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Article by DailyStocks_admin    (01-27-09 07:54 AM)

Bank of America Corp. CEO KENNETH D LEWIS bought 200000 shares on 01-20-2009 at $5.99



Bank of America Corporation (“Bank of America” or the “Corporation”) is a Delaware corporation, a bank holding company and a financial holding company under the Gramm-Leach-Bliley Act. Our principal executive offices are located in the Bank of America Corporate Center, Charlotte, North Carolina 28255.

Through our banking subsidiaries (the “Banks”) and various nonbanking subsidiaries throughout the United States and in selected international markets, we provide a diversified range of banking and nonbanking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking and Global Wealth and Investment Management. We currently operate in 32 states, the District of Columbia and more than 30 foreign countries. The Bank of America footprint covers more than 82 percent of the U.S. population and 44 percent of the country’s wealthy households. In the United States, we serve approximately 59 million consumer and small business relationships with more than 6,100 retail banking offices, more than 18,500 ATMs and approximately 24 million active on-line users. We have banking centers in 13 of the 15 fastest growing states and hold the top market share in 6 of those states. Bank of America is the number one Small Business Administration lender and has relationships with 99 percent of the U.S. Fortune 500 Companies and 83 percent of the Fortune Global 500 Companies.

Additional information relating to our businesses and our subsidiaries is included in the information set forth in pages 19 through 35 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 22 – Business Segment Information of the Notes to the Consolidated Financial Statements in Item 8 of this report.

Bank of America’s website is www.bankofamerica.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website at http://investor.bankofamerica.com under the heading SEC Filings as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). In addition, we make available on http://investor.bankofamerica.com under the heading Corporate Governance: (i) our Code of Ethics and Insider Trading Policy; (ii) our Corporate Governance Guidelines; and (iii) the charters of each of Bank of America’s Board committees, and we also intend to disclose any amendments to our Code of Ethics, or waivers of our Code of Ethics on behalf of our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, on our website. All of these corporate governance materials are also available free of charge in print to stockholders who request them in writing to: Bank of America Corporation, Attention: Shareholder Relations Department, 101 South Tryon Street, NC1-002-29-01, Charlotte, North Carolina 28255.


Bank of America and our subsidiaries operate in a highly competitive environment. Our competitors include banks, thrifts, credit unions, investment banking firms, investment advisory firms, brokerage firms, investment companies, insurance companies, mortgage banking companies, credit card issuers, mutual fund companies and e-commerce and other Internet-based companies. We compete with some of these competitors globally and with others on a regional or product basis. Competition is based on a number of factors including customer service, quality and range of products and services offered, price, reputation, interest rates on loans and deposits, lending limits and customer convenience.

More specifically, our consumer banking business competes with banks, thrifts, credit unions, finance companies and other nonbank organizations offering financial services. Our commercial lending business competes with local, regional and international banks and nonbank financial organizations, some of which are larger than certain of our nonbanking subsidiaries and the Banks. In the investment banking, investment advisory and brokerage businesses, our nonbanking subsidiaries compete with U.S. and international banking and investment banking firms, investment advisory firms, brokerage firms, investment companies, other organizations offering similar services and other investment alternatives available to investors, some of which are larger than our subsidiaries. Our mortgage banking units compete with banks, thrifts, government agencies, mortgage brokers and other nonbank organizations offering mortgage banking services. Our card business competes in the U.S. and internationally with banks, as well as monoline and retail card product companies. In the trust business, the Banks compete with other banks, thrifts, insurance agents, financial counselors and other fiduciaries for personal trust business and with other banks, investment counselors and insurance companies for institutional funds.

Bank of America also competes actively for funds. A primary source of funds for the Banks is deposits, and competition for deposits includes other deposit-taking organizations, such as banks, thrifts and credit unions, as well as money market mutual funds. In addition, we compete for funding in the domestic and international short-term and long-term debt securities capital markets.

Our ability to expand into additional states remains subject to various federal and state laws. See “Government Supervision and Regulation – General” below for a more detailed discussion of interstate banking and branching legislation and certain state legislation.


As of December 31, 2007, there were approximately 210,000 full-time equivalent employees within Bank of America and our subsidiaries. Of these employees, 116,000 were employed within Global Consumer and Small Business Banking, 21,000 were employed within Global Corporate and Investment Banking and 14,000 were employed within Global Wealth and Investment Management . The remainder were employed elsewhere within our company including various staff and support functions.

None of our domestic employees are subject to a collective bargaining agreement. Management considers our employee relations to be good.

Acquisition and Disposition Activity

As part of our operations, we regularly evaluate the potential acquisition of, and hold discussions with, various financial institutions and other businesses of a type eligible for financial holding company ownership or control. In addition, we regularly analyze the values of, and submit bids for, the acquisition of customer-based funds and other liabilities and assets of such financial institutions and other businesses. We also regularly consider the potential disposition of certain of our assets, branches, subsidiaries or lines of businesses. As a general rule, we publicly announce any material acquisitions or dispositions when a definitive agreement has been reached.

On October 1, 2007, the Corporation completed the acquisition of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation. On July 1, 2007, the Corporation completed the acquisition of U.S. Trust Corporation. Additional information on our acquisitions and mergers is included under Note 2 – Merger and Restructuring Activity of the Notes to the Consolidated Financial Statements in Item 8 which is incorporated herein by reference.

Government Supervision and Regulation

The following discussion describes elements of an extensive regulatory framework applicable to bank holding companies, financial holding companies and banks and specific information about Bank of America and our subsidiaries. Federal regulation of banks, bank holding companies and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund rather than for the protection of stockholders and creditors.


