Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v2.3.0.15
Commitments and Contingencies
 9 Months Ended
Sep. 30, 2011
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
NOTE 11 – Commitments and Contingencies

In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Corporation’s Consolidated Balance Sheet. For additional information on commitments and contingencies, see Note 14 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K.

Credit Extension Commitments

The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit and commercial letters of credit to meet the financing needs of its customers. The table below includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated) to other financial institutions of $25.8 billion and $23.3 billion at September 30, 2011 and December 31, 2010. At September 30, 2011, the carrying amount of these commitments, excluding commitments accounted for under the fair value option, was $818 million, including deferred revenue of $28 million and a reserve for unfunded lending commitments of $790 million. At December 31, 2010, the comparable amounts were $1.2 billion, $29 million and $1.2 billion, respectively. The carrying amount of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet.

The table below also includes the notional amount of commitments of $27.7 billion and $27.3 billion at September 30, 2011 and December 31, 2010 that are accounted for under the fair value option. However, the table below excludes fair value adjustments of $1.3 billion and $866 million on these commitments, which are classified in accrued expenses and other liabilities. For information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 17 – Fair Value Option.

 
September 30, 2011
(Dollars in millions)
Expire in 1
Year or Less
 
Expire after 1
Year through
3 Years
 
Expire after 3
Years through
5 Years
 
Expire after 5
Years
 
Total
Notional amount of credit extension commitments
 
 
 
 
 
 
 
 
 
Loan commitments
$
114,559

 
$
97,807

 
$
95,965

 
$
19,446

 
$
327,777

Home equity lines of credit
1,615

 
6,348

 
20,303

 
40,324

 
68,590

Standby letters of credit and financial guarantees (1)
28,674

 
18,855

 
7,293

 
5,375

 
60,197

Letters of credit (2)
3,111

 
83

 
7

 
237

 
3,438

Legally binding commitments
147,959

 
123,093

 
123,568

 
65,382

 
460,002

Credit card lines (3)
482,090

 
—

 
—

 
—

 
482,090

Total credit extension commitments
$
630,049

 
$
123,093

 
$
123,568

 
$
65,382

 
$
942,092

 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
Notional amount of credit extension commitments
 
 
 
 
 
 
 
 
 
Loan commitments
$
152,926

 
$
144,461

 
$
43,465

 
$
16,172

 
$
357,024

Home equity lines of credit
1,722

 
4,290

 
18,207

 
55,886

 
80,105

Standby letters of credit and financial guarantees (1)
35,275

 
18,940

 
4,144

 
5,897

 
64,256

Letters of credit (2)
3,698

 
110

 
—

 
874

 
4,682

Legally binding commitments
193,621

 
167,801

 
65,816

 
78,829

 
506,067

Credit card lines (3)
497,068

 
—

 
—

 
—

 
497,068

Total credit extension commitments
$
690,689

 
$
167,801

 
$
65,816

 
$
78,829

 
$
1,003,135

(1) 
The notional amounts of SBLCs and financial guarantees classified as investment-grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $40.5 billion and $18.6 billion at September 30, 2011 and $41.1 billion and $22.4 billion at December 31, 2010. Amount includes consumer letters of credit of $724 million and other letters of credit of $362 million at September 30, 2011.
(2) 
Amount includes $117 million and $849 million of consumer letters of credit and $3.3 billion and $3.8 billion of commercial letters of credit at September 30, 2011 and December 31, 2010.
(3) 
Includes business card unused lines of credit.

Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower’s ability to pay.

Other Commitments

Global Principal Investments and Other Equity Investments

At September 30, 2011 and December 31, 2010, the Corporation had unfunded equity investment commitments of approximately $977 million and $1.5 billion. In light of proposed Basel regulatory capital changes related to unfunded commitments, the Corporation has actively reduced these commitments in a series of transactions involving its private equity fund investments. In 2010, the Corporation completed the sale of its exposure to certain private equity funds. For more information on these transactions, see Note 5 – Securities to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K.

Other Commitments

At September 30, 2011 and December 31, 2010, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $3.4 billion and $2.6 billion, which upon settlement will be included in loans or LHFS.

