Bank of America 2012 Annual Report Download - page 274

272 Bank of America 2012
Global Markets
Global Markets offers sales and trading services, including
research, to institutional clients across fixed income, credit,
currency, commodity and equity businesses. Global Markets
product coverage includes securities and derivative products in
both the primary and secondary markets. Global Markets provides
market-making, financing, securities clearing, settlement and
custody services globally to institutional investor clients in support
of their investing and trading activities. Global Markets also works
with commercial and corporate clients to provide risk management
products using interest rate, equity, credit, currency and commodity
derivatives, foreign exchange, fixed-income and mortgage-related
products. As a result of market-making activities in these products,
Global Markets may be required to manage risk in government
securities, equity and equity-linked securities, high-grade and high-
yield corporate debt securities, commercial paper, MBS,
commodities and ABS. The economics of certain investment
banking and underwriting activities are shared primarily between
Global Markets and Global Banking based on the activities
performed by each segment.
Global Wealth & Investment Management
GWIM provides comprehensive wealth management solutions to
a broad base of clients from emerging affluent to the ultra-wealthy.
These services include investment and brokerage services, estate
and financial planning, fiduciary portfolio management, cash and
liability management, and specialty asset management. GWIM
also provides retirement and benefit plan services, philanthropic
management and asset management to individual and
institutional clients. GWIM results are impacted by the migration
of clients and their deposit and loan balances between GWIM and
other client-managed businesses. Subsequent to the date of
migration, the associated net interest income, noninterest income
and noninterest expense are recorded in the business to which
the clients migrated. In 2012, the Corporation entered into an
agreement to sell the GWIM IWM businesses based outside of the
U.S. and sold its Japanese brokerage joint venture. As a result of
these actions, the IWM businesses and the Japanese brokerage
joint venture results were moved to All Other and prior periods have
been reclassified.
All Other
All Other consists of ALM activities, equity investments, liquidating
businesses and other. ALM activities encompass the whole-loan
residential mortgage portfolio and investment securities, interest
rate and foreign currency risk management activities including the
residual net interest income allocation, gains/losses on structured
liabilities, and the impact of certain allocation methodologies and
accounting hedge ineffectiveness. Additionally, All Other includes
certain residential mortgage and discontinued real estate loans
that are managed by CRES. In 2012, the IWM businesses and the
Japanese brokerage joint venture results were moved to All Other
from GWIM and prior periods have been reclassified.
Basis of Presentation
The management accounting and reporting process derives
segment and business results by utilizing allocation
methodologies for revenue and expense. The net income derived
for the businesses is dependent upon revenue and cost allocations
using an activity-based costing model, funds transfer pricing, and
other methodologies and assumptions management believes are
appropriate to reflect the results of the business.
Total revenue, net of interest expense, includes net interest
income on a FTE basis and noninterest income. The adjustment
of net interest income to a FTE basis results in a corresponding
increase in income tax expense. The segment results also reflect
certain revenue and expense methodologies that are utilized to
determine net income. The net interest income of the businesses
includes the results of a funds transfer pricing process that
matches assets and liabilities with similar interest rate sensitivity
and maturity characteristics. For presentation purposes, in
segments where the total of liabilities and equity exceeds assets,
which are generally deposit-taking segments, the Corporation
allocates assets to match liabilities. Net interest income of the
business segments also includes an allocation of net interest
income generated by the Corporation’s ALM activities.
The Corporation’s ALM activities include an overall interest rate
risk management strategy that incorporates the use of various
derivatives and cash instruments to manage fluctuations in
earnings and capital that are caused by interest rate volatility. The
Corporation’s goal is to manage interest rate sensitivity so that
movements in interest rates do not significantly adversely affect
earnings and capital. The majority of the Corporation’s ALM
activities are allocated to the business segments and fluctuate
based on performance. ALM activities include external product
pricing decisions including deposit pricing strategies, the effects
of the Corporation’s internal funds transfer pricing process and
the net effects of other ALM activities.
Certain expenses not directly attributable to a specific
business segment are allocated to the segments. The most
significant of these expenses include data and item processing
costs and certain centralized or shared functions. Data processing
costs are allocated to the segments based on equipment usage.
Item processing costs are allocated to the segments based on
the volume of items processed for each segment. The costs of
certain other centralized or shared functions are allocated based
on methodologies that reflect utilization.