As a registered bank holding company and financial holding company, Bank of America is subject to the supervision of, and regular inspection by, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”). The Banks are organized as national banking associations, which are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (the “Comptroller” or “OCC”), the Federal Deposit Insurance Corporation (the “FDIC”), the Federal Reserve Board, other federal and state regulatory agencies, and with respect to Bank of America’s operations in the United Kingdom, the Financial Services Authority (the “FSA”). In addition to banking laws, regulations and regulatory agencies, Bank of America and our subsidiaries and affiliates are subject to various other laws and regulations and supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of Bank of America and our ability to make distributions to stockholders.

A financial holding company, and the companies under its control, are permitted to engage in activities considered “financial in nature” as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations (including, without limitation, insurance and securities activities), and therefore may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries. A financial holding company may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, provided the financial holding company gives the Federal Reserve Board after-the-fact notice of the new activities. The Gramm-Leach-Bliley Act also permits national banks, such as the Banks, to engage in activities considered financial in nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the OCC.

Bank holding companies (including bank holding companies that also are financial holding companies) also are required to obtain the prior approval of the Federal Reserve Board before acquiring more than five percent of any class of voting stock of any non-affiliated bank. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Banking and Branching Act”), a bank holding company may acquire banks located in states other than its home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, after the proposed acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the United States and no more than 30 percent or such lesser or greater amount set by state law of such deposits in that state. Subject to certain restrictions, the Interstate Banking and Branching Act also authorizes banks to merge across state lines to create interstate banks. The Interstate Banking and Branching Act also permits a bank to open new branches in a state in which it does not already have banking operations if such state enacts a law permitting de novo branching.

Changes in Regulations

Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any proposals or legislation and the impact they might have on Bank of America and our subsidiaries cannot be determined at this time.

Capital and Operational Requirements

The Federal Reserve Board, the OCC and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations. In addition, these regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. The Federal Reserve Board risk-based guidelines define a three-tier capital framework. Tier 1 capital includes common shareholders’ equity, trust securities, minority interests and qualifying preferred stock, less goodwill and other adjustments. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt, the allowance for credit losses up to 1.25 percent of risk-weighted assets and other adjustments. Tier 3 capital includes subordinated debt that is unsecured, fully paid, has an original maturity of at least two years, is not redeemable before maturity without prior approval by the Federal Reserve Board and includes a lock-in clause precluding payment of either interest or principal if the payment would cause the issuing bank’s risk-based capital ratio to fall or remain below the required minimum. The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents our qualifying total capital. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. The minimum Tier 1 capital ratio is four percent and the minimum total capital ratio is eight percent. Our Tier 1 and total risk-based capital ratios under these guidelines at December 31, 2007 were 6.87 percent and 11.02 percent. At December 31, 2007, we had no subordinated debt that qualified as Tier 3 capital.

The leverage ratio is determined by dividing Tier 1 capital by adjusted quarterly average total assets, after certain adjustments. Well-capitalized bank holding companies must have a minimum Tier 1 leverage ratio of three percent and are not subject to an FRB directive to maintain higher capital levels. Our leverage ratio at December 31, 2007 was 5.04 percent, which exceeded our leverage ratio requirement.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An “undercapitalized” bank must develop a capital restoration plan and its parent holding company must guarantee that bank’s compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of five percent of the bank’s assets at the time it became “undercapitalized” or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent’s general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards.

The various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a “well capitalized” institution must have a Tier 1 risk-based capital ratio of at least six percent, a total risk-based capital ratio of at least ten percent and a leverage ratio of at least five percent and not be subject to a capital directive order. Under these guidelines, each of the Banks was considered well capitalized as of December 31, 2007.

Regulators also must take into consideration: (a) concentrations of credit risk; (b) interest rate risk; and (c) risks from non-traditional activities, as well as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This evaluation will be made as a part of the institution’s regular safety and soundness examination. In addition, Bank of America, and any Bank with significant trading activity, must incorporate a measure for market risk in their regulatory capital calculations.


Our funds for cash distributions to our stockholders are derived from a variety of sources, including cash and temporary investments. The primary source of such funds, and funds used to pay principal and interest on our indebtedness, is dividends received from the Banks. Each of the Banks is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. The appropriate federal regulatory authority is
authorized to determine under certain circumstances relating to the financial condition of a bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.

In addition, the ability of Bank of America and the Banks to pay dividends may be affected by the various minimum capital requirements and the capital and non-capital standards established under FDICIA, as described above. The right of Bank of America, our stockholders and our creditors to participate in any distribution of the assets or earnings of its subsidiaries is further subject to the prior claims of creditors of the respective subsidiaries.

Source of Strength

According to Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC–either as a result of default of a banking subsidiary or related to FDIC assistance provided to a subsidiary in danger of default–the other Banks may be assessed for the FDIC’s loss, subject to certain exceptions.

