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Guest Ben S. Bernanke   
Guest Ben S. Bernanke

Statement regarding the Supervisory Capital Assessment Program

 

This afternoon marks the culmination of the Supervisory Capital Assessment Program. Three independent federal banking supervisory agencies--the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation--have worked closely and collaboratively since late February to simultaneously assess the financial conditions of the 19 largest bank holding companies in the United States. These institutions play a vital role in our economy, holding among them two-thirds of the assets and more than one-half of the loans in the U.S. banking system. More than 150 examiners, economists, accountants, and other specialists conducted a rigorous and comprehensive review of these firms, one unprecedented in scale and scope.

 

These examinations were not tests of solvency; we knew already that all these institutions meet regulatory capital standards. Rather, the assessment program was a forward-looking, "what-if" exercise intended to help supervisors gauge the extent of the additional capital buffer necessary to keep these institutions strongly capitalized and lending, even if the economy performs worse than expected between now and the end of next year.

 

The results released today should provide considerable comfort to investors and the public. The examiners found that nearly all the banks that were evaluated have enough Tier 1 capital to absorb the higher losses envisioned under the hypothetical adverse scenario. Roughly half the firms, though, need to enhance their capital structure to put greater emphasis on common equity, which provides institutions the best protection during periods of stress. Many of the institutions have already taken actions to bolster their capital buffers and are well-positioned to raise capital from private sources over the next six months. However, our government, through the Treasury Department, stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn.

 

The capital assessment results we are reporting today are just one important element of the government's broader and ongoing efforts to strengthen the financial system and the economy. The current crisis has been one of the most challenging financial and economic episodes in modern history, but we face no problems that cannot be overcome with insight, patience, and persistence. The Federal Reserve, through its independent actions and in collaboration with the other agencies represented here, will certainly do its part in our common effort to restore stability and prosperity.

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Guest FED   
Guest FED

A banking organization holds capital to guard against uncertainty. Capital reassures an institution’s depositors, creditors and counterparties‐‐and the institution itself‐‐that an event such as an

unexpected surge in losses or an unanticipated deterioration in earnings will not impair its ability to engage in lending to creditworthy borrowers and protect the savings of its depositors. During this

period of heightened economic uncertainty, U.S. federal banking supervisors believe that the largest U.S. bank holding companies (BHCs) should have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers in a more severe recession than is anticipated. For this reason, the Federal Reserve and other bank supervisors embarked on a comprehensive simultaneous assessment of the capital held by the 19 largest U.S. BHCs in February of this year.

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Guest FED   
Guest FED

The estimates are not forecasts or expected outcomes; they are the products of a two‐year ahead 'what‐if' exercise conducted under two alternative macro scenarios. Roughly speaking, the first scenario‐‐referred to as the “baseline”‐‐was an assumed path for the economy that followed the then‐current consensus forecast, and the second‐‐the “more adverse” scenario‐‐ was a deeper and more protracted downturn than the consensus. Not only is it virtually certain that the economy will not evolve in lockstep with either of these scenarios, but there were also other factors that had to be assumed constant for the purpose of conducting this exercise, and any of those factors could change materially from what was implicitly or explicitly assumed in this process.

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Guest FED   
Guest FED

The SCAP was a deliberately stringent test. It was designed to account for the highly uncertain financial and economic conditions by identifying the extent to which a BHC is vulnerable today to a weaker than expected economy in the future. By ensuring that these large BHCs have a capital buffer now that is robust to a range of economic outcomes, this exercise counters the risk that uncertainty itself exerts contractionary pressures on the banking system and the economy. In the event the economy weakens more than expected, the firms will have adequate capital; in the event the economy follows the expected path, or an even stronger path, the firms will still be viewed as stronger today for having higher levels of capital in an uncertain world.

