lesson is that we need
to return to the fundamentals in our
business. We are producing simpler
and more transparent products to
meet our customers’ current financial
needs, and developing those that will
help them when the cycle turns. We
also are recalibrating our assessments
of risk factors like customer credit-
worthiness, portfolio concentrations
and market trends to account for new
economic realities. And we are using
new tools to manage all these risks
more effectively.
Finally, we’ve concluded that, while
organizational structure can be impor-
tant in the way we manage risk, it is not
the primary determinant of success.
The most important factors are people
and culture. When we have the right
people in the right assignments —
people with not only intelligence and
insight, but also the courage to engage
teammates on thorny risk issues — and
when we have nurtured a risk culture
that welcomes and encourages debate,
we usually get to the right answer.
Total Deposits
’06 ’07 ’08
In millions, at ye ar e nd
$693,497
$805,177 $882,997
Bank of America
serves one of every
two U.S. households
and 99% of the U.S.
Fortune 500
Strong
Market
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6 Bank of America 2008