Additional Information

See also the following additional information which is incorporated herein by reference: Net Interest Income (under the captions “Financial Highlights – Net Interest Income” and “Supplemental Financial Data” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) and Tables I, II and XIII of the Statistical Tables); Securities (under the caption “Balance Sheet Analysis – Debt Securities” and “Interest Rate Risk Management for Nontrading Activities – Securities” in the MD&A and Note 1 – Summary of Significant Accounting Principles and Note 5 – Securities of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplemental Data (the “Notes”)); Outstanding Loans and Leases (under the caption “Balance Sheet Analysis – Loans and Leases; Net of Allowance for Loan and Lease Losses” and “Credit Risk Management” in the MD&A, Table III of the Statistical Tables, and Note 1 – Summary of Significant Accounting Principles and Note 6 – Outstanding Loans and Leases of the Notes); Deposits (under the caption “Balance Sheet Analysis – Deposits” and “Liquidity Risk and Capital Management – Liquidity Risk” in the MD&A and Note 11 – Deposits of the Notes); Short-Term Borrowings (under the caption “Balance Sheet Analysis – Commercial Paper and other Short-term Borrowings” and “Liquidity Risk and Capital Management – Liquidity Risk” in the MD&A, Table IX of the Statistical Tables and Note 12 – Short-term Borrowings and Long-term Debt of the Notes); Trading Account Assets and Liabilities (under the caption “Balance Sheet Analysis – Trading Account Assets”, “Balance Sheet Analysis – Trading Account Liabilities” and “Market Risk Management – Trading Risk Management” in the MD&A and Note 3 – Trading Account Assets and Liabilities of the Notes); Market Risk Management (under the caption “Market Risk Management” in the MD&A); Liquidity Risk Management (under the caption “Liquidity Risk and Capital Management” in the MD&A); Operational Risk Management (under the caption “Operational Risk Management” in the MD&A); and Performance by Geographic Area (under Note 24 – Performance by Geographical Are a of the Notes).


pricing of certain municipal securities and the liquidity of the short term public finance markets. We have direct and indirect exposure to monolines and as a result are continuing to monitor this exposure as the markets evolve. For more information related to our monoline exposure, see the Industry Concentrations discussion on page 54.

The above conditions together with uncertainty in energy costs and the overall economic slowdown, which may ultimately lead to recessionary conditions, will affect other markets in which we do business and will adversely impact our results in 2008. The degree of the impact is dependent upon the duration and severity of the aforementioned conditions in this rapidly changing business and interest rate environment. For more information on interest rate sensitivity, see the Interest Rate Risk Management for Nontrading Activities discussion on page 65.

Other Recent Events

In January 2008, we announced changes in our CMAS business within GCIB which better align the strategy of this business with GCIB’s broader integrated platform. We will continue to provide corporate, commercial and sponsored clients with debt and equity capital raising services, strategic advice, and a full range of corporate banking capabilities. However, we will reduce activities in certain structured products (e.g., CDOs) and will resize the international platform to emphasize debt, cash management, and selected trading services, including rates and foreign exchange. This realignment will result in the reduction of 650 front office personnel with additional infrastructure headcount reduction to follow. We also plan to sell our equity prime brokerage business. This is in addition to our announcement in October 2007 to eliminate approximately 3,000 positions within various businesses, which includes reductions in GCIB as part of our GCIB business strategic review to enhance the operating platform, reductions in the wholesale mortgage-related business included in GCSBB and reductions in other related infrastructure positions.

In August of 2007, we made a $2.0 billion investment in Countrywide Financial Corporation (Countrywide), the largest mortgage lender in the U.S., in the form of Series B non-voting convertible preferred securities yielding 7.25 percent. In January 2008, we announced a definitive agreement to purchase all outstanding shares of Countrywide for approximately $4.0 billion in common stock. The acquisition would make us the nation’s leading mortgage lender and loan servicer. The closing of this transaction is subject to closing conditions and regulatory approvals and is expected to close early in the third quarter of 2008.

In January 2008, the Board of Directors (the Board) declared a regular quarterly cash dividend on common stock of $0.64 per share, payable on March 28, 2008 to common shareholders of record on March 7, 2008. In October 2007, the Board declared a regular quarterly cash dividend on common stock of $0.64 per share which was paid on December 28, 2007 to common shareholders of record on December 7, 2007. In July 2007, the Board increased the quarterly cash dividend on common stock 14 percent from $0.56 to $0.64 per share.

In January 2008, we issued 240 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K with a par value of $0.01 per share for $6.0 billion. The fixed rate is 8.00 percent through January 29, 2018 and then adjusts to three-month LIBOR plus 363 basis points (bps) thereafter. In addition, we issued 6.9 million shares of Bank of America Corporation 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L with a par value of $0.01 per share for $6.9 billion. In November and December of 2007, we issued 41 thousand shares of Bank of America Corporation 7.25% Non-Cumulative Preferred Stock, Series J with a par value of $0.01 per share for $1.0 billion. In September 2007, we issued 22 thousand shares of Bank of America Corporation 6.625% Non-Cumulative Preferred Stock, Series I with a par value of $0.01 per share for $550 million.

In December 2007, we completed the sale of Marsico Capital Management, LLC (Marsico), a 100 percent owned investment manager, to Thomas F. Marsico, founder and chief executive officer of Marsico, and realized a pre-tax gain of approximately $1.5 billion.

Merger Overview

On October 1, 2007, we acquired all the outstanding shares of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation (LaSalle), for $21.0 billion in cash. With this acquisition, we significantly expanded our presence in metropolitan Chicago, Illinois and Michigan, by adding LaSalle’s commercial banking clients, retail customers and banking centers.

On July 1, 2007, we acquired all the outstanding shares of U.S. Trust Corporation for $3.3 billion in cash. U.S. Trust Corporation focuses exclusively on managing wealth for high net-worth and ultra high net-worth individuals and families. The acquisition significantly increases the size and capabilities of our wealth management business and positions it as one of the largest financial services companies managing private wealth in the U.S.