 

The SCAP focused not only on the amount of capital but also on the composition of capital held by each of the 19 BHCs. That is, SCAP assessed the level of the Tier 1 risk‐based capital ratio and

the proportion of Tier 1 capital that is common equity. The SCAP’s emphasis on what is termed "Tier 1 Common capital" reflects the fact that common equity is the first element of the capital

structure to absorb losses, offering protection to more senior parts of the capital structure and lowering the risk of insolvency. All else equal, more Tier 1 Common capital gives a BHC greater

permanent loss absorption capacity and a greater ability to conserve resources under stress by changing the amount and timing of dividends and other distributions. To determine the size of

the SCAP buffer for each firm, supervisors used their estimates of each firm’s losses and resources for the more adverse scenario to answer the following two questions:

 

If the economy follows the “more adverse” scenario, how much additional Tier 1 capital would an institution need today to be able to have a Tier 1 risk‐based ratio in excess of 6 percent at year‐end 2010?

 

If the economy follows the “more adverse” scenario, how much additional Tier 1 Common capital would an institution need today to have a Tier 1 Common capital riskbased ratio in excess of 4 percent at year‐end 2010?

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Guest FED   
Guest FED

The SCAP buffer does not represent a new capital standard and is not expected to be maintained on an ongoing basis. Instead, that capital is available to help BHCs absorb larger‐than‐expected

future losses, should they occur, and to support the BHC’s ability to serve their customers, including lending to creditworthy borrowers during the economic downturn.

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Guest Fed   
Guest Fed

The results of the SCAP suggest that if the economy were to track the more adverse scenario, losses at the 19 firms during 2009 and 2010 could be $600 billion. The bulk of the estimated losses –

approximately $455 billion – come from losses on the BHCs’ accrual loan portfolios, particularly from residential mortgages and other consumer‐related loans. The estimated two‐year cumulative losses on total loans under the more adverse scenario is 9.1 percent at the 19 participating BHCs; for comparison, this two‐year rate is higher than during the historical peak loss years of the 1930s.

 

Estimated possible losses from trading‐related exposures and securities held in investment portfolios totaled $135 billion. In combination with the losses already recognized by these firms since mid‐2007, largely from chargeoffs and write‐downs on the values of securities, the SCAP results suggest financial crisis‐related losses at these firms, if the economy were to follow the more adverse scenario, could total nearly $950 billion by the end of 2010.

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Guest FED   
Guest FED

The potential losses facing these 19 firms have to be weighed against the potential resources available to them to absorb those losses. At year‐end 2008, capital ratios at all 19 BHCs exceeded

minimum regulatory capital standards, in many cases by substantial margins, and most met supervisory expectations on the composition of capital. Tier 1 capital at these firms totaled about $835 billion in Q4 2008. The practical implication of this capital is that many of the BHCs already had substantial capital buffers in place to absorb their share of the estimated $600 billion of losses. In addition, banks will realize revenues from ongoing businesses to absorb losses, though at a lower level in the weak economic conditions of the stress scenario than in the baseline. However, some of those revenues will need to go into building loan loss reserves against credit problems in 2011.

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Guest LAW_*   
Guest LAW_*

Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital, which consists primarily of common stock and disclosed reserves (or retained earnings).

 

Common shareholders' funds, i.e. common stock and disclosed reserves or retained earnings, are the key element of capital. Common shareholders' funds allow a bank to absorb losses on an ongoing basis and are permanently available for this purpose. Further, this element of capital best allows banks to conserve resources when they are under stress because it provides a bank with full discretion as to the amount and timing of distributions. Consequently, common shareholders' funds are the basis on which most market judgements of capital adequacy are made. The voting rights attached to common stock also provide an important source of market discipline over a bank's management. For these reasons, voting common shareholders' equity and the disclosed reserves or retained earnings that accrue to the shareholders' benefit should be the predominant form of a bank's Tier 1 capital.

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Guest sedge   
Guest sedge

Any tested bank needing to boost its capital buffer will have until June 8 to develop a detailed capital-raising plan and until November 9 to implement that plan. While private sources of capital are preferable, our Treasury is offering support through its Capital Assistance Program, or CAP -- part of its $700 billion financial rescue fund -- as a "bridge to private capital."