At September 30, 2011 and December 31, 2010, the Corporation had commitments to enter into forward-dated resale and securities borrowing agreements of $84.3 billion and $39.4 billion. In addition, the Corporation had commitments to enter into forward-dated repurchase and securities lending agreements of $52.6 billion and $33.5 billion. All of these commitments expire within the next 12 months.

The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately $793 million, $3.0 billion, $2.5 billion, $1.9 billion and $1.5 billion for the remainder of 2011 and the years through 2015, respectively, and $7.2 billion in the aggregate for all years thereafter.

The Corporation has entered into agreements with providers of market data, communications, systems consulting and other office-related services. At September 30, 2011 and December 31, 2010, the minimum fee commitments over the remaining terms of these agreements totaled $1.9 billion and $2.1 billion.

Other Guarantees

Bank-owned Life Insurance Book Value Protection

The Corporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. The book value protection is provided on portfolios of intermediate investment-grade fixed-income securities and is intended to cover any shortfall in the event that policyholders surrender their policies and market value is below book value. To manage its exposure, the Corporation imposes significant restrictions on surrenders and the manner in which the portfolio is liquidated and the funds are accessed. In addition, investment parameters of the underlying portfolio are restricted. These constraints, combined with structural protections, including a cap on the amount of risk assumed on each policy, are designed to provide adequate buffers and guard against payments even under extreme stress scenarios. These guarantees are recorded as derivatives and carried at fair value in the trading portfolio. At September 30, 2011 and December 31, 2010, the notional amount of these guarantees totaled $15.9 billion and $15.8 billion and the Corporation’s maximum exposure related to these guarantees totaled $5.1 billion and $5.0 billion with estimated maturity dates between 2030 and 2040. As of September 30, 2011, the Corporation had not made a payment under these products. The possibility of surrender for a small percentage of the total notional amount of these guarantees exists. The fair value of the guarantees reflects the probability of surrender as well as the multiple structural protection features in the contracts.

Employee Retirement Protection

The Corporation sells products that offer book value protection primarily to plan sponsors of Employee Retirement Income Security Act of 1974 (ERISA) governed pension plans, such as 401(k) plans and 457 plans. The book value protection is provided on portfolios of intermediate/short-term investment-grade fixed-income securities and is intended to cover any shortfall in the event that plan participants continue to withdraw funds after all securities have been liquidated and there is remaining book value. The Corporation retains the option to exit the contract at any time. If the Corporation exercises its option, the purchaser can require the Corporation to purchase high-quality fixed-income securities, typically government or government-backed agency securities, with the proceeds of the liquidated assets to assure the return of principal. To manage its exposure, the Corporation imposes significant restrictions and constraints on the timing of the withdrawals, the manner in which the portfolio is liquidated and the funds are accessed, and the investment parameters of the underlying portfolio. These constraints, combined with structural protections, are designed to provide adequate buffers and guard against payments even under extreme stress scenarios. These guarantees are recorded as derivatives and carried at fair value in the trading portfolio. At September 30, 2011 and December 31, 2010, the notional amount of these guarantees totaled $30.7 billion and $33.8 billion with estimated maturity dates up to 2014 if the exit option is exercised on all deals. As of September 30, 2011, the Corporation had not made a payment under these products.

Merchant Services

During 2009, the Corporation contributed its merchant processing business to a joint venture in exchange for a 46.5 percent ownership interest in the joint venture. During the three months ended June 30, 2010, the joint venture purchased the interest held by one of the three initial investors bringing the Corporation’s ownership interest up to 49 percent. For additional information on the joint venture agreement, see Note 5 – Securities.

In accordance with credit and debit card association rules, the Corporation sponsors merchant processing servicers that process credit and debit card transactions on behalf of various merchants. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor and the merchant defaults on its obligation to reimburse the cardholder. A cardholder, through its issuing bank, generally has until the later of up to six months after the date a transaction is processed or the delivery of the product or service to present a chargeback to the merchant processor. The sponsored entities are primarily liable for any losses on covered transactions. However, if the sponsored entities fail to meet their obligation to reimburse the cardholder for disputed transactions, then the Corporation, as the sponsor, could be held liable for the disputed amount. For the three and nine months ended September 30, 2011, the sponsored entities processed and settled $128.2 billion and $323.1 billion of sponsored transactions and recorded losses of $2 million and $8 million. For the three and nine months ended September 30, 2010, the sponsored entities processed and settled $84.0 billion and $245.9 billion of sponsored transactions and recorded losses of $5 million and $13 million. At September 30, 2011 and December 31, 2010, the Corporation held as collateral $242 million and $25 million of merchant escrow deposits which may be used to offset amounts due from the individual merchants.

The Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa, MasterCard and Discover for the last six months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of September 30, 2011 and December 31, 2010, the maximum potential exposure for sponsored transactions totaled approximately $204.0 billion and $139.5 billion. The Corporation does not expect to make material payments in connection with these guarantees.

Other Derivative Contracts

The Corporation funds selected assets, including securities issued by CDOs and CLOs, through derivative contracts, typically total return swaps, with third parties and SPEs that are not consolidated on the Corporation’s Consolidated Balance Sheet. At September 30, 2011 and December 31, 2010, the total notional amount of these derivative contracts was approximately $4.5 billion and $4.3 billion with commercial banks and $1.8 billion and $1.7 billion with SPEs. The underlying securities are senior securities and substantially all of the Corporation’s exposures are insured. Accordingly, the Corporation’s exposure to loss consists principally of counterparty risk to the insurers. In certain circumstances, generally as a result of ratings downgrades, the Corporation may be required to purchase the underlying assets, which would not result in additional gain or loss to the Corporation as such exposure is already reflected in the fair value of the derivative contracts.

Other Guarantees

The Corporation sells products that guarantee the return of principal to investors at a preset future date. These guarantees cover a broad range of underlying asset classes and are designed to cover the shortfall between the market value of the underlying portfolio and the principal amount on the preset future date. To manage its exposure, the Corporation requires that these guarantees be backed by structural and investment constraints and certain pre-defined triggers that would require the underlying assets or portfolio to be liquidated and invested in zero-coupon bonds that mature at the preset future date. The Corporation is required to fund any shortfall between the proceeds of the liquidated assets and the purchase price of the zero-coupon bonds at the preset future date. These guarantees are recorded as derivatives and carried at fair value in the trading portfolio. At September 30, 2011 and December 31, 2010, the notional amount of these guarantees totaled $374 million and $666 million. These guarantees have various maturities ranging from two to five years. As of September 30, 2011 and December 31, 2010, the Corporation had not made a payment under these products and has assessed the probability of payments under these guarantees as remote.

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 $3.6 billion and $3.4 billion at September 30, 2011 and December 31, 2010. The estimated maturity dates of these obligations extend up to 2033. The Corporation has made no material payments under these guarantees.

In addition, the Corporation has guaranteed the payment obligations of certain subsidiaries of Merrill Lynch on certain derivative transactions. The aggregate notional amount of such derivative liabilities was approximately $3.0 billion and $2.1 billion at September 30, 2011 and December 31, 2010. 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 sells payment protection insurance (PPI) through its international card services business to credit card customers and has previously sold this insurance to 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 of misleading sales tactics across the industry, heightened media coverage and pressure from consumer advocacy groups, the U.K. Financial Services Authority (FSA) investigated and raised concerns about the way some companies have handled complaints relating to the sale of these insurance policies. In August 2010, the FSA issued a policy statement (the FSA Policy Statement) on the assessment and remediation of PPI claims that is applicable to the Corporation’s U.K. consumer businesses and is intended to address concerns among consumers and regulators regarding the handling of PPI complaints across the industry. The FSA Policy Statement sets standards for the sale of PPI that apply to current and prior sales, and in the event a company does not or did not comply with the standards, it is alleged that the insurance was incorrectly sold, giving the customer rights to remedies. The FSA Policy Statement also requires companies to review their sales practices and to proactively remediate non-complaining customers if evidence of a systematic breach of the newly articulated sales standards is discovered, which could include refunding premiums paid.

In October 2010, the British Bankers’ Association (BBA), on behalf of its members, including the Corporation, challenged the provisions of the FSA Policy Statement and its retroactive application to sales of PPI to U.K. consumers through a judicial review process against the FSA and the U.K. Financial Ombudsman Service. On April 20, 2011, the U.K. court issued a judgment upholding the FSA Policy Statement as promulgated and dismissing the BBA’s challenge. The BBA did not appeal the decision. Following the conclusion of the judicial review and the subsequent completion of the detailed root cause analysis as required by the FSA Policy Statement, the Corporation reassessed its reserve for PPI claims during 2011 and increased the total reserve to $769 million as of June 30, 2011 compared to $630 million at December 31, 2010. During the three months ended September 30, 2011, the reserve decreased by $152 million due to payment activity, bringing the total accrued liability balance to $617 million at September 30, 2011.