On January 1, 2006, we acquired 100 percent of the outstanding stock of MBNA Corporation (MBNA) for $34.6 billion. The acquisition expanded our customer base and opportunity to deepen customer relationships across the full breadth of the Corporation by delivering innovative deposit, lending and investment products and services to MBNA’s customer base. Additionally, the acquisition allowed us to significantly increase our affinity relationships through MBNA’s credit card operations and sell these credit cards through our delivery channels including the retail branch network.

For more information related to these mergers, see Note 2 – Merger and Restructuring Activity to the Corporation’s Consolidated Financial Statements.

2007 Economic Overview

In 2007, notwithstanding significant declines in housing, soaring oil prices and tremendous turmoil in financial markets, real Gross Domestic Product (GDP) grew 2.2 percent. Growth softened significantly in the fourth quarter. Consumer spending remained resilient, as increases in employment and wages offset the negative influences of declining home prices. Fueled by another year of strong exports and a slowdown in imports, the U.S. trade deficit fell sharply, lifting U.S. domestic production. However, declines in residential construction subtracted nearly a full percentage point from GDP growth, more than offsetting the boost provided by international trade. Corporate profits declined modestly in the second half of the year from all-time record highs. Global economies recorded their fourth consecutive year of rapid expansion, driven by sustained robust growth in China, India and other emerging market economies. Growth in Europe and Japan moderated in the second half of the year. Higher energy prices pushed up inflation throughout the year. However, excluding food and energy, core inflation receded in the second half of the year, in lagged response to the deceleration of nominal spending growth. A sharp rise in defaults on subprime mortgages and worries about the potential fallout from the faltering housing and subprime mortgage markets triggered financial market turbulence beginning in the summer. A dramatic repricing of credit risk and unprecedented capital losses stemming from sharp declines in the value of structured credit products based on subprime debt deepened the financial crisis. In response, the FRB eased short-term interest rates, reduced the discount rate relative to its federal funds rate target and in December created a new facility for auctioning short-term funds through the discount window of the Federal Reserve Banks. The fourth quarter ended on a weak note, as consumer spending moderated, businesses reduced production, employment slowed and the unemployment rate rose.

Global Consumer and Small Business Banking

Net income decreased $1.9 billion, or 17 percent, to $9.4 billion in 2007 compared to 2006. Managed net revenue rose $2.8 billion, or six percent, to $47.7 billion driven by increases in both noninterest and net interest income. Noninterest income increased $2.1 billion, or 13 percent, to $18.9 billion driven by higher card, service charge and mortgage banking income. Net interest income increased $612 million, or two percent, to $28.8 billion due to the impacts of organic growth and the LaSalle acquisition on average loans and leases, and deposits. These increases in revenues were more than offset by the increase in provision for credit losses of $4.4 billion, or 51 percent, to $12.9 billion. This increase reflects portfolio growth and seasoning, increases from the unusually low loss levels experienced in 2006 post bankruptcy reform, the impact of housing market weakness on the home equity portfolio, and growth and deterioration in the small business portfolio. Noninterest expense increased $1.7 billion, or nine percent, mainly due to increases in personnel and technology-related costs. For more information on GCSBB , see page 21.

Global Corporate and Investment Banking

Net income decreased $5.5 billion, or 91 percent, to $538 million, and total revenue decreased $7.7 billion, or 37 percent, to $13.4 billion in 2007 compared to 2006. These decreases were driven by $5.6 billion in losses resulting from our CDO exposure and other trading losses. These decreases were partially offset by an increase in net interest income, primarily market-based, of $1.3 billion, or 14 percent. The provision for credit losses increased $643 million driven by the absence of 2006 releases of reserves, higher net charge-offs and an increase in reserves during 2007 reflecting the impact of the weak housing market particularly on the homebuilder loan portfolio. Noninterest expense increased $347 million, or three percent, mainly due to an increase in expenses related to the addition of LaSalle partially offset by a reduction in CMAS performance-based incentive compensation. For more information on GCIB , see page 25.

Global Wealth and Investment Management

Net income decreased $128 million, or six percent, to $2.1 billion in 2007 compared to 2006 as an increase in noninterest expense was partially offset by an increase in total revenue. Total revenue grew $566 million, or eight percent, to $7.9 billion driven by higher noninterest income of $380 million. Noninterest income increased due to growth in investment and brokerage services income of $827 million. The increase was due to higher AUM primarily attributable to the impact of the U.S. Trust Corpo-

All Other

Net income increased $1.4 billion to $2.9 billion in 2007 compared to 2006. Excluding the securitization offset, total revenue increased $283 million resulting from an increase in noninterest income of $1.6 billion partially offset by a decrease in net interest income of $1.3 billion. The increase in noninterest income was driven by the $1.5 billion gain from the sale of Marsico and an increase of $873 million in equity investment income, partially offset by losses of $394 million on securities after they were purchased from certain cash funds managed within GWIM at fair value. In addition, net interest income, noninterest income and noninterest expense decreased due to certain international operations that were sold in late 2006 and the beginning of 2007. Merger and restructuring charges decreased $395 million. For more information on All Other, see page 34.