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Guest FED   
Guest FED

9 of the 19 firms already have capital buffers sufficient to get through the adverse scenario in excess of 6 percent Tier 1 capital and 4 percent Tier 1 Common capital.

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Guest LAW_*   
Guest LAW_*

The 10 banks needing to augment their capital buffer will be required to develop a detailed capital plan to be approved by its primary supervisor, after consultation with the FDIC and the

Treasury, over the next 30 days, and to implement that plan in the next six months.

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Guest LAW_*   
Guest LAW_*

9 banks that have capital buffers and do not need more taxpayer assistance.

 

American Express Company

BB&T Corporation

New York Mellon Corporation

Capital One Financial Corporation

Goldman Sachs Group, Inc.

JPMorgan Chase & Co.

MetLife, Inc.

State Street Corporation

U.S. Bancorp

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Guest LAW_*   
Guest LAW_*

Bank of America Corporation is in the worst shape. They need a cash infustion of 33.9 billion taxpayer dollars for their SCAP Buffer.

 

Wells Fargo & Company Bank Holding Company is going to need $13.7 billion.

 

GMAC LLC is going to need $11.5 billion.

 

Citigroup, Inc. is going to need $5.5 billion.

 

Regions Financial Corporation is going to need $2.5 billion.

 

SunTrust Banks is going to need $2.2 billion.

 

Morgan Stanley is going to need $1.8 billion.

 

KeyCorp is going to need $1.8 billion.

 

Fifth Third Bancorp is going to need $1.1 billion.

 

PNC Financial Services Group is going to need $0.6 billion.

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Guest 53   
Guest 53

Fifth Third Announces Supervisory Capital Assessment Results

 

 

Commits to Strengthen Tier 1 Common Equity by $1.1 Billion

 

 

No Additional Overall Capital Needed

 

 

Currently Meets New "Tier 1 Common" Standard of 4 Percent

 

Fifth Third does not require additional overall capital under the Supervisory Capital Assessment Program ("SCAP," or "Stress Test") and does not expect to further utilize government capital programs

Fifth Third has committed to augment the common equity component of Tier 1 capital ("Tier 1 common equity") by $1.1 billion in the next six months to create required capital buffer

Increase is required to maintain a capital buffer related to new Tier 1 common equity standard of 4 percent of risk-weighted assets under SCAP "more adverse scenario" through 2010

Fifth Third expects to utilize available private market alternatives to satisfy the $1.1 billion commitment Fifth Third's Tier 1 common equity ratio is 5.5 percent, pro forma for the completion of the previously announced processing joint venture which would increase this ratio from 4.5 percent currently

We currently expect this ratio to remain well above the new regulatory minimum for the foreseeable future and to be enhanced by the actions we will be taking

 

 

 

Fifth Third Bancorp (NASDAQ: FITB) today provided information related to the Supervisory Capital Assessment Program ("SCAP"). Results of the assessments associated with this program were announced by U.S. financial and regulatory authorities on May 7, 2009.

 

 

Supervisory Capital Assessment Program and Capital Assistance Program

 

Nineteen U.S. Bank Holding Companies, each with more than $100 billion of assets at December 31, 2008, were required to undergo these special assessments. The assessments were designed to evaluate the projected level and quality of each institution's capital under specified economic scenarios through the end of 2010. These scenarios included a baseline scenario, reflecting a consensus estimate of private-sector forecasters, and a more adverse scenario, reflecting an economic situation more severe than is generally anticipated. This assessment measured the level and quality of capital expected to be maintained against existing regulatory capital standards as well as a new standard, "Tier 1 common equity," established to be 4 percent of risk-weighted assets. These 19 firms are being required to ensure they have a "capital buffer" relative to these standards under the more adverse scenario.