Litigation and Regulatory Matters

The following supplements the disclosure in Note 14 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K and in Note 11 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s Quarterly Report on Form 10-Q for the quarterly periods ended June 30, 2011 and March 31, 2011 (collectively, the prior commitments and contingencies disclosures).

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 examinations, information gathering requests, inquiries and investigations. 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 (FINRA), the New York Stock Exchange, the FSA and other domestic, international 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 and regulatory 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 and regulatory 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. When a loss contingency is not both probable and estimable, the Corporation does not establish an accrued liability. As a litigation or regulatory 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. If, at the time of evaluation, the loss contingency related to a litigation or regulatory 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 or regulatory 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 was $566 million and $3.8 billion for the three and nine months ended September 30, 2011 compared to $482 million and $1.2 billion for the same periods in 2010.

For a limited number of the matters disclosed in this Note, and in the prior commitments and contingencies disclosures, for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Corporation is able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Corporation reviews and evaluates its material litigation and regulatory 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 develop an estimate of loss or 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 may not be possible. For those matters where an estimate is possible, management currently estimates the aggregate range of possible loss is $0 to $3.6 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 what the Corporation believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation’s maximum loss exposure. Information is provided below, or in the prior commitments and contingencies disclosures, regarding the nature of all of these contingencies and, where specified, the amount of the claim associated with these loss contingencies. Based on current knowledge, management does not believe that loss contingencies arising from pending matters, including the matters described herein and in the prior commitments and contingencies disclosures, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation. However, in light of the inherent uncertainties involved in these matters, some of which are beyond the Corporation’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Corporation’s results of operations or cash flows for any particular reporting period.

Checking Account Overdraft Litigation

A modification to the settlement in Closson et al. v. Bank of America, et al., was approved by the court on August 31, 2011, and all Closson related appeals have been dismissed.

Countrywide Bond Insurance Litigation

Ambac

On September 8, 2011, plaintiffs filed an amended complaint, which asserts claims involving five additional securitizations of first- and second-lien mortgage loans and alleges fraudulent inducement, breach of contract as well as other claims that were set forth in the initial complaint. The amended complaint also reasserts a claim that the Corporation is jointly and severally liable as the successor to Countrywide. The amended complaint seeks unspecified actual and punitive damages and equitable relief.

MBIA

In MBIA Insurance Corporation v. Countrywide Home Loans, et al., plaintiff MBIA Insurance Corporation (MBIA) has moved for partial summary judgment, seeking rulings that: (i) MBIA does not have to show that Countrywide's alleged fraud and breaches of contract proximately caused MBIA's losses; and (ii) the term “materially and adversely affects” in the transaction documents does not limit the repurchase remedy to defaulted loans, or require MBIA to show that Countrywide's breaches of the representations and warranties caused the loans to default. On October 5, 2011, the court heard oral argument on MBIA's motion.

Syncora

In Syncora Guarantee Inc. v. Countrywide Home Loans, et al., plaintiff Syncora Guarantee Inc. (Syncora) has moved for partial summary judgment, seeking rulings that: (i) the term “materially and adversely affects” in the transaction documents does not limit the repurchase remedy to defaulted loans, or require Syncora to show that Countrywide's breaches of the representations and warranties caused the loans to default; and (ii) Syncora does not have to show that Countrywide's alleged fraud and breaches of contract proximately caused Syncora's losses. On October 5, 2011, the court heard oral argument on Syncora's motion.

In re Initial Public Offering Securities Litigation

On August 25, 2011, the district court, on remand from the U.S. Court of Appeals for the Second Circuit, dismissed the objection by the last remaining putative class member. On September 23, 2011, the objector filed a notice of appeal challenging the district court's dismissal of the objection to the settlement.

Lehman Brothers Holdings, Inc. Litigation

On September 23, 2011, the majority of the underwriter defendants, including Banc of America Securities, LLC (BAS), Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and approximately 40 others, reached an agreement in principle with the lead plaintiffs to settle the securities class action as to the settling underwriters. The settlement is subject to court approval. BAS's and MLPF&S's portion of the settlement is not material to the Corporation's results of operations or financial condition. 