Financial Highlights

Net Interest Income

Net interest income on a FTE basis increased $367 million to $36.2 billion for 2007 compared to 2006. The increase was driven by the contribution from market-based net interest income related to our CMAS business, higher levels of consumer and commercial loans, the impact of the LaSalle acquisition, and a one-time tax benefit from restructuring our existing non-U.S. based commercial aircraft leasing business. These increases were partially offset by spread compression, increased hedge costs and the impact of divestitures of certain foreign operations in late 2006 and the beginning of 2007. The net interest yield on a FTE basis decreased 22 bps to 2.60 percent for 2007 compared to 2006, and was driven by spread compression, and the impact of the funding of the LaSalle merger, partially offset by an improvement in market-based yield At December 31, 2007, total assets were $1.7 trillion, an increase of $256.0 billion, or 18 percent, from December 31, 2006. Growth in period end total assets was due to an increase in loans and leases, AFS debt securities and all other assets. The increase in loans and leases was attributable to organic growth and the LaSalle merger. The increases in AFS debt securities and all other assets were driven by the LaSalle merger. The fair value of the assets acquired in the LaSalle merger was approximately $120 billion. All other assets also increased due to higher loans held-for-sale and the fair market value adjustment associated with our investment in China Construction Bank (CCB).

Average total assets in 2007 increased $135.4 billion, or nine percent, from 2006 primarily due to the increase in average loans and leases driven by the same factors as described above. Average trading account assets also increased during 2007 reflective of growth in the underlying business in the first half of 2007. These increases were partially offset by a decrease in AFS debt securities. The acquisition of LaSalle occurred in the fourth quarter of 2007 minimizing its impact on the average balance sheet.

At December 31, 2007, total liabilities were $1.6 trillion, an increase of $244.5 billion, or 18 percent, from December 31, 2006. Average total liabilities in 2007 increased $129.2 billion, or 10 percent, from 2006. The increase in period end and average total liabilities was attributable to increases in deposits and long-term debt, which were utilized to support the growth in overall assets. In addition, the increase in period end and average total liabilities was due to the funding of, and the assumption of liabilities associated with, the LaSalle merger. The fair value of the liabilities assumed in the LaSalle merger was approximately $100 billion.

Trading Account Assets

Trading account assets consist primarily of fixed income securities (including government and corporate debt), equity and convertible instruments. The average balance increased $42.0 billion to $187.3 billion in 2007, due to growth in client-driven market-making activities in interest rate, credit and equity products but was negatively impacted by the market disruptions in the second half of 2007. For additional information, see Market Risk Management beginning on page 61.

Debt Securities

AFS debt securities include fixed income securities such as mortgage-backed securities, foreign debt, ABS, municipal debt, U.S. Government agencies and corporate debt. We use the AFS portfolio primarily to manage interest rate risk and liquidity risk and to take advantage of market conditions that create more economically attractive returns on these investments. The average balance in the debt securities portfolio decreased $38.8 billion from 2006 due to the third quarter 2006 sale of $43.7 billion of mortgage-backed securities as well as maturities and paydowns. The period end balances were also impacted by the addition of LaSalle. For additional information on our AFS debt securities portfolio, see Market Risk Management – Securities on page 66 and Note 5 – Securities to the Consolidated Financial Statements.

Loans and Leases, Net of Allowance for Loan and Lease Losses

Average loans and leases, net of allowance for loan and lease losses, was $766.3 billion in 2007, an increase of 19 percent from 2006. The average consumer loan and lease portfolio increased $88.3 billion primarily due to higher retained mortgage production. The average commercial loan and lease portfolio increased $35.4 billion primarily due to organic growth. The average commercial and, to a lesser extent, consumer loans and leases increased due to the addition of loans acquired as a result of the LaSalle merger. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see Credit Risk Management beginning on page 44, Note 6 – Outstanding Loans and Leases and Note 7 – Allowance for Credit Losses to the Consolidated Financial Statements.

All Other Assets

Period end all other assets increased $64.4 billion at December 31, 2007, an increase of 23 percent from December 31, 2006, driven primarily by an increase of $15.9 billion in loans held-for-sale and a pre-tax $13.4 billion fair value adjustment associated with our CCB investment. Additionally, the increase in all other assets was impacted by the LaSalle merger.


Average deposits increased $44.2 billion to $717.2 billion in 2007 compared to 2006 due to a $31.3 billion increase in average domestic interest-bearing deposits and a $16.6 billion increase in average foreign interest-bearing deposits. We categorize our deposits as core or market-based deposits. Core deposits are generally customer-based and represent a stable, low-cost funding source that usually reacts more slowly to interest rate changes than market-based deposits. Core deposits include savings, NOW and money market accounts, consumer CDs and IRAs, and noninterest-bearing deposits. Core deposits exclude negotiable CDs, public funds, other domestic time deposits and foreign interest-bearing deposits. Average core deposits increased $19.3 billion to $593.9 billion in 2007, a three percent increase from the prior year. The increase was attributable to growth in our average consumer CDs and IRAs due to a shift from noninterest-bearing and lower yielding deposits to our higher yielding CDs. Average market-based deposit funding increased $24.9 billion to $123.3 billion in 2007 compared to 2006 due to increases of $16.6 billion in foreign interest-bearing deposits and $8.4 billion in negotiable CDs, public funds and other time deposits related to funding of growth in core and market-based assets. The increase in deposits was also impacted by the assumption of deposits, primarily money market, consumer CDs, and other domestic time deposits associated with the LaSalle merger.

Trading Account Liabilities

Trading account liabilities consist primarily of short positions in fixed income securities (including government and corporate debt), equity and convertible instruments. The average balance increased $18.0 billion to

$82.7 billion in 2007, which was due to growth in client-driven market- making activities in equity products, partially offset by a reduction in usage targets for a variety of client activities.

