Bank of America Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Borrowings and Deposits

Borrowings and Deposits

12 Months Ended

Dec. 31, 2012



Note 12.	Borrowings and Deposits

Prior to Merrill Lynch's acquisition by Bank of America, ML & Co. was the primary issuer of Merrill Lynch's unsecured debt instruments. Debt instruments were also issued by certain subsidiaries. Bank of America has not assumed or guaranteed the long-term debt that was issued or guaranteed by ML & Co. or its subsidiaries prior to the acquisition of Merrill Lynch by Bank of America.

Beginning late in the third quarter of 2009, in connection with the update or renewal of certain Merrill Lynch international securities offering programs, Bank of America agreed to guarantee debt securities, warrants and/or certificates issued by certain subsidiaries of ML & Co. on a going forward basis. All existing ML & Co. guarantees of securities issued by those same Merrill Lynch subsidiaries under various international securities offering programs will remain in full force and effect as long as those securities are outstanding, and Bank of America has not assumed any of those prior ML & Co. guarantees or otherwise guaranteed such securities. There were approximately $7.0 billion of securities guaranteed by Bank of America at December 31, 2012.

Following the completion of Bank of America's acquisition of Merrill Lynch, ML & Co. became a subsidiary of Bank of America and established intercompany lending and borrowing arrangements to facilitate centralized liquidity management. Included in these intercompany agreements is a $75 billion one-year revolving unsecured line of credit that allows ML & Co. to borrow funds from Bank of America at a spread to LIBOR that is reset periodically and is consistent with other intercompany agreements. This credit line was renewed effective January 1, 2013 with a maturity date of January 1, 2014. The credit line will automatically be extended by one year to the succeeding January 1^st unless Bank of America provides written notice not to extend at least 45 days prior to the maturity date. The agreement does not contain any financial or other covenants. There were no outstanding borrowings under the line of credit at December 31, 2012 and December 31, 2011.

In addition to the $75 billion unsecured line of credit, there is also a revolving unsecured line of credit that allows ML & Co. to borrow up to $25 billion from Bank of America. Interest on borrowings under the line of credit is based on prevailing short-term market rates. The line of credit does not contain any financial or other covenants. The line of credit matures on February 11, 2014. There were no outstanding borrowings under the line of credit at December 31, 2012 and December 31, 2011.

MLPF&S also has the following borrowing agreements with Bank of America:

•

A $4 billion one-year revolving unsecured line of credit - Interest on the line of credit is based on prevailing short-term market rates. The credit line will mature on November 1, 2013 and may automatically be extended by one year to the succeeding November 1st unless Bank of America provides written notice not to extend at least 45 days prior to the maturity date. At both December 31, 2012 and December 31, 2011, there were no outstanding borrowings under the line of credit.


•	A $15 billion 364-day revolving unsecured line of credit - Interest on the line of credit is based on prevailing short-term market rates. The line of credit matures on February 18, 2014. At December 31, 2012 and December 31, 2011, approximately $0.9 billion and $1.5 billion, respectively, was outstanding under the line of credit.

During the year ended December 31, 2012, $2.6 billion that was outstanding under the following MLPF&S borrowing agreements with Bank of America was repaid and the agreements were terminated. The two terminated agreements below were replaced by intercompany funding arrangements between MLPF&S and ML & Co.


•	A subordinated loan agreement for approximately $1.5 billion - Interest under this agreement was calculated based on a spread to LIBOR.


•	A $7 billion revolving subordinated line of credit - Interest under this agreement was calculated based on a spread to LIBOR.

During the year ended December 31, 2012, Merrill Lynch entered into a series of transactions involving repurchases of its senior and subordinated debt. Through tender offers and certain open market transactions, Merrill Lynch repurchased senior and subordinated debt with a carrying value of $2,050 million for $1,645 million in cash, and recorded gains of $405 million.

