Bank of America 2010 Annual Report Download - page 200

Loan Purchases
In 2005, the Corporation entered into an agreement for the committed pur-
chase of retail automotive loans over a five-year period that ended on June 22,
2010. Under this agreement, the Corporation purchased $6.6 billion of such
loans during the six months ended June 30, 2010 and also the year ended
December 31, 2009. All loans purchased under this agreement were subject
to a comprehensive set of credit criteria. This agreement was accounted for as
a derivative liability with a fair value of $189 million at December 31, 2009. As
of December 31, 2010, the Corporation was no longer committed for any
additional purchases. As part of this agreement, the Corporation recorded a
liability which may increase or decrease based on credit per formance of the
purchased loans over a period extending through 2016.
At December 31, 2010 and 2009, the Corporation had other commit-
ments to purchase loans (e.g., residential mortgage and commercial real
estate) of $2.6 billion and $2.2 billion, which upon settlement will be included
in loans or LHFS.
Operating Leases
The Corporation is a party to operating leases for certain of its premises and
equipment. Commitments under these leases are approximately $3.0 billion,
$2.6 billion, $2.1 billion, $1.6 billion and $1.3 billion for 2011 through 2015,
respectively, and $6.6 billion in the aggregate for all years thereafter.
Other Commitments
At December 31, 2010 and 2009, the Corporation had commitments to enter
into forward-dated resale and securities borrowing agreements of $39.4 billion
and $51.8 billion. In addition, the Corporation had commitments to enter into
forward-dated repurchase and securities lending agreements of $33.5 billion
and $58.3 billion. All of these commitments expire within the next 12 months.
The Corporation has entered into agreements with providers of market
data, communications, systems consulting and other office-related services.
At December 31, 2010 and 2009, the minimum fee commitments over the
remaining terms of these agreements totaled $2.1 billion and $2.3 billion.
Other Guarantees
Bank-owned Life Insurance Book Value Protection
The Corporation sells products that offer book value protection to insurance
carriers who offer group life insurance policies to corporations, primarily
banks. The book value protection is provided on portfolios of intermediate
investment-grade fixed-income securities and is intended to cover any short-
fall in the event that policyholders surrender their policies and market value is
below book value. To manage its exposure, the Corporation imposes signif-
icant restrictions on surrenders and the manner in which the portfolio is
liquidated and the funds are accessed. In addition, investment parameters of
the underlying portfolio are restricted. These constraints, combined with
structural protections, including a cap on the amount of risk assumed on
each policy, are designed to provide adequate buffers and guard against
payments even under extreme stress scenarios. These guarantees are re-
corded as derivatives and carried at fair value in the trading portfolio. At
December 31, 2010 and 2009, the notional amount of these guarantees
totaled $15.8 billion and $15.6 billion and the Corporation’s maximum
exposure related to these guarantees totaled $5.0 billion and $4.9 billion
with estimated maturity dates between 2030 and 2040. As of December 31,
2010, the Corporation has not made a payment under these products. The
probability of surrender has increased due to the deteriorating financial health
of policyholders, but remains a small percentage of total notional.
Employee Retirement Protection
The Corporation sells products that offer book value protection primarily to
plan sponsors of Employee Retirement Income Security Act of 1974 (ERISA)
governed pension plans, such as 401(k) plans and 457 plans. The book value
protection is provided on portfolios of intermediate/short-term investment-
grade fixed-income securities and is intended to cover any shortfall in the
event that plan participants continue to withdraw funds after all securities
have been liquidated and there is remaining book value. The Corporation
retains the option to exit the contract at any time. If the Corporation exercises
its option, the purchaser can require the Corporation to purchase high quality
fixed-income securities, typically government or government-backed agency
securities, with the proceeds of the liquidated assets to assure the return of
principal. To manage its exposure, the Corporation imposes significant re-
strictions and constraints on the timing of the withdrawals, the manner in
which the portfolio is liquidated and the funds are accessed, and the invest-
ment parameters of the underlying portfolio. These constraints, combined
with structural protections, are designed to provide adequate buffers and
guard against payments even under extreme stress scenarios. These guar-
antees are recorded as derivatives and carried at fair value in the trading
portfolio. At December 31, 2010 and 2009, the notional amount of these
guarantees totaled $33.8 billion and $36.8 billion with estimated maturity
dates up to 2014 if the exit option is exercised on all deals. As of Decem-
ber 31, 2010, the Corporation has not made a payment under these products
and has assessed the probability of payments under these guarantees as
remote.
198 Bank of America 2010