Commercial Paper and Other Short-term Borrowings

Commercial paper and other short-term borrowings provide a funding source to supplement deposits in our ALM strategy. The average balance increased $47.1 billion to $171.3 billion in 2007, mainly due to increased commercial paper and Federal Home Loan Bank advances to fund core asset growth, primarily in the ALM portfolio and the funding of the LaSalle acquisition.

Long-term Debt

Average long-term debt increased $39.7 billion to $169.9 billion. The increase resulted from the funding of core asset growth, and the funding of, and assumption of liabilities associated with, the LaSalle merger. For additional information, see Note 12 – Short-term Borrowings and Long-term Debt to the Consolidated Financial Statements.

Shareholders’ Equity

Period end and average shareholders’ equity increased $11.5 billion and $6.2 billion due to net income, increased net gains in accumulated OCI, including an $8.4 billion, net-of-tax, fair value adjustment relating to our investment in CCB, common stock issued in connection with employee benefit plans, and preferred stock issued. These increases were partially offset by dividend payments, share repurchases and the adoption of certain new accounting standards.

Supplemental Financial Data

Table 6 provides a reconciliation of the supplemental financial data mentioned below with financial measures defined by GAAP. Other companies may define or calculate supplemental financial data differently.

Operating Basis Presentation

In managing our business, we may at times look at performance excluding certain nonrecurring items. For example, as an alternative to net income, we view results on an operating basis, which represents net income excluding merger and restructuring charges. The operating basis of presentation is not defined by GAAP. We believe that the exclusion of merger and restructuring charges, which represent events outside our normal operations, provides a meaningful year-to-year comparison and is more reflective of normalized operations.

Net Interest Income – FTE Basis

In addition, we view net interest income and related ratios and analysis (i.e., efficiency ratio, net interest yield and operating leverage) on a FTE basis. Although this is a non-GAAP measure, we believe managing the business with net interest income on a FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.

Performance Measures

As mentioned above, certain performance measures including the efficiency ratio, net interest yield and operating leverage utilize net interest income (and thus total revenue) on a FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield evaluates how many basis points we are earning over the cost of funds. Operating leverage measures the total percentage revenue growth minus the total percentage expense growth for the corresponding period. During our annual integrated planning process, we set operating leverage and efficiency targets for the Corporation and each line of business. We believe the use of these non-GAAP measures provides additional clarity in assessing our results. Targets vary by year and by business, and are based on a variety of factors including maturity of the business, investment appetite, competitive environment, market factors, and other items (e.g., risk appetite). The aforementioned performance measures and ratios, return on average assets and dividend payout ratio, as well as those measures discussed more fully below, are presented in Table 6.

Return on Average Common Shareholders’ Equity and Return on Average Tangible Shareholders’ Equity

We also evaluate our business based upon ROE and ROTE measures. ROE and ROTE utilize non-GAAP allocation methodologies. ROE measures the earnings contribution of a unit as a percentage of the shareholders’ equity allocated to that unit. ROTE measures our earnings contribution as a percentage of shareholders’ equity reduced by goodwill. These measures are used to evaluate our use of equity (i.e., capital) at the individual unit level and are integral components in the analytics for resource allocation. In addition, profitability, relationship, and investment models all use ROE as key measures to support our overall growth goal.

Core Net Interest Income – Managed Basis

We manage core net interest income – managed basis, which adjusts reported net interest income on a FTE basis for the impact of market-based activities and certain securitizations, net of retained securities. As discussed in the GCIB business segment section beginning on page 25, we evaluate our market-based results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for CMAS . We also adjust for loans that we originated and subsequently sold into certain securitizations. These securitizations include off-balance sheet loans and leases, primarily credit card securitizations where servicing is retained by the Corporation, but excludes first mortgage securitizations. Noninterest income, rather than net interest income and provision for credit losses, is recorded for assets that have been securitized as we are compensated for servicing the securitized assets and record servicing income and gains or losses on securitizations, where appropriate. We believe the use of this non-GAAP presentation provides additional clarity in managing our results. An analysis of core net interest income – managed basis, core average earning assets – managed basis and core net interest yield on earning assets – managed basis, which adjusts for the impact of these two non-core items from reported net interest income on a FTE basis, is shown in the table above.

Core net interest income on a managed basis increased $107 million in 2007 compared to 2006. The increase was driven by higher levels of consumer and commercial loans, the impact of the LaSalle acquisition, and a one-time tax benefit from restructuring our existing non-U.S. based commercial aircraft leasing business. These increases were partially offset by spread compression, increased hedge costs and the impact of divestitures of certain foreign operations in late 2006 and the beginning of 2007.

On a managed basis, core average earning assets increased $84.1 billion in 2007 compared to 2006 due to higher levels of consumer and commercial managed loans and increased levels from ALM activities partially offset by a decrease in average balances from the divestitures mentioned above.

Core net interest yield on a managed basis decreased 31 bps to 3.82 percent compared to 2006 and was driven by spread compression, higher costs of deposits, the impact of the funding of the LaSalle merger and the sale of certain foreign operations.

Business Segment Operations

Segment Description

We report the results of our operations through three business segments: GCSBB, GCIB and GWIM , with the remaining operations recorded in All Other . Certain prior period amounts have been reclassified to conform to current period presentation. For more information on our basis of presentation, selected financial information for the business segments and reconciliations to consolidated total revenue, net income and period end total asset amounts, see Note 22 – Business Segment Information to the Consolidated Financial Statements.

