Test is a "What if"
Capital Ratios Currently Exceed Federal Regulatory Targets
Company Pursuing Capital Raising and Business Sales; No New Government
Bank of America Seeks to End Negotiations to Acquire Asset Protection from
New Board Committee Set
CHARLOTTE, N.C., May 7 /PRNewswire/ -- Bank of America Corporation today
said the Federal Reserve has notified it of the stress test results. The test
shows that in order to weather two years of the most severe economic
circumstance, Bank of America would need to increase Tier 1 common capital by
Bank of America executives emphasized that the test shows that the company
is healthy and would continue to be, even under arduous economic conditions.
The Federal Reserve analyzed the financial condition of 19 banks assuming
a more prolonged and deeper recession than both private and government
economists project. Examiners projected income, expenses, and credit and
capital markets losses in a much more severe environment than today. The Fed
and the banks then had conversations about those assumptions and projected
results before the Fed reached a conclusion on whether each bank needed a
larger capital cushion to weather such an adverse economic environment and
maintain acceptable capital levels.
Under the stress test results, Bank of America's total Tier 1 Capital
Ratio would remain above the federal regulatory target over the two-year
period. Tier 1 common equity would be below the guideline, necessitating an
increase in the company's common equity to meet the government's most adverse
"We are comfortable with our current capital position in the present
economic environment," said Kenneth D. Lewis, Bank of America chief executive
officer and president. "The stress test asks what if the economy does much
worse than most experts project. We are working on a plan to submit to the
government for such a contingency, which is due by June 8. While it would have
a number of components, we will not need any new government money. The plan
will be implemented by the Nov. 9 deadline.
"Bank of America will continue to be the leading financial services
company for consumers and businesses," he said. "We are well capitalized with
the best liquidity of any large bank. We continue to lead the industry in
making new loans and to serve our customers and clients with innovative
products. We understand our responsibility to our communities, customers and
"The precautionary actions being taken by our country's banking regulators
are an appropriate and balanced response in a time of lingering economic
uncertainty," said Walter E. Massey, chairman of the Bank of America Board of
Directors. "While we have considerable work to do, we are pleased that the
supervisory capital assessment process has provided much-needed clarity on the
path forward to move decisively beyond the current crisis. The board will
assure that the company moves aggressively to build the capital buffer
identified by the regulatory stress test. Our management team is already in
the process of developing a comprehensive capital plan, and we will be
thorough in considering the various alternatives to meet our goal."
At March 31, Bank of America's ratio of Tier 1 common to risk-weighted
assets was 4.5 percent, well above the 4 percent that the Federal Reserve has
targeted in the stress test. Total Tier 1 capital was 10.09 percent, making
the bank "well capitalized" under the regulatory formula. In more normal
times, the company targets 8 percent total Tier 1 capital with at least half
in common equity.
Using the most severe economic assumptions, the company's internal
projections for loan losses and income over the next two years differ from the
Federal Reserve's because the agency tended to use standardized loss rates for
the 19 banks. Bank of America estimates its particular loss rates will in many
cases be less, but in some cases may be higher. The bank has also told the
Federal Reserve that it believes the agency's estimate of income over the next
two years is too low.
For example, Bank of America believes its pre-provision net revenue will
significantly exceed the government's estimate in the stress scenario over
2009-2010. The company also believes that the Federal Reserve's projected
non-credit losses over that period are too high.
"While we may differ on some elements of the test, we understand the need
to reassure those doing business with or investing in the company that we will
be well capitalized even in a highly adverse scenario," said Joe L. Price,
chief financial officer. "Our capital plan will therefore reflect the Federal
Reserve's conclusions. Our goal will be to continue to run the bank in a safe
and sound manner but to minimize dilution of our common shareholders, while at
the same time being positioned to continue to help the economy through
appropriate extension of credit. Our strategy will also, even under the most
adverse scenario, put the highest possible priority on paying back the
taxpayers as soon as possible."
Price said that the company could increase the Tier 1 common ratio in a
number of ways. He said the company intends to sell common stock and/or
convert existing privately held preferred stock into common shares. Bank of
America has already announced it will sell First Republic Bank and is
considering the sale of several other business units including Columbia
Management. It may also consider several joint ventures.
"Our intention will be to reach the government's target on our own without
exchanging any of the current U.S. investment in Bank of America into
mandatory convertible preferred stock," Price said. "That would allow us to
minimize the use of government money and put us into a position to repay the
government's investment sooner."
In addition to such strategic moves, the company over the next two
quarters expects that its performance will exceed projections by the Federal
Reserve, which would reduce the amount of Tier 1 common required.
In a related development, Bank of America is seeking to end negotiations
and terminate its term sheet with respect to the proposed guarantee of
approximately $118 billion in capital markets assets by the U.S. Government.
This is an important first step in reducing the government's support of the
"We believe that the expense of the asset wrap exceeds the potential
benefit, especially since, even under our stress test conclusions, losses
never exceed the initial $10 billion we would have to cover," Price said. "We
have already taken substantial action on our own to reduce exposure to the
covered assets while incurring minimal losses."
Massey emphasized that the Bank of America board is committed to being
recognized as an exemplar of good corporate governance practices and to
listening carefully to shareholder views. "To this end," he continued, "the
board has established a committee chaired by me and including four other
non-executive directors: Frank P. Bramble Sr., Charles K. Gifford, Thomas J.