Lehman Setoff Litigation

On September 28, 2011, BANA entered into a settlement agreement (the Lehman Settlement Agreement) with Lehman Brothers Holdings, Inc. (LBHI), Lehman Brothers Special Financing Inc. and other Lehman affiliates to settle, among other things, the bankruptcy adversary proceeding Bank of America, N.A. v. Lehman Brothers Holdings Inc. and Lehman Brothers Special Financing Inc. The Lehman Settlement Agreement resolves the adversary proceeding, provides for the exchange of mutual releases as to all issues that were or could have been raised in the adversary proceeding, and provides for payment by BANA to Lehman entities of approximately $356 million of the $502 million principal amount that was the subject of the bankruptcy court's December 2010 turnover order (together with a negotiated amount of prejudgment interest). The Lehman Settlement Agreement also allows BANA to retain the balance of the funds to be applied to allowed claims against LBHI under its guarantee of BANA derivative claims.

In addition, on September 28, 2011, certain Merrill Lynch affiliates entered into a settlement agreement with Lehman entities that would among other things allow Merrill Lynch derivatives and related guaranty claims against Lehman entities in the amount of $1.1 billion. The Merrill Lynch settlement agreement is subject to certain conditions. On October 19, 2011, the bankruptcy court approved the Lehman Settlement Agreement and the Merrill Lynch settlement agreements.

Merrill Lynch Acquisition-related Matters

ERISA Actions

On July 19, 2011, the parties to the appeal stipulated to its continued dismissal with the agreement that the ERISA plaintiffs can reinstate their appeal at any time until January 27, 2012.

Mortgage-backed Securities Litigation

The Corporation and its affiliates, Countrywide entities and their affiliates, and Merrill Lynch entities and their affiliates have been named as defendants in several cases relating to their various roles as issuer, originator, seller, depositor, sponsor, underwriter and/or controlling entity in MBS offerings, pursuant to which the MBS investors were entitled to a portion of the cash flow from the underlying pools of mortgages. These cases generally include purported class action suits and actions by individual MBS purchasers. Although the allegations vary by lawsuit, these cases generally allege that the registration statements, prospectuses and prospectus supplements for securities issued by securitization trusts contained material misrepresentations and omissions, in violation of Sections 11, 12 and 15 of the Securities Act of 1933, Sections 10(b) and 20 of the Securities Exchange Act of 1934 and/or state securities laws and other state statutory and common laws.

These cases generally involve allegations of false and misleading statements regarding: (i) the process by which the properties that served as collateral for the mortgage loans underlying the MBS were appraised; (ii) the percentage of equity that mortgage borrowers had in their homes; (iii) the borrowers' ability to repay their mortgage loans; (iv) the underwriting practices by which those mortgage loans were originated; (v) the ratings given to the different tranches of MBS by rating agencies; and (vi) the validity of each issuing trust's title to the mortgage loans comprising the pool for that securitization (collectively, MBS Claims). Plaintiffs in these cases generally seek unspecified compensatory damages, unspecified costs and legal fees and, in some instances, seek rescission. A number of other entities (including the National Credit Union Administration) have threatened legal actions against the Corporation and its affiliates concerning MBS offerings.

On August 15, 2011, the Judicial Panel on Multi-District Litigation ordered multiple federal court cases involving Countrywide MBS, including, among others, the Allstate, Dexia and Western & Southern matters, consolidated for pretrial purposes in the U.S. District Court for the Central District of California, in a multi-district litigation entitled In re Countrywide Financial Corp. Mortgage-Backed Securities Litigation (the Countrywide RMBS MDL).

AIG Litigation

On August 8, 2011, American International Group, Inc. and certain of its affiliates (collectively, AIG) filed a complaint in the Supreme Court of the State of New York, New York County, in a case entitled American International Group, Inc. et al. v. Bank of America Corporation et al. AIG has named a number of Corporation affiliates, subsidiaries and entities as defendants, including the Corporation, Merrill Lynch and Countrywide Home Loans, Inc. (CHL). AIG's complaint asserts certain MBS Claims under federal securities and common law pertaining to 349 MBS offerings in which it alleges that it purchased securities between 2005 and 2007. AIG seeks rescission of its purchases or a rescissory measure of damages or, in the alternative, compensatory damages of not less than $10 billion; punitive damages; and other unspecified relief. Defendants removed the case to the U.S. District Court for the Southern District of New York which has denied AIG's motion to remand the case to state court.

