Bank of America 2012 Annual Report Download - page 227

Bank of America 2012 225
Other Guarantees
The Corporation has entered into additional guarantee agreements
and commitments, including lease-end obligation agreements,
partial credit guarantees on certain leases, real estate joint
venture guarantees, sold risk participation swaps, divested
business commitments and sold put options that require gross
settlement. The maximum potential future payment under these
agreements was approximately $3.1 billion and $3.7 billion at
December 31, 2012 and 2011. The estimated maturity dates of
these obligations extend up to 2033. The Corporation has made
no material payments under these guarantees.
In the normal course of business, the Corporation periodically
guarantees the obligations of its affiliates in a variety of
transactions including ISDA-related transactions and non ISDA-
related transactions such as commodities trading, repurchase
agreements, prime brokerage agreements and other transactions.
Payment Protection Insurance Claims Matter
In the U.K., the Corporation previously sold payment protection
insurance (PPI) through its international card services business
to credit card customers and consumer loan customers. PPI covers
a consumer’s loan or debt repayment if certain events occur such
as loss of job or illness. In response to an elevated level of
customer complaints across the industry, heightened media
coverage and pressure from consumer advocacy groups, the U.K.
Financial Services Authority (FSA) investigated and raised
concerns about the way some companies have handled complaints
related to the sale of these insurance policies. In connection with
this matter, the Corporation established a reserve for PPI. The
reserve was $510 million and $476 million at December 31, 2012
and 2011. The Corporation recorded expense of $692 million and
$77 million in 2012 and 2011. It is reasonably possible that the
Corporation will incur additional expense related to PPI claims;
however, the amount of such additional expense cannot be
reasonably estimated.
Identity Theft Protection
The Corporation has received inquiries from and has been in
discussions with regulatory authorities concerning activities
related to identity theft protection services, including customers
who may have paid for but did not receive certain of such services
from third-party vendors of the Corporation, and whether
appropriate oversight existed.
Litigation and Regulatory Matters
In the ordinary course of business, the Corporation and its
subsidiaries are routinely defendants in or parties to many pending
and threatened legal actions and proceedings, including actions
brought on behalf of various classes of claimants. These actions
and proceedings are generally based on alleged violations of
consumer protection, securities, environmental, banking,
employment, contract and other laws. In some of these actions
and proceedings, claims for substantial monetary damages are
asserted against the Corporation and its subsidiaries.
In the ordinary course of business, the Corporation and its
subsidiaries are also subject to regulatory examinations,
information gathering requests, inquiries, investigations, and
threatened legal actions and proceedings. Certain subsidiaries of
the Corporation are registered broker/dealers or investment
advisors and are subject to regulation by the SEC, the Financial
Industry Regulatory Authority, the FSA and other domestic,
international and state securities regulators. In connection with
formal and informal inquiries by those agencies, such subsidiaries
receive numerous requests, subpoenas and orders for documents,
testimony and information in connection with various aspects of
their regulated activities.
In view of the inherent difficulty of predicting the outcome of
such litigation and regulatory matters, particularly where the
claimants seek very large or indeterminate damages or where the
matters present novel legal theories or involve a large number of
parties, the Corporation generally cannot predict what the eventual
outcome of the pending matters will be, what the timing of the
ultimate resolution of these matters will be, or what the eventual
loss, fines or penalties related to each pending matter may be.
In accordance with applicable accounting guidance, the
Corporation establishes an accrued liability for litigation and
regulatory matters when those matters present loss contingencies
that are both probable and estimable. In such cases, there may
be an exposure to loss in excess of any amounts accrued. When
a loss contingency is not both probable and estimable, the
Corporation does not establish an accrued liability. As a litigation
or regulatory matter develops, the Corporation, in conjunction with
any outside counsel handling the matter, evaluates on an ongoing
basis whether such matter presents a loss contingency that is
probable and estimable. If, at the time of evaluation, the loss
contingency related to a litigation or regulatory matter is not both
probable and estimable, the matter will continue to be monitored
for further developments that would make such loss contingency
both probable and estimable. Once the loss contingency related
to a litigation or regulatory matter is deemed to be both probable
and estimable, the Corporation will establish an accrued liability
with respect to such loss contingency and record a corresponding
amount of litigation-related expense. The Corporation continues
to monitor the matter for further developments that could affect
the amount of the accrued liability that has been previously
established. Excluding expenses of internal or external legal
service providers, litigation-related expense of $4.2 billion was
recognized for 2012 compared to $5.6 billion for 2011.
For a limited number of the matters disclosed in this Note for
which a loss is probable or reasonably possible in future periods,
whether in excess of a related accrued liability or where there is
no accrued liability, the Corporation is able to estimate a range of
possible loss. In determining whether it is possible to provide an
estimate of loss or range of possible loss, the Corporation reviews
and evaluates its material litigation and regulatory matters on an
ongoing basis, in conjunction with any outside counsel handling
the matter, in light of potentially relevant factual and legal
developments. These may include information learned through the
discovery process, rulings on dispositive motions, settlement
discussions, and other rulings by courts, arbitrators or others. In
cases in which the Corporation possesses sufficient appropriate
information to develop an estimate of loss or range of possible
loss, that estimate is aggregated and disclosed below. There may
be other disclosed matters for which a loss is probable or
reasonably possible but such an estimate may not be possible.
For those matters where an estimate is possible, management
currently estimates the aggregate range of possible loss is $0 to
$3.1 billion in excess of the accrued liability (if any) related to
those matters. This estimated range of possible loss is based
upon currently available information and is subject to significant
judgment and a variety of assumptions, and known and unknown
uncertainties. The matters underlying the estimated range will
change from time to time, and actual results may vary significantly