 

 

Results of SCAP Assessment

 

The results of the SCAP assessment for Fifth Third indicated that our Tier 1 and Total capital ratios would continue to exceed the levels required to maintain a "well-capitalized" status under the more adverse scenario. As a result, we are not required to raise additional overall capital.

 

The test results indicated that Tier 1 common equity should be augmented to maintain a capital buffer above the new 4 percent ratio under the more adverse scenario. The total amount required, prior to considering activities by Fifth Third since the end of the fourth quarter of 2008, is $2.6 billion. After considering such activities, the indicated additional net Tier 1 common equity required is $1.1 billion to provide a capital buffer under the more adverse scenario. The $1.1 billion reflects the incremental benefit of our previously announced joint venture of our processing business with Advent International. This $1.1 billion remaining requirement does not reflect the benefit of any other measures that we believe to be available to us to generate additional Tier 1 common equity.

 

 

Fifth Third's current Tier 1 common equity ratio is 4.5 percent and, on a pro forma basis for the processing joint venture, would be 5.5 percent. Fifth Third would expect that, absent additional measures to increase it, its Tier 1 common equity ratio would remain above 5 percent under conditions more likely to prevail than the SCAP more adverse scenario.

 

 

The purposes and processes of the SCAP assessment are described more fully at: http://www.federalreserve.gov/newsevents/p...g/20090424a.htm

 

 

Fifth Third Comment

 

"The supervisory stress test confirmed that Fifth Third does not require additional overall capital, either currently or under more adverse conditions," said Kevin Kabat, President, Chairman and CEO of Fifth Third Bancorp. "We have outlined and implemented a number of steps over the past year to strengthen our common equity position to prepare for potential economic deterioration. We expect to meet this new commitment to further reinforce our capital composition within six months through additional private market actions. We do not expect to further utilize government capital programs.

 

 

The requirement to increase common equity arises as a result of two factors. First, banking regulators have established a new Tier 1 common equity standard of 4%, which we currently exceed with a substantial cushion. Second, that ratio is required to be maintained under assumed economic conditions much more negative than currently being experienced or anticipated. There are some notable signs that important trends in the economy may be in the process of stabilizing.

 

 

Our capital levels are substantially above regulatory well-capitalized minimums as well as the new Tier 1 common equity standard. Pro forma for the effect of our pending processing joint venture transaction, our first quarter Tier 1 capital ratio would have been 11.8 percent and our Tier 1 common equity ratio would have been 5.5 percent.

 

 

Fifth Third's strong levels of pre-provision profitability and reserves for loan losses provide significant further resources to absorb even the high and conservative level of loan losses assumed under the SCAP assessment. We don't expect loan loss rates to approach those levels. Our recent results and current expectations for the second quarter are significantly better than those assumed for those periods under the more adverse scenario. These near-term results and expectations provide a good starting point for the future level of our capital in later periods. We are confident that our capital levels, including Tier 1 common equity, will remain above levels required by regulatory authorities and our own targets. And creating an additional common equity buffer through further actions will put us in a better position to more quickly redeem the U.S. Treasury's existing preferred stock investment in Fifth Third, subject to regulatory approval."

 

 

Incremental Tier 1 Common Equity Commitment

 

Banks subject to the SCAP requirement to augment Tier 1 common equity, as in Fifth Third's case, must do so by November 9, 2009.

 

 

Fifth Third expects to meet its incremental Tier 1 common equity commitment through private market activities, and does not expect to further utilize government capital programs. We have a number of options available to us that, if pursued and successful, would generate substantial amounts of Tier 1 common equity. These options include the potential sale of certain non-strategic assets, including the common stock we own in publicly traded companies with unrecognized gains as well as available-for-sale securities we hold in a gain position. We will also evaluate transactions involving the issuance of cash, common stock or other securities in exchange for outstanding securities of Fifth Third. These exchanges may also have the effect of conserving capital related to dividend expense associated with the exchanged instruments, reducing the assumed need to absorb those expenses through capital. The determination of whether to pursue such transactions will be made based upon market conditions, the price of the securities issued or redeemed, the amount of such securities that may be redeemed for a price acceptable to us and to the holders of such securities, and other factors including the cost and dilution of such actions to current shareholders and any potential regulatory approval requirements. Additionally, we will evaluate such actions in the context of our expectations for financial results, the effect of these actions on financial results, our own capital targets, and regulatory capital standards.