May and Charles O. Rossotti. In addition to overseeing Bank of America's
response to the Supervisory
Capital Assessment Process, the committee is charged with reviewing and
recommending changes in all aspects of the board's activities, from the
structure and charters of its standing committees, to board meetings and
agendas, to board composition and size."
Massey noted that the increased complexity of the company following the
major acquisitions of Merrill Lynch and Countrywide, and the challenges of the
current environment, have demonstrated a need on the board of directors for
enhanced expertise and experience in banking and financial matters. "The
committee has already begun its work," Dr. Massey said, "and will be moving
expeditiously to bring recommendations for changes to the board."
Massey remarked, "While I have assumed the Chairmanship of our Board at a
particularly challenging time, I could not be more encouraged by the energy
and resolve of the people of this great company to engage fully to address the
issues before us. We plan to make the most of this opportunity to ensure that
our business and governance practices are state-of-the-art and that Bank of
America continues as America's leading financial institution.
"We will continue our successful strategy calling for Bank of America to
operate in businesses and markets where we are a market leader, to take full
advantage of scale and to maintain diversity of income," Massey concluded.
"The model works."
Note: Chairman Walter E. Massey, Chief Executive Officer Kenneth D. Lewis
and Chief Financial Officer Joe L. Price will discuss the results of the
stress test on a conference call at 6 p.m. EDT today. The presentation and
supporting materials can be accessed on the Bank of America Investor Relations
Web site http://investor.bankofamerica.com. For a listen-only connection to
the conference call, dial 1.877.200.4456 (U.S.) or 1.785.424.1732
(international) and the conference ID: 79795.
Bank of America has filed a registration statement (including a
prospectus) with the SEC for the offering to which this communication relates.
Before you invest, you should read the prospectus in that registration
statement and other documents the company has filed with the SEC for more
complete information about the company and this offering. You may obtain these
documents for free by visiting EDGAR on the SEC Web site at www.sec.gov.
Alternatively, Bank of America Corporation or the sales agents will arrange to
send you the prospectus if you request it by contacting Bank of America
Corporation, Corporate Treasury - Securities Administration, at
1-704-386-5681, Banc of America Securities LLC, toll free at 1-800-294-1322 or
Merrill Lynch & Co., toll free at 1-866-500-5408.
Bank of America
Bank of America is one of the world's largest financial institutions,
serving individual consumers, small- and middle-market businesses and large
corporations with a full range of banking, investing, asset management and
other financial and risk-management products and services. The company
provides unmatched convenience in the United States, serving approximately 55
million consumer and small business relationships with more than 6,100 retail
banking offices, more than 18,500 ATMs and award-winning online banking with
nearly 30 million active users. Bank of America is among the world's leading
wealth management companies and is a global leader in corporate and investment
banking and trading across a broad range of asset classes serving
corporations, governments, institutions and individuals around the world. Bank
of America offers industry-leading support to more than 4 million small
business owners through a suite of innovative, easy-to-use online products and
services. The company serves clients in more than 150 countries. Bank of
America Corporation stock (NYSE: BAC) is a component of the Dow Jones
Industrial Average and is listed on the New York Stock Exchange.
Bank of America and its management may make certain statements that
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation reform Act of 1995. These statements are not historical
facts, but instead represent Bank of America's current expectations, plans or
forecasts of its future earnings, integration of acquisitions and related cost
savings, loan modifications, investment bank rankings, loan and deposit
growth, mortgage originations and market share, credit losses, credit reserves
and charge-offs, consumer credit card net loss ratios, tax rates, payments on
mortgage-backed securities, global markets originations and trading and other
similar matters. These statements are not guarantees of future results or
performance and involve certain risks, uncertainties and assumptions that are
difficult to predict and are often beyond Bank of America's control. Actual
outcomes and results may differ materially from those expressed in, or implied
by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and
should consider all of the following uncertainties and risks, as well as those
more fully discussed under Item 1A. "Risk Factors" of Bank of America's 2008
Annual Report on Form 10-K and in any of Bank of America's subsequent SEC
filings: negative economic conditions that adversely affect the general
economy, housing prices, the job market, consumer confidence and spending
habits; the level and volatility of the capital markets, interest rates,
currency values and other market indices; changes in consumer, investor and
counterparty confidence in, and the related impact on, financial markets and
institutions; Bank of America's credit ratings and the credit ratings of its
securitizations; estimates of fair value of certain Bank of America assets and
liabilities; legislative and regulatory actions in the United States and
internationally; the impact of litigation and regulatory investigations,
expenses, settlements and judgments; various monetary and fiscal policies
and regulations of the U.S. and non-U.S. governments; changes in accounting
standards, rules and interpretations and the impact on Bank of America's
financial statements; increased globalization of the financial services
industry and competition with other U.S. and international financial
institutions; Bank of America's ability to attract new employees and retain
and motivate existing employees; mergers and acquisitions and their
integration into Bank of America; Bank of America's reputation; and decisions
to downsize, sell or close units or otherwise change the business mix of Bank
of America. Forward-looking statements speak only as of the date they are
made, and Bank of America undertakes no obligation to update any
forward-looking statement to reflect the impact of circumstances or events
that arise after the date the forward-looking statement was made.
SOURCE Bank of America
CONTACT: Investors May Contact: Kevin Stitt, Bank of America,
+1-704-386-5667, Lee McEntire, Bank of America, +1-704-388-6780, Grace Yoon,
Bank of America, +1-212-449-7323, Reporters May Contact: Robert Stickler,
Bank of America, +1-704-386-8465, firstname.lastname@example.org