The value of Merrill Lynch’s debt instruments as recorded on the Consolidated Balance Sheets does not necessarily represent the amount that will be repaid at maturity. This is due to the following:


•	As a result of the acquisition by Bank of America, all debt instruments were adjusted to fair value on January 1, 2009;


•	Certain debt issuances are accounted for at fair value and incorporate changes in Merrill Lynch’s creditworthiness (see Note 4);


•	Certain structured notes whose coupon or repayment terms are linked to the performance of debt and equity securities, indices, currencies or commodities reflect the fair value of those risks (see Note 4); and


•	Certain debt issuances are adjusted for the impact of fair value hedge accounting (see Note 6).

The tables below exclude Merrill Lynch’s intercompany borrowings from Bank of America (see Note 2 for further information). Total borrowings at December 31, 2012 and December 31, 2011, which are comprised of short-term borrowings, long-term borrowings and junior subordinated notes (related to trust preferred securities), consisted of the following:



(dollars in millions)
	December 31, 2012		December 31, 2011
Senior debt	$	47,702	$	59,394
Senior structured notes	27,010		28,523
Subordinated debt	10,740		12,661
Junior subordinated notes (related to trust preferred securities)	3,809		3,789
Other subsidiary financing	941		868
Debt issued by consolidated VIEs	9,232		11,534
Total	$	99,434	$	116,769

Borrowings and deposits at December 31, 2012 and December 31, 2011, are presented below:



(dollars in millions)
	December 31, 2012		December 31, 2011
Short-term borrowings
Other unsecured short-term borrowings	$	436	$	1,112
Short-term debt issued by consolidated VIEs⁽¹⁾	2,940		4,939
Total	$	3,376	$	6,051
Long-term borrowings⁽²⁾
Fixed-rate obligations⁽³⁾	$	52,224	$	60,482
Variable-rate obligations⁽⁴⁾⁽⁵⁾	33,733		39,852
Long-term debt issued by consolidated VIEs⁽¹⁾	6,292		6,595
Total	$	92,249	$	106,929
Deposits
Non-U.S.	$	12,873	$	12,364


⁽¹⁾	See Note 9 for additional information on debt issued by consolidated VIEs.


⁽²⁾	Excludes junior subordinated notes (related to trust preferred securities).


⁽³⁾	Fixed-rate obligations are generally swapped to variable rates.


⁽⁴⁾	Variable interest rates are generally based on rates such as LIBOR, the U.S. Treasury Bill Rate, or the Federal Funds Rate.


⁽⁵⁾	Includes structured notes.

See Note 5 for additional information on the fair value of long-term borrowings.

The weighted-average interest rates for borrowings at December 31, 2012 and December 31, 2011 (excluding structured products) were as follows:



	December 31, 2012		December 31, 2011
Short-term borrowings	0.2	%	0.4	%
Long-term borrowings	3.9		4.0
Junior subordinated notes (related to trust preferred securities)	6.5		6.5

Long-Term Borrowings

At December 31, 2012, long-term borrowings mature as follows:



(dollars in millions)
	Amount		Percentage of Total
Less than 1 year	$	27,505	30	%
1 – 2 years	19,333		21
2 – 3 years	5,427		6
3 – 4 years	3,669		4
4 – 5 years	8,817		10
Greater than 5 years	27,498		29
Total	$	92,249	100	%

Certain long-term borrowing agreements contain provisions whereby the borrowings are redeemable at the option of the holder (“put” options) at specified dates prior to maturity. These borrowings are reflected in the above table as maturing at their put dates, rather than their contractual maturities. However, Merrill Lynch believes that a portion of such borrowings will remain outstanding beyond their earliest redemption date.

The maturity of certain structured notes whose coupon or repayment terms are linked to the performance of debt and equity securities, indices, currencies or commodities may be accelerated based on the value of a referenced index or security, in which case Merrill Lynch may be required to immediately settle the obligation for cash or other securities. These notes are included in the portion of long-term debt maturing in less than a year.