Basis of Presentation

We prepare and evaluate segment results using certain non-GAAP methodologies and performance measures, many of which are discussed in Supplemental Financial Data beginning on page 17. We begin by evaluating the operating results of the businesses which by definition excludes merger and restructuring charges. The segment results also reflect certain revenue and expense methodologies which are utilized to determine net income. The net interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics.

The management accounting reporting process derives segment and business results by utilizing allocation methodologies for revenue, expense and capital. The net income derived for the businesses is dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing, and other methodologies and assumptions management believes are appropriate to reflect the results of the business.


The table below presents share repurchase activity for the three and nine months ended September 30, 2008 and 2007, including total common shares repurchased under announced programs, weighted average per share price and the remaining buyback authority under announced programs. For additional information on shareholders’ equity and earnings per common share, see Note 13 – Shareholders’ Equity and Earnings Per Common Share to the Consolidated Financial Statements. Under the Troubled Asset Relief Program Capital Purchase Program repurchases of the Corporation’s outstanding preferred and common stock are subject to certain restrictions. For more information on these restrictions, see Note 19 – Subsequent Events to the Consolidated Financial Statements.

(1) There were no share repurchases during the nine months ended September 30, 2008.

(2) On July 23, 2008, the Board of Directors (the Board) authorized a stock repurchase program of up to 75 million shares of the Corporation’s common stock at an aggregate cost not to exceed $3.75 billion and for 12 to 18 months. On January 24, 2007, the Board authorized a stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost not to exceed $14.0 billion. This stock repurchase program expired on July 24, 2008. On April 26, 2006, the Board authorized a stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost not to exceed $12.0 billion and to be completed within a period of 12 to 18 months. This stock repurchase plan was completed during the third quarter of 2007.

(3) Reduced shareholders’ equity by $3.7 billion and increased diluted earnings per common share by approximately $0.02 for the nine months ended September 30, 2007. These repurchases were partially offset by the issuance of approximately 49.7 million shares of common stock under employee plans, which increased shareholders’ equity by $2.3 billion, net of $113 million of deferred compensation related to restricted stock awards, and decreased diluted earnings per common share by approximately $0.01 for the nine months ended September 30, 2007.


Kevin Stitt

Good morning. This is Kevin Stitt, Bank of America Investor Relations. Before Ken Lewis and Joe Price begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results. These statements involve certain risks that may cause actual results in the future to be different from our current expectations.

These factors include, among other things, changes in economic conditions, changes in interest rates, competitive pressures within the financial services industry and legislative or regulatory requirements that may affect our businesses. For additional factors please see or press release and SEC documents.

With that, let me turn it over to Ken Lewis.

Kenneth Lewis

Good morning. Welcome to today’s program. (Operator Instructions) It is now my pleasure to turn the conference over to Kevin Stitt.

Kevin Stitt

This is Kevin Stitt, Bank of America Investor Relations. Before Ken Lewis and Joe Price begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results. These statements involve certain risks that may cause actual results in the future to be different from our current expectations.

These factors include among other things, changes in economic conditions, changes in interest rates, competitive pressures within the financial services industry and legislative or regulatory requirements that may affect our businesses. For additional factors please see or press release and SEC documents. With that, let me turn it over to Ken Lewis.

Kenneth D. Lewis

Good morning. I don’t need to tell you what extraordinary times we are experiencing. The economy and subsequently the credit markets literally hit a wall starting in September and culminating late in December with the greatest impact of my almost 40 years in banking. As you have seen in earnings reports so far, no body operating in the capital markets or lending to the consumer has been immune.

While 2008 was a very disappointing year, we still made a $4 billion profit even as we experienced more than $10 billion in capital market losses and $27 billion in credit costs. We suffered as the economy slowed materially as we are a long credit risk and our core activities of commercial and consumer lending as well as in our capital markets businesses. So the question on my mind and your minds is what are we doing about it?

We managed our risk position down during 2008, reducing wherever we could the relevant positions in every area. Due to illiquidity we could not get that risk down far enough. We continued to re-work our credit risk appetite and consumer. We have instituted LTV, debt-to-income ratios and other restrictions which are prudent in light of the times we are facing. This approach raises concerns with legislators and other constituencies that we may be pulling back on credit when consumers, small businesses and commercial customers need it most.

There is no doubt our overall appetite on credit risk is greatly reduced. Given the right costs and provisions here and throughout the industry how could it be otherwise? Nonetheless, as you will see in a few minutes, even as we seek to reduce risk we continue to offer loans and credit to individuals and small businesses and corporate customers. We originated $115 billion in new credit during the fourth quarter alone.

In our core company we have revisited and revised our unsecured underwriting terms and card terms, focusing on the programs that will produce better charge off results. In our commercial areas we continue to aggressively work on the credit book to reduce our exposures. During the last two years we have purchased sizeable credit exposures in our acquisitions of Countrywide and LaSalle which have added to our credit positions but we continue to restructure these operations and work to reduce risk levels.

We have been working on the integration plans for Merrill since September and now carry through those plans. So where does that leave us?

The core businesses at Bank of America continue to operate quite well. We continue to grow our franchise focusing on customers and associates. We have had healthy growth in checking accounts and deposits. Customers continue to seek us out as a company of strength. Metrics on customer favorability, brand awareness, customer satisfaction and purchase consideration all improved last year and we continue to be a leader in helping to find solutions to the credit crisis.

We are proud of this record. I think it is important for investors to understand that we do this because it is good business. The recession and credit crisis will end someday and people will remember that our company was there for them in hard times. That will be an essential element in our opportunity to return to the kind of profitability all of us want out of our company.

