Click here to load reader
Upload
quarterlyearningsreports3
View
317
Download
4
Embed Size (px)
Citation preview
Enterprise Risk ManagementAmy BrinkleyChief Risk Officer
2
Forward Looking StatementsThis presentation contains forward-looking statements, including statements about the financial conditions, results of operations and earnings outlook of Bank of America Corporation. The forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results or earnings to differ materially from such forward-looking statements include, among others, the following: 1) projected business increases following process changes and other investments are lower than expected; 2) competitive pressure among financial services companies increases significantly; 3) general economic conditions are less favorable than expected; 4) political conditions including the threat of future terrorist activity and related actions by the United States abroad may adversely affect the company’s businesses and economic conditions as a whole; 5) changes in the interest rate environment reduce interest margins and impact funding sources; 6) changes in foreign exchange rates increases exposure; 7) changes in market rates and prices may adversely impact the value of financial products; 8) legislation or regulatory environments, requirements or changes adversely affect the businesses in which the company is engaged; 9) changes in accounting standards, rules or interpretations, 10) litigation liabilities, including costs, expenses, settlements and judgments, may adversely affect the company or its businesses; 11) mergers and acquisitions and their integration into the company; and 12) decisions to downsize, sell or close units or otherwise change the business mix of any of the company. For further information regarding Bank of America Corporation, please read the Bank of America reports filed with the SEC and available at www.sec.gov.
3
Our Core Capability is Managing Risk to Enable Growth
• Begins with a culture of performance management andaccountability
• Comprehensive & dynamic: Credit, Market, Operational and Strategic
• Forward-looking: Insight and information to define risk appetite and to grow
Sustainable growth
4
Protecting and Growing Shareholder Value
Competitive Advantages:
• Unique insight
• Broad capabilities to take and manage risk intentionally
• Comprehensive and integrated management of risk and reward
Changing Environment:
• Evolving customer needs
• Unprecedented liquidity
• New global realities
Our processes identify opportunities and risks that drive changes to our business models.
5
15%8% 9%
8% 8%11%
50%
36% 33% 32%
29%
48% 50% 53%
4%
6%
Positioning our Economic Capital for Growth
• Capital well aligned to earnings and clients
• Supports consumer growth initiatives
• Focused reduction in GCIB credit capital
• Created more capital velocity in GCIB
Capital Net Income100% 100%
2000Capital Net Income
100% 100%
2006
Other
GWIM
GCIB
GCSBB
6
Consumer Health
• Despite consumers’ increasing levels of financial obligations relative to income, consumer aggregate net worth is at its highest levels and growing at a healthy pace
• However, stress within the sub prime market may have an adverse impact on some local markets and specific communities
(20,000)
0
20,000
40,000
60,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
$B
Real Estate Assets Financial Assets Liabilities Net Worth
Source: Federal Reserve, Flow of Funds
Household Balance Sheet(as of September)
7
Our Managed Consumer Portfolio is a Balanced Mix of Traditional Products
• 8% YOY Growth• 57% Consumer Real Estate• 30% Consumer Card
Total Consumer Average Balances$553.6B
Home Equity15%
US Consumer Card25%
Consumer Finance4%
DFS 6%
Other Consumer3%
Residential Mortgage42%
Foreign ConsumerCard 5%
8
Consumer Real Estate Asset Quality
Home Equity
Avg. FICO 724
Avg. LTV 63%
1st Mortgage- Originated and Serviced
Avg. FICO 729
Avg. LTV 57%
1st Mortgage- Serviced By Others
Avg. FICO 750
Avg. LTV 56%
Asset Quality of the Consumer Real Estate portfolio is strong.
31%
42%
27%
Note: All FICOs and LTVs current or refreshed
9
Proprietary Insight as a Competitive Advantage Relationship Results in Improved Credit Performance
• We have been increasing our use of analytics to understand customer behavior
• This knowledge allows us to optimize our business model for the customer segments that we target
Credit Quality
Del
inqu
ency
Rat
e
High Credit ScoreLow Credit Score
Credit Performance of Total Market
Credit Performance, both “On-Us” & “Off-Us”, of a BAC Customer with a Large Deposit Balance
Credit Performance, “On-Us” only, of a BAC customer with a Large Deposit Balance
At the same credit score, relationship customersoutperform the market
10
Commercial Health• Corporate profits continue to grow
• Credit statistic trends remain favorable
• Market liquidity is strong
Current vs. Projected S&P Earnings Growth
Source: Thompson Financial
5%
10%
15%
20%
25%
30%
2Q 03
4Q 03
2Q 04
4Q 04
2Q 05
4Q 05
2Q 06
4Q 06
E
2Q 07
E
Qua
rter
ly S
&P
500
Earn
ings
Gro
wth
Projected Growth Start of Quarter Actual (blended) GrowthFirst Call AnalystEstimates
High Grade Leverage and Coverage
Source: Banc of America Securities, LLC and Factset.