Allstate Litigation

On June 14, 2011, the case was transferred to the U.S. District Court for the Central District of California and was subsequently included as part of the Countrywide RMBS MDL. On October 21, 2011, the court issued an order granting, with prejudice, defendants' motions to dismiss all of plaintiffs' claims  under the federal securities laws as well as the common law fraud, aiding and abetting fraud, and negligent misrepresentation claims with respect to all but one of the purchases prior to December 27, 2005. The court also dismissed, without prejudice, plaintiffs' claims for successor liability against the Corporation, and the remaining claims for negligent misrepresentation and aiding and abetting fraud, and granted plaintiffs leave to amend the complaint.

Cambridge Place Investment Management Litigation

Both Cambridge Place Investment Management matters were remanded to the Massachusetts Superior Court for Suffolk County.

Charles Schwab Litigation

The Charles Schwab matter was remanded to the Superior Court of California for the County of San Francisco. On October 13, 2011, plaintiffs dismissed the federal claims with prejudice.

Federal Housing Finance Agency Litigation

On September 2, 2011, the Federal Housing Finance Agency (FHFA), as conservator for FNMA and FHLMC, filed complaints against the Corporation, Countrywide, Merrill Lynch and other related entities, and certain current and former officers and directors of these entities in three separate actions. The actions are entitled Federal Housing Finance Agency v. Bank of America Corporation, et al., filed in the U.S. District Court for the Southern District of New York; Federal Housing Finance Agency v. Countrywide Financial Corporation, et al., filed in New York Supreme Court, New York County; and Federal Housing Finance Agency v. Merrill Lynch & Co., Inc., et al., filed in the U.S. District Court for the Southern District of New York.

The complaints assert certain MBS Claims relating to MBS issued and/or underwritten by the Corporation, Countrywide and Merrill Lynch-related entities between 2005 and 2008 and purchased by either FNMA or FHLMC in their investment portfolio. The complaints assert claims under both federal and state securities laws and common law. The FHFA seeks, among other relief, rescission of the consideration FNMA and FHLMC paid for the securities or alternatively damages allegedly incurred by FNMA and FHLMC. The FHFA also seeks recovery of punitive damages in the Countrywide action and the Merrill Lynch action.

On September 30, 2011, Countrywide removed the Countrywide action to the U.S District Court for the Southern District of New York.

Federal Home Loan Bank Litigation

Both Federal Home Loan Bank of Chicago matters have been remanded to the Circuit Court of Cook County, Illinois and the Superior Court of California for the County of Los Angeles, respectively.

In the Federal Home Loan Bank of Chicago action, pending in California, the plaintiff filed an amended complaint on September 15, 2011, adding the Corporation and MLPF&S as defendants and asserting new claims against BAS and Countrywide entities. The amended complaint includes successor liability claims against the Corporation as successor to Countrywide.

In the Federal Home Loan Bank of San Francisco matters, plaintiffs dismissed the federal claims with prejudice on August 11, 2011. On September 8, 2011, the court denied the defendant's motions to dismiss the state law claims in these actions.

On August 15, 2011, the court denied the defendants' remaining motions to dismiss in the Federal Home Loan Bank of Seattle actions.

Luther Litigation and Related Actions

On September 14, 2011, in the Luther matter, the California Supreme Court denied Countrywide's petition for further review of the Court of Appeal's order reversing the Superior Court's dismissal on jurisdictional grounds. The case is now pending in Los Angeles Superior Court.

On October 12, 2011, in the Maine State Retirement System matter, the court certified a class consisting of eight subclasses, one for each of the eight MBS tranches at issue.

MassMutual Litigation

On September 1, 2011, Massachusetts Mutual Life Insurance Company (MassMutual) filed a complaint in the U.S. District Court for the District of Massachusetts entitled Massachusetts Mutual Life Ins. Co. v. Countrywide Financial Corp., et al., naming, among others, the Corporation, MLPF&S, Countrywide and Countrywide Securities Corporation (CSC). The complaint asserts certain MBS Claims pertaining to MBS allegedly purchased by MassMutual. The complaint asserts claims under the Massachusetts Uniform Securities Act, as well as claims against the Corporation as the alleged successor-in-interest to the liabilities of Countrywide and Merrill Lynch and seeks damages and/or statutory recovery upon tender.