 

 

The U.S. Treasury is making programs available that would provide capital in the form of mandatorily convertible preferred stock to the extent that any bank covered by the SCAP assessment does not generate the required capital. These programs are described more fully on the U.S. Treasury's website: http://www.financialstability.gov/roadtostability/index.html.

 

 

 

Corporate Profile

 

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of March 31, 2009, the Company had $119 billion in assets, operates 16 affiliates with 1,311 full-service Banking Centers, including 95 Bank Mart® locations open seven days a week inside select grocery stores and 2,354 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates five main businesses: Commercial Banking, Branch Banking, Consumer Lending, Investment Advisors and Fifth Third Processing Solutions. Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2009, has $166 billion in assets under care, of which it managed $23 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third's common stock is traded on the NASDAQ® National Global Select Market under the symbol "FITB."

 

 

Forward-Looking Statements, Expectations, and Scenarios

 

A presentation related to this announcement is available at http://phx.corporate-ir.net/phoenix.zhtml?...l-presentations. In this presentation, we further discuss the results of the SCAP assessment process and provide details related to the results of the more adverse scenario associated with the assessment. The information discussed in this release and in that presentation is based upon scenarios evaluated for purposes of the supervisory assessment. In addition, we have included commentary related to our current expectations for the second quarter as well as our current general expectations for subsequent periods relative to the more adverse scenario, as based on information available to us at this time. As with all forward-looking information, these results are subject to certain risks and uncertainties that may cause actual results to differ from those presented related to these scenarios. We undertake no obligation and do not expect to update these scenarios or expectations beyond the date of these statements. A cautionary statement including a more detailed list of risk factors related to any forward-looking statements is included at the end of this release and in that presentation, and we recommend careful consideration of these risk factors.

 

Forward-Looking Statements

 

 

 

This report may contain forward-looking statements about Fifth Third Bancorp within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. This report may contain certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Fifth Third Bancorp including statements preceded by, followed by or that include the words or phrases such as "believes," "expects," "anticipates," "plans," "trend," "scenario," "objective," "continue," "remain" or similar expressions or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic conditions and weakening in the economy, specifically the real estate market, either national or in the states in which Fifth Third does business are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third's ability to maintain required capital levels and adequate sources of funding and liquidity; (7) maintaining capital requirements may limit Fifth Third's operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third (10) competitive pressures among depository institutions increase significantly; (11) effects of critical accounting policies and judgments; (12) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (13) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third or the businesses in which it is engaged; (14) ability to maintain favorable ratings from rating agencies; (15) fluctuation of Fifth Third's stock price; (16) ability to attract and retain key personnel; (17) ability to receive dividends from its subsidiaries; (18) potentially dilutive effect of future acquisitions on current shareholders' ownership of Fifth Third; (19) effects of accounting or financial results of one or more acquired entities; (20) difficulties in combining the operations of acquired entities; (21) lower than expected gains related to any potential sale of businesses; (22) the failure to consummate the sale of a majority interest in Fifth Third's merchant acquiring and financial institutions processing business (the "Processing Business") or difficulties in separating the Processing Businesses from Fifth Third; (23) loss of income from any potential sale of businesses that could have an adverse effect on Fifth Third's earnings and future growth; (24) ability to secure confidential information through the use of computer systems and telecommunications networks; and (25) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Bancorp's Annual Report on Form 10-K for the year ended December 31, 2008, filed with the United States Securities and Exchange Commission (SEC), and in certain quarterly and current reports on Form 10-Q and Form 8-K subsequently filed with the SEC. Copies of this filing are available at no cost on the SEC's Web site at www.sec.gov or on the Fifth Third's Web site at www.53.com. Fifth Third undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report.

