Bank of America 2013 Annual Report Download - page 223

Bank of America 2013 221
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 $6.9 billion and $6.8 billion at
December 31, 2013 and 2012. 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Financial Services Authority, which has subsequently been
replaced by the Prudential Regulatory Authority (PRA) and the
Financial Conduct Authority (FCA), 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 $381 million and $510 million at December 31, 2013
and 2012. The Corporation recorded expense of $258 million and
$692 million in 2013 and 2012. 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.
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 and governmental 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 European Commission, the PRA,
the FCA and other international, federal 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, regulatory and governmental 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,
regulatory and governmental 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. As a litigation, regulatory or governmental 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.
When a loss contingency is not both probable and estimable, the
Corporation does not establish an accrued liability. If, at the time
of evaluation, the loss contingency related to a litigation, regulatory
or governmental 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, regulatory or
governmental 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 $6.1 billion was
recognized for 2013 compared to $4.2 billion for 2012.
For a limited number of the matters disclosed in this Note for
which a loss, whether in excess of a related accrued liability or
where there is no accrued liability, is reasonably possible in future
periods, the Corporation is able to estimate a range of possible
loss. In determining whether it is possible to estimate a range of
possible loss, the Corporation reviews and evaluates its material
litigation, regulatory and governmental 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
estimate a 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 of
the range of possible loss may not be possible. For those matters
where an estimate of the range of possible loss is possible,
management currently estimates the aggregate range of possible
loss is $0 to $6.1 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 from the current estimate. Those matters for which
an estimate is not possible are not included within this estimated
range. Therefore, this estimated range of possible loss represents