Merrill Lynch MBS Litigation

On October 20, 2011, the parties reached an agreement in principle to settle the action. The settlement is subject to court approval. 

Sealink Litigation

On September 29, 2011, Sealink Funding Limited filed a complaint against the Corporation, Countrywide, CHL, CWALT, Inc., CWABS, Inc., CWHEQ, Inc., CSC, BAC HLS, NB Holdings Corp. (NB Holdings) and certain former officers of Countrywide. The action is entitled Sealink Funding Limited v. Countrywide Financial Corp., and was filed in New York Supreme Court, New York County. The complaint asserts certain MBS Claims relating to securities issued and/or underwritten by Countrywide entities between 2005 and 2007. The complaint asserts claims under common law and asserts successor liability as to the Corporation and its affiliates. Sealink seeks among other relief rescission of the consideration Sealink allegedly paid for the securities or alternatively damages allegedly incurred by Sealink, as well as punitive damages. On October 6, 2011, defendants removed the action to the U.S District Court for the Southern District of New York.

Stichting Pensioenfonds ABP (Merrill Lynch) Litigation

On August 19, 2010, Stichting Pensioenfonds ABP (ABP) filed a complaint against Merrill Lynch, Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors (MLMI), MLPF&S, First Franklin Financial Corporation, and certain current and former directors of MLMI, as well as certain other defendants, in the Supreme Court of New York, New York County, entitled Stichting Pensioenfonds v. Merrill Lynch & Co., Inc., et al. The action was removed to the U.S. District Court for the Southern District of New York. ABP's original complaint asserted certain MBS Claims relating to 13 offerings of Merrill Lynch-related MBS. On October 12, 2011, ABP filed an amended complaint regarding the same offerings and adding additional federal securities law and state law claims. ABP seeks unspecified compensatory damages, interest and legal fees, or alternatively rescission.   

Repurchase Litigation

The Corporation and the defendant sellers have filed a joint motion to dismiss the amended complaint in Walnut Place LLC, et al. v. Countrywide Home Loans, Inc. et al. The amended complaint alleges, among other things, that the defendant sellers breached representations and warranties regarding residential mortgage loans sold into two securitization trusts, seeks a court order requiring the sellers to repurchase the mortgage loans at issue, or alternatively, damages for breach of contract, and alleges that the Corporation is a successor in liability to CHL. On August 2, 2011, plaintiffs filed a separate action entitled Walnut Place LLC, et al. v. Countrywide Home Loans, Inc. et al., in the Supreme Court of the State of New York, New York County, against the Corporation and the other defendant sellers, and The Bank of New York Mellon, acting in its capacity as trustee. This action makes allegations similar to those in the prior Walnut Place LLC, et al. v. Countrywide Home Loans, Inc. et al. lawsuit with respect to an additional securitization trust.

U.S. Bank Litigation

On August 29, 2011, U.S. Bank, N.A. (U.S. Bank), as trustee for the HarborView Mortgage Loan Trust 2005-10, a mortgage pool backed by loans originated by CHL, filed a complaint in the Supreme Court of the State of New York, New York County against the Corporation, Countrywide, BANA and NB Holdings, in a case entitled U.S. Bank National Association, as Trustee for HarborView Mortgage Loan Trust, Series 2005-10 v. Countrywide Home Loans, Inc., et al. U.S. Bank seeks a declaration that, as a result of alleged misrepresentations by CHL in connection with its sale of loans to the trust, defendants must repurchase loans. U.S. Bank further asserts that defendants are liable for breach of contract for the alleged failure to repurchase a subset of those loans. On September 6, 2011, defendants removed the case to the U.S. District Court for the Southern District of New York.

Ocala Litigation

On August 30, 2011, in the BNP Paribas Mortgage Corporation v. Bank of America, N.A. and Deutsche Bank AG v. Bank of America, N.A. actions, the court issued an order granting BANA's motions to dismiss the complaints, but granted plaintiffs leave to amend those complaints.