Bank of America 2009 Annual Report Download - page 142

Condensed Statement of Net Assets Acquired
The following condensed statement of net assets acquired reflects the
values assigned to Merrill Lynch’s net assets as of the acquisition date.
(Dollars in billions) January 1, 2009
Assets
Federal funds sold and securities borrowed or purchased
under agreements to resell
$138.8
Trading account assets 87.9
Derivative assets 96.4
Investment securities 70.5
Loans and leases 55.9
Intangible assets 5.4
Other assets 195.3
Total assets $ 650.2
Liabilities
Deposits $ 98.1
Federal funds purchased and securities loaned or sold
under agreements to repurchase
111.6
Trading account liabilities 18.1
Derivative liabilities 72.0
Commercial paper and other short-term borrowings 37.9
Accrued expenses and other liabilities 99.6
Long-term debt 188.9
Total liabilities 626.2
Fair value of net assets acquired $ 24.0
Contingencies
The fair value of net assets acquired includes certain contingent liabilities
that were recorded as of the acquisition date. Merrill Lynch has been
named as a defendant in various pending legal actions and proceedings
arising in connection with its activities as a global diversified financial
services institution. Some of these legal actions and proceedings include
claims for substantial compensatory and/or punitive damages or claims
for indeterminate amounts of damages. Merrill Lynch is also involved in
investigations and/or proceedings by governmental and self-regulatory
agencies. Due to the number of variables and assumptions involved in
assessing the possible outcome of these legal actions, sufficient
information did not exist to reasonably estimate the fair value of these
contingent liabilities. As such, these contingences have been measured
in accordance with accounting guidance on contingencies which states
that a loss is recognized when it is probable of occurring and the loss
amount can be reasonably estimated. For further information, see Note
14 – Commitments and Contingencies.
In connection with the Merrill Lynch acquisition, on January 1, 2009,
the Corporation recorded certain guarantees, primarily standby liquidity
facilities and letters of credit, with a fair value of approximately $1 billion.
At the time of acquisition, the maximum amount that could be drawn from
these guarantees was approximately $20 billion.
Countrywide
On July 1, 2008, the Corporation acquired Countrywide through its merger
with a subsidiary of the Corporation. Under the terms of the merger
agreement, Countrywide shareholders received 0.1822 of a share of
Bank of America Corporation common stock in exchange for each share
of Countrywide common stock. The acquisition of Countrywide sig-
nificantly expanded the Corporation’s mortgage originating and servicing
capabilities, making it a leading mortgage originator and servicer. As pro-
vided by the merger agreement, 583 million shares of Countrywide
common stock were exchanged for 107 million shares of the Corpo-
ration’s common stock. Countrywide’s results of operations were included
in the Corporation’s results beginning July 1, 2008.
The Countrywide purchase price was allocated to the assets acquired
and liabilities assumed based on their fair values at the Countrywide
acquisition date as summarized in the following table. No goodwill is
deductible for federal income tax purposes. All the goodwill was allocated
to the Home Loans & Insurance business segment.
Countrywide Purchase Price Allocation
(Dollars in billions)
Purchase price (1) $ 4.2
Allocation of the purchase price
Countrywide stockholders’ equity
(2)
8.4
Pre-tax adjustments to reflect assets acquired and liabilities assumed
at fair value:
Loans (9.8)
Investments in other financial instruments (0.3)
Mortgage servicing rights (1.5)
Other assets (0.8)
Deposits (0.2)
Notes payable and other liabilities (0.9)
Pre-tax total adjustments (13.5)
Deferred income taxes 4.9
After-tax total adjustments (8.6)
Fair value of net assets acquired (0.2)
Goodwill resulting from the Countrywide acquisition $ 4.4
(1) The value of the shares of common stock exchanged with Countrywide shareholders was based upon the
average of the closing prices of the Corporation’s common stock for the period commencing two trading
days before and ending two trading days after January 11, 2008, the date of the Countrywide merger
agreement.
(2) Represents the remaining Countrywide shareholders’ equity as of the acquisition date after the
cancellation of the $2.0 billion of Series B convertible preferred shares owned by the Corporation.
The Corporation acquired certain loans for which there was, at the
time of the merger, evidence of deterioration of credit quality since origi-
nation and for which it was probable that all contractually required pay-
ments would not be collected. For more information, see the Countrywide
purchased impaired loan discussion in Note 6 – Outstanding Loans and
Leases.
Other Acquisitions
On October 1, 2007, the Corporation acquired all the outstanding shares
of LaSalle, for $21.0 billion in cash. LaSalle’s results of operations were
included in the Corporation’s results beginning October 1, 2007.
On July 1, 2007, the Corporation acquired all the outstanding shares
of U.S. Trust Corporation for $3.3 billion in cash. U.S. Trust Corporation’s
results of operations were included in the Corporation’s results beginning
July 1, 2007.
Unaudited Pro Forma Condensed Combined Financial
Information
If the Merrill Lynch and Countrywide acquisitions had been completed on
January 1, 2008, total revenue, net of interest expense would have been
$66.8 billion, net loss from continuing operations would have been $26.0
billion, and basic and diluted loss per common share would have been
$5.37 for 2008. These results include the impact of amortizing certain
purchase accounting adjustments such as intangible assets as well as
fair value adjustments to loans, securities and debt. The pro forma finan-
cial information does not include the impact of possible business model
changes nor does it consider any potential impacts of current market
conditions or revenues, expense efficiencies, asset dispositions, share
repurchases or other factors. For 2009, Merrill Lynch contributed $23.3
billion in revenue, net of interest expense, and $4.7 billion in net income.
These amounts exclude the impact of intercompany transfers of busi-
nesses and are before the consideration of certain merger-related costs,
revenue opportunities and certain consolidating tax benefits that were
recognized in legacy Bank of America legal entities.
140 Bank of America 2009