 

Website: http://www.53.com

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Guest Enron Ex   
Guest Enron Ex

I think everyone will be paying attention to the commercial and industrial Loans.

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Guest Bank of America   
Guest Bank of America

Stress Test: Bank of America Would Need $33.9 Billion More in Tier 1 Common

 

 

Test is a "What if"

 

 

Capital Ratios Currently Exceed Federal Regulatory Targets

 

 

Company Pursuing Capital Raising and Business Sales; No New Government Money Needed

 

 

Bank of America Seeks to End Negotiations to Acquire Asset Protection from U.S.

 

 

New Board Committee Set

 

 

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 $33.9 billion.

 

 

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 economic scenario.

 

 

"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 shareholders."

 

"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 company.

 

"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."

 

 

Board Actions

 

 

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.

 

Offering

 

 

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.

 

 

Forward-Looking Statements

 

 

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, including costs,

 

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.

 

http://www.bankofamerica.com

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Guest Bank of America   
Guest Bank of America

Adverse scenario estimates represent a hypothetical “what if” scenario that involves an economic outcome that is more adverse than expected.

 

$24 billion in trading and counterparty

$9 billion in debt and equity securities

 

Mortgage loss rates would have to more than double to 3.1% and remain there for the remaining 7 quarters to reach the FRB’s projections.

 

FRB’s loss rate is well above the combined commercial and commercial real estate peak loss rate experienced by BAC in both the 1991 recession and the 2002 recession.

 

The FRB projected higher depreciation and forced liquidation of debt and equity securities, contrary to our experience in the current recessionary environment

 

Bank of America is:

Largest retail bank in the U.S., serving one in two households a trillion dollar deposit base

Largest commercial bank in the U.S., serving one-third of companies with revenues from $2.5MM to $2B

Relationships with 99 percent of U.S. Fortune 500 companies

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Guest Human_*   
Guest Human_*

LOL, good one BlingBling "you made me laugh on that one". President Obama IS saying no to oil, Nuclear Power. If that's a comprehensive plan? Then I can walk.

 

For his attempt at National Health Care? That's insulting. President Obama IS NOT even addressing the issues of insurance companies cherry picking.

 

First Tarp was necessary. Barack Obamas' Stimulus Bill "Spending Bill" IS Political, and the group

I got together WILL get a piece of it "PROMISE".

 

 

--------------------------------------------------------------------------------------------------------------------

We can thank the Obama administration for building confidence in our financial system and some genuine clarity about the path moving forward.

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Guest Human_*   
Guest Human_*

I do want to add this though;

 

Even though politically we are at odds with each other; This Really is the BEST COUNTRY in the World to live in.

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Guest Tory   
Guest Tory

There is a hunger in the world for something to replace capitalist values and ethics. The WSF and other leftist groups have felt this hunger for a long time. Now it has spread to the liberal establishment that actually has the possibility of doing something about it. British Prime Minister Harold Brown recently commented that: "as we have discovered to our cost, the problem of unbridled free markets in an unsupervised marketplace is that they can reduce all relationships to transactions, all motivations to self-interest, all sense of value to consumer choice and all sense of worth to a price tag."

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Guest Chomsky   
Guest Chomsky

Ronald Regan did pretty much the same thing in the early 1980s. I think the whole of the advanced industry, the HIGH-TECH industry, comes out of the state circuit, places like MIT is among the places that develop the computers, the internet, lasers, most of HIGH-TECH economy that includes pharmaceuticals and so on.

 

I mean, the system that we have, which is called capitalism, is basically a system in which the public pays the costs and takes the risks and profit is privatized. That is something of an exaggeration but it is very largely true. In fact, if you take the financial institutions, I mean, a common phrase in Washington and the media these days is "too big to fail".

