$BAC Comments at Citi Financial Services Conference Overall

Bank of America Corp (BAC)

Alert: BAC Comments at Citi Financial Services Conference Overall – Bank of America CEO Brian Moynihan provided a mostly qualitative business overview, offered a somewhat positive outlook on credit, and described BAC’s more pragmatic approach to organic growth and capital allocation
discipline going forward. With the business mix in place, he seems very focused on how to make the pieces work together. No specific aspirational business targets were provided.

Credit Costs – BAC believes credit costs likely peaked in late 2009 and will trend down in 2010 and 2011. Credit underwriting process at BAC will shift to a more judgmental relationship-based approach which is more costly upfront, but should drive better credit performance long-term. Prior CRE credit costs driven by homebuilder losses, which are mostly done; CRE remains headwind, but BAC has limited hotel or small retail CRE exposure.

Capital Allocation – In the past BAC executed market share growth “sales machine” strategy to drive revenue, but now the firm will focus on quality growth, profitability and customer wallet share. Current franchise offers continued opportunity for recognizing cost and revenue synergies via business integration.

No M&A or Business Mix Change Needed – BAC now has the platform needed to compete across products and geographies and Moynihan does not see a need for acquisitions. Int’l opportunities will be driven via organic growth and hiring. Mortgage Repurchase Risk – Moynihan sees mortgage rep & warranty expense of ~$500 mil/qtr continuing near-term (after $1.9 bil of cost in 2009) as we get through the ‘06 and ‘07 vintages on a pay-as-you-go accounting process.

Rating Agency Announcement – The recent announcement from S&P regarding embedded ratings benefits from govt support has not negatively impacted BAC’s ability to raise debt (given successful issuance recently) and it is unclear if legislation, which may lead to a downgrade of BAC comm’l paper will in fact pass in current form.

Reg E impact – BAC will not allow point of sale debit card overdraft (which we estimate is 40% of overall NSF fees), and offsets are likely to be longer term in nature including more careful deposit pricing. Home Equity and Credit Card – Of BAC’s ~$150 bil home equity portfolio, $43 bil has CLTV >100%, and balances expected to continue to runoff. Also noted that card balances may decline to $175 billion range (vs roughly $200 bil today and peak of $250 bil). Bank of America Corp (BAC.N; US$17.15; 1H)


BAC Comments at Citi Financial Services Conference