Bank of America 3Q13 Earnings Call Notes

posted in: Notes | 0

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“our Company continued to show progress on those areas we’ve been focused upon. Capital generation, managing risk, achieving cost savings, addressing legacy issues and driving our core growth strategies and our core lines of business.”

“Turning to the revenue side, we experienced relative stability this quarter. But of course we got the impact of the industry wide headwinds on a slower refi business and mortgage and slowdown in the capital markets from a typical summer slowdown as well as the investor concerns of a political and monetary uncertainty.”

“n the credit area we continue to see asset quality improved and our net loss rates are at levels not seen since 2005.”

“we repurchased 60 million shares for $900 million during the quarter.”

“In our estimate of the Basel 3 Tier 1 common ratio on a fully phased-in based under the standardized approach would be just over 9% above our proposed 8.5% 2019 minimum requirement.”

“on October 1 of this year, we completed the legal entity merger of the Merrill Lynch holding company into Bank of America Corporation as part of our continued efforts to both simplify the company and reduce costs.”

“f you go back to 2010 and look at the build over the course of four years from both the litigation and rep and warrant perspective, I think we can see that we have more of that over the course of a 3.5-year period than anyone else out there. And as we look at the remaining pipeline, we put it in really four different buckets. The first is the GSE bucket for rep and warrant which with one exception we’ve got local settlements from the end of ’08 back with Freddie and Fannie. So as we look at that bucket, we feel very good about that. We then go to the second bucket which is monolines. We’ve got global settlements with three of the five monolines and we’ve established the reserves for the remaining two based on that history of the three. We then go to the rep and warrant with respect to the private-label securities, the 8.5 billion Gibbs & Bruns case which represents half the exposure continues to go through the core process and they’ll be back in court on that I believe in November. And obviously we set up reserves at that point based on the Gibbs & Bruns history and as we’ve said before for that which we didn’t have the bases to establish a reserve, we put out a range of possible loss for rep and warrant that continues to be up to $4 billion. And then you move into the other piece that we have that’s the RMBS securities litigation. During the quarter, the Luther-Maine settlement received preliminary approval during the quarter and we’ll look to get final approval by that sometime during the fourth quarter and we obviously set up a reserve in that settlement, it was $500 million which represents in the zip code of 65% to 70% of the company-wide exposure that we have for RMBS litigation. And then the other two pieces that we continue to work through in that bucket are the FHFA litigation on behalf of Freddie and Fannie as well as AIG and there’s really nothing to report new on either those fronts.”

“I think the one thing that’s been overlooked a little bit and this is not a number we’re particularly pleased with, but if you go back to the beginning of 2010 and look at the combined litigation of rep and warrant expense that we’ve had in this company, it’s been over $40 billion which I think is quite a bit higher than the number that [JPM] quoted. Obviously those numbers are particularly to each institution but I think as you look at what we’ve tried to do that those numbers have been significant and I think at this point relative to our peers, we’ve tried to be out front and get through some of the larger settlements that we have and we think that $40 billion plus number reflects that.”

“by the way next quarter as we reduce further LAS and mortgage, you’ll see it go in the first quarter. So it doesn’t lag and it’s just the nature of severance accruals you take at the time plus as we move the headcount out, sort of paying them on as you go on the severance also in certain cases. So you should expect that those volume-related reductions will continue to move forward and the economics of what we did in the third quarter is probably more in the fourth quarter than it is in the third quarter.”

“I think if you look at our client base which ranges from small businesses through largest companies in the world, I’d say all of them feel very good about their operating position making money. Have done a tremendous job of keeping the cost structure in line. An example with a company that had 200 employees whose sales are going to go by 25% and they said, we’re only going to add five employees. So the American business has gotten very efficient. But when you put on top of them the uncertainties because we’re all engaged in global commerce, the macro uncertainties at the world level, the U.S. level, I think there has been an uncertainty in the whole back here that will come through as more and more clarity both economy, i.e. final demands of the products and the macro situation comes clear. And so is the sprint out of the blocks? No, they’re running forward and it would probably be a speed up of the process. And you saw some of that this summer with some of the M&A activity and stuff in the larger companies has strengthened and you’re seeing it go on. So I think there’s demand in the system so to speak. There’s money on the sidelines from investor side and the more clarity you’ll see better activity. Meanwhile underneath it you see the core economy continue to push forward even with all things going on around the world.”

“generally speaking the securities book should remain relatively consistent with where it is and then if you look at the loan book, I would say that you are going to see that the loan book as well as well as the shrinkage of the debt footprint will be absorbed through deposit growth as well as a reduction to some extent in our parent company liquidity as we are carrying an elevated level of parent company liquidity to address these significant debt maturities in 2014”

“one thing that we haven’t — we don’t — haven’t talked about in a while is we still have a significant run off portfolios that we’re replacing as to which gives us ability to grow the core business without growing the balance sheet footings and I think that’s something that will help us in our capital levels that are already very strong today going forward because effectively we don’t need the incremental capital to grow the balance sheet even that have commercial loan growth and other types of growth you’re talking”

“We did not put out a litigation reserve on a standalone basis. The number that we do put out is where we are in rep and warrant and that was just over $14 billion at the end of the third quarter.”

“Mike — overall Mike the loan utilization rates, they haven’t moved around a lot, but they’re at low levels historically across the board whether it’s our business banking segment, the middle market segment and the large corporate not — don’t really use their lines other than as Bruce described and they’re doing something inorganic, but they’re very low which gives you two things. One it indicates that they have got lots of cash and have lots of room for investment, but secondly as the economy picks up moving back with thousand basis points or so we are from sort of more normal levels like a better term is a lot loan growth within — without new customer relationships, or any more work”