Senior and subordinated debt obligations do not contain provisions that could, upon an adverse change in ML & Co.’s credit rating, financial ratios, earnings or cash flows, trigger a requirement for an early payment, additional collateral support, changes in terms, acceleration of maturity, or the creation of an additional financial obligation.

Junior Subordinated Notes (related to trust preferred securities)

Merrill Lynch has created six trusts that have issued preferred securities to the public (“trust preferred securities”). Merrill Lynch Preferred Capital Trust III, IV and V used the issuance proceeds to purchase Partnership Preferred Securities, representing limited partnership interests. Using the purchase proceeds, the limited partnerships extended junior subordinated loans to ML & Co. and one or more subsidiaries of ML & Co. Merrill Lynch Capital Trust I, II and III directly invested in junior subordinated notes issued by ML & Co.

ML & Co. has guaranteed, on a junior subordinated basis, the payment in full of all distributions and other payments on the trust preferred securities to the extent that the trusts have funds legally available. This guarantee and similar partnership distribution guarantees are subordinated to all other liabilities of ML & Co.

The following table summarizes Merrill Lynch’s trust preferred securities as of December 31, 2012.



(dollars in millions)
TRUST	ISSUE DATE	AGGREGATE PRINCIPAL AMOUNT OF TRUST PREFERRED SECURITIES ⁽⁴⁾		AGGREGATE PRINCIPAL AMOUNT OF NOTES		AGGREGATE CARRYING VALUE OF NOTES		ANNUAL DISTRIBUTION RATE		STATED MATURITY OF THE TRUST SECURITIES
ML Preferred Capital Trust III	Jan–1998	$	750	$	900	$	659	7.00	%	Perpetual
ML Preferred Capital Trust IV	Jun–1998	400		480		349		7.12		Perpetual
ML Preferred Capital Trust V	Nov–1998	850		1,021		762		7.28		Perpetual
ML Capital Trust I	Dec-2006	1,050		1,051		580		6.45		Dec–2066⁽¹⁾
ML Capital Trust II	May–2007	950		951		907		6.45		Jun–2067⁽²⁾
ML Capital Trust III	Aug–2007	750		751		552		7.375		Sep–2067⁽³⁾
Total		$	4,750	$	5,154	$	3,809


⁽¹⁾	Merrill Lynch has the option to extend the maturity of the junior subordinated note until December, 2086.


⁽²⁾	Merrill Lynch has the option to extend the maturity of the junior subordinated note until June, 2087.


⁽³⁾	Merrill Lynch has the option to extend the maturity of the junior subordinated note until September, 2087.


⁽⁴⁾	Includes related investments of $25 million.

Deposits

Deposits at December 31, 2012 and December 31, 2011, are presented below:



(dollars in millions)
	December 31, 2012		December 31, 2011
Non-U.S.
Non-interest bearing	$	1,288	$	1,153
Interest bearing	11,585		11,211
Total Deposits	$	12,873	$	12,364

The effective weighted-average interest rate for deposits, which includes the impact of hedges, was 0.5% and 0.7% at December 31, 2012 and December 31, 2011, respectively. The fair value of deposits approximated their carrying value at December 31, 2012 and December 31, 2011.

Other

Merrill Lynch also obtains standby letters of credit from issuing banks to satisfy various counterparty collateral requirements, in lieu of depositing cash or securities collateral. Such standby letters of credit aggregated $1.6 billion and $2.1 billion at December 31, 2012 and December 31, 2011, respectively.

As part of Bank of America's efforts to streamline its organizational structure and reduce complexity and costs, it has reduced and intends to continue to reduce the number of its subsidiaries, including through intercompany mergers. In connection with these efforts, Bank of America may merge ML & Co. with and into Bank of America Corporation. There is no assurance such merger will occur or the timing thereof. Any such merger would be subject to applicable regulatory approvals, consents and other conditions of closing.