 

Now, what does that mean? It means when you have an institution like, say, Citigroup or Bank of America, it is so big that the government can not allow it to fail and then the public will have to pay in or step in and make sure it continues to function pretty much as before. Well, that is a is insurance policy, a publicly-granted insurance policy which permits huge institutions to undertake a very risky behavior, from which, of course, you make a lot of profits but, if anything goes wrong, the public pays. Now, that is high-level protectionism and it undermines competitors who do not have that insurance policy. That is just one of many ways which can go on and on in which the United States departs very sharply from market systems.

 

Now, will that system remain? Well, we can not be sure but the Obama administration is certainly trying very hard to maintain its structure. So, for example, if it takes a Citigroup or Bank of America or General Motors, it would be much cheaper to buy them than to bail them out but that would mean that they are nationalized and under the public control.

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Guest LAW_*   
Guest LAW_*

Frank Statement on Bernanke’s Testimony on the Recovery Act’s Positive Effects

 

Financial Services Committee Chairman Barney Frank (D-MA) today made the following statement highlighting several parts of the Federal Reserve’s semiannual Monetary Policy Report and Chairman Bernanke’s testimony indicating that the Recovery Act has had positive effects on the economy for American workers. Bernanke was appointed Chairman of the Board of Governors of the Federal Reserve by President Bush in 2006 and previously served as Chairman of President Bush’s Council of Economic Advisors.

 

Chairman Frank said:

 

“Chairman Bernanke yesterday made several positive comments regarding the American Recovery and Reinvestment Act that has come under criticism from the Republicans. In fact, Chairman Bernanke stated several times yesterday that the recovery plan is having a positive impact in America. Consider the following:

 

In response to a question by Rep. Randy Neugebauer (R-TX), Chairman Bernanke said: ‘Our forecasts are based on our best projections of what government spending is likely to be and in particular it includes the fiscal stimulus package…‘…If the fiscal stimulus package didn’t exist for example, we would anticipate that there would be higher unemployment.’[Hearing transcript (unofficial), July 21, 2009]

 

‘Consumer spending—which has been supported recently by the boost to disposable income from the tax cuts and increases in various benefit payments that were implemented as part of the 2009 fiscal stimulus package—appears to be holding reasonably steady so far this year.’ [Monetary Policy Report to Congress, July 21, 2009, page 1]

 

‘Interest rates on long-term municipal bonds declined in April as investors’ concerns about the credit quality of municipal bonds appeared to ease somewhat with the passage of the fiscal stimulus plan, which included a substantial increase in the amount of federal grants to state and localities.’ [Monetary Policy Report to Congress, July 21, 2009, page 13]

 

‘That bill also aided the finances of state and local governments by establishing Build America Bonds, taxable state and local government bonds whose interest payments are subsidized by the Treasury at a 35 percent rate.’ [Monetary Policy Report to Congress, July 21, 2009, page 13 ]

 

“It is important to note that the impact on state and local governments would have been even greater had the three Republican Senators whose votes were necessary to pass this in the Senate not insisted on reducing the amount that went to states by $25 billion from the House-passed bill.

 

“Finally, the Federal Reserve’s Monetary Policy Report to Congress contains an encouraging explanation of the country’s unemployment rate. Chairman Bernanke said that the Federal Reserve’s staff calculated that the unemployment rate would be a full half-percent lower because more Americans would have given up looking for full-time employment and, therefore, would not be counted as a part of the labor force. Simply said, the unemployment insurance programs passed by Congressional Democrats are encouraging people to seek employment rather than give up. In fact, the report states:

 

‘The emergency unemployment insurance programs that were introduced last July have likely contributed to the higher participation rate and unemployment rate by encouraging unemployed individuals to remain in the labor force to continue to look for work to states and localities’ [Monetary Policy Report to Congress, July 21, 2009, page 16]

 

“The Republican argument is that unemployment compensation is bad because people get it and they stop looking for work. Chairman Bernanke says exactly the opposite – it keeps them looking for work so more people stayed in the labor market. That means the labor force is larger relative to the total number of jobs – ironically raising the unemployment rate.”

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