Med
ian
Rat
io o
f Net
Deb
t to
LTM
EB
ITD
A
Med
ian
Rat
io L
TM E
BIT
DA
to L
TM In
tere
st E
xpen
se
1.5
1.7
1.9
2.1
2.3
2.5
2.7
Mar-90
Mar-92
Mar-94
Mar-96
Mar-98
Mar-00
Mar-02
Mar-04
Mar-06
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Median Net Leverage Median Coverage
High Yield Leverage and Coverage
Source: Banc of America Securities, LLC and Factset.
Med
ian
Rat
io o
f Net
Deb
t to
LTM
EB
ITD
A
Med
ian
Rat
io L
TM E
BIT
DA
to L
TM In
tere
st E
xpen
se
2.5
2.72.9
3.1
3.33.5
3.7
3.94.1
4.3
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
Med Net Debt Leverage Med Coverage
11
Managing Commercial Credit Risk
Advantages in Managing Risk
• Industry insights and focus
• Market knowledge enabling an originate to distribute strategy
• Managing risk globally across products and client segments
Our Strengths
• Breadth of client access
• Capital markets and distribution
• Integrated risk structure
12
Commercial Credit Risk Profile
• Rebalanced the portfolio• Improved risk evaluation and monitoring tools
GIB33%
GMG11%
Aviation0%
Leasing5%
Business Banking4%
Business Capital2% DFS
2%
CREB11%
CB Regions22%
Other10%
Other17%
CB Regions22%
CREB14%
DFS3%
Business Capital4%
Business Banking7%
Leasing9%
Aviation1%
GMG5%
GIB18%
Commercial Banking46%
Corporate Banking44%
Other10%
Corporate Banking23%
Other17%
Commercial Banking60%
Average Funded Commitments 4Q06
$238.5B
Commitments as of 12/31/06
$618.0B
13
Commercial Credit Industry Profile
• Effective management of industry and single name concentrations• Increased distribution risk in high-return leveraged finance activities• Improved revenue mix and more efficient use of capital
Commitments by Industry12/31/06
Real Estate12%
Diversified financials11%
Retailing & Consumer Products*
9%
Government & public education
6%
Capital Goods6%
Banks & insurance*8%
Individuals and trusts5%
Materials5%
Commercial services and supplies
4%
Food Products*4%
Media & Telecom*4%
Energy*6%
Technology* 3% Other*
7%
Healthcare equipment and
services5%
Consumer services5%
14
Credit Comments
0.72%0.72%43,900Other Commercial
$238,454Total Commercial
553,573Total Consumer
*Average Annual RAM: 7.5 - 8.5%
Expected AverageActual LossesAverage
Balances($MM)
30-60 bps0.04%0.20%143,293Commercial Banking
30-60 bps(0.14%)(0.27%)51,261Corporate Banking
COMMERCIAL (Held)
1.45%2.30%71,524Other Consumer
500-550 bps3.90%5.54%165,991Consumer Credit Card*
<10 bps0.03%0.03%$316,058Consumer Real Estate
Over a cycle200620054Q06CONSUMER (Managed)
15
Managing Market Risk
MarketRisk
New Products• Risk forums• New Products
Committee
Counter Party Risk• Ongoing due diligence• Market focused • Collateral requirements
Proactive Risk Mitigation• Market focused• Structuring risk• Hedging
Stress Analysis• Historical simulation• Event specific scenarios• Hypothetical scenario• Business specific
stress
VaR• Directionality• Volatility• Correlation• Concentration
• Integrated Risk Management (Market, Credit, Structuring) aligned with each business line
• Risk limits set to encourage velocity and distribution
16
Improved Revenue Generation From Market Based Activities
• 96% of days with positive revenue in 2006 vs. 86% in 2005• No trading days in 2006 with losses greater than $10mm• VaR maintained at ~$41mm
Histogram of Daily Market Related Trading Revenue
0
10
20
30
40
50
60
70
80
90
less than-20
-20 to -10
-10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 greaterthan 50Revenue ($MM)
Num
ber o
f Day
s2005 2006
17
Managing Operational Risk
• Information security
• Business continuity
• Vendor management
• Talent
18
Protecting and Growing Shareholder Equity
Changing Environment:
• Evolving customer needs, intense competition
• Unprecedented liquidity, convergence of risks
• New global realities
Competitive Advantages:
• Unique insight
• Broader capabilities, more choices to take and manage risk more strategically
• Manage all risks that impact our business