With that backdrop I will discuss fourth quarter earnings focusing mainly on the highlights across the company with some specific comments on individual businesses. Then Joe will go into more detail on certain issues including the actions we announced today, the capital markets, credit quality, net interest income and Merrill Lynch. Finally, we will touch on our thoughts for 2009 and discuss some of the near-term trends that will impact earnings.

On January 1 we completed the purchase of Merrill Lynch establishing a company unrivaled in its breadth of financial services and global reach. This merger reinforces Bank of America’s position as a leading global financial institution. The merger creates, in our opinion, the most attractive U.S. consumer banking franchise with broad earnings, diversification and an attractive run deposit base. We are one of the largest wealth management businesses in the world with approximately 20,000 financial advisors and more than $2 trillion in client assets, a world leader in the global markets and corporate investment banking businesses particularly in the areas of lending, debt and equity writing, trading, liquidity, payments management, research and merger and acquisition advice and unparalleled in the number of commercial clients we touch through business lending and treasury services.

Longer term, the combination should be an earnings powerhouse with leading market share in almost all of its businesses. We are happy that John Thain has assumed a major role at Bank of America. John is in charge of Global Corporate Investment Banking as well as Global Wealth and investment management both of which will incorporate most of Merrill’s businesses.

Since most of you are focused on the short-term let’s turn to that. Last quarter we said that market turbulence, economic uncertainty and rising unemployment would take its toll on quarterly earnings and that has certainly been the result for the fourth quarter both at Bank of America and particularly at Merrill Lynch. The United States is currently in a severe recession affecting all sectors of the economy. Congress has passed the Financial Stabilization Plan as well as other programs put in place and are starting to stabilize credit markets and promote liquidity but at a pace slower than any of us would like. We believe it will take time before any substantial benefits are seen in the health of the consumer and the impact on GDP growth.

Consequently, we think the prudent decision is to take our dividend to $0.01 rather than to wait and see how earnings will ball up in 2009. This reduction will preserve approximately $2 billion in quarterly dividends that would have been paid out. You saw in the release that Merrill Lynch experienced a fourth quarter loss of $15.5 billion that Joe will talk about in a moment. That loss materialized late in the quarter in December and presented us with a decision.

We went to our regulators and told them that we could not close the deal without their assistance. As a result, we have agreed to the issuance of $20 billion in tier-1 qualifying TARP preferred as well as the issuance of an additional preferred of $4 billion in exchange for an asset guarantee as essentially insurance protection of accrual of capital markets related to assets. We believe those actions were in the best interest of Bank of America and the financial system by limiting significant additional downside risk.

These actions also allow us to turn our attention to consolidating and recognizing the long-term strategic benefits of the two companies.

Turning to earnings, Bank of America in the fourth quarter reported a loss of $1.8 billion or $2.4 billion after deferred dividends or $0.48 per diluted share. However, for the entire year we did remain profitable earning $4 billion or $2.6 billion after preferred dividends.

As we experienced in the third quarter, earnings in the fourth quarter were seriously impacted by the headwinds of continuing high credit costs, severe market turbulence and losses weighted to one-time events. Although it is difficult to focus on what is going right at this time, I do think it is imperative to understand that most of our businesses do remain profitable for the fourth quarter. Both consumer and small business banking with earnings of $835 million and global wealth and investment management with earnings of $511 million.

Within global corporate investment banking business lending made $301 million and treasury services made $756 million. While these earnings in these businesses in some cases are substantially lower than earnings in normal times, they are still profitable even with the significant increases in credit costs, lower customer activity and public market headwinds.

An additional positive is that our retail businesses are experiencing a significant growth in deposits even as we operate in a lower interest rate environment. Average core retail deposits grew almost $12 billion or 2% including the expected run off in deposits at Countrywide. If you exclude the impact of Countrywide, retail deposits grew just short of $19 billion or 3.5% which we believe is a multiple of the overall market and was done while we maintained pricing discipline.

As we experienced during the MBNA integration, approximately $7 billion of deposits left Countrywide after initiating more rational pricing. The combination of deposit growth and anticipated stabilization of the markets should have a positive impact in 2009. However, more than offsetting the positives this quarter were several events related to the market turbulence.

These events included losses associated with CDM exposure, auction rate securities and legacy trading books; write downs in letters financed, CMBS and private equity, additional support of the Columbia cash funds and a challenging trading environment that impacted our trading results. In addition, the economy weakened in the third quarter as evidenced by rising unemployment, bankruptcies and continuing home price declines.

This weakening drove to additional credit deterioration across our loan portfolio causing us to add substantially to our line items for loan losses. Total revenue for the fourth quarter was approximately $16 billion on FTE basis, down approximately $4 billion or 20% from the third quarter. Net interest income rose 12% from the third quarter while non-interest income decreased 68%.

Driving much of the decrease in non-interest income was this impact of continued [multi] construction and trading account profits, equity investment income and other income. Non-interest expense decreased 6% from the third quarter driven by lower personnel costs primarily incentive compensation. Provision expense of $8.5 billion increased by $2.1 billion from the third quarter. Net charge offs rose $1.2 billion to $5.5 billion. The increase in reserves of approximately $3 billion brings the allowance for loan to lease losses to $23.1 billion or 2.5% of our loan to lease portfolio.

Earnings in each of our businesses were significantly impacted by all the factors I have just detailed. Let’s spend a few minutes discussing each of those businesses.

Global consumer and small business banking earned $835 million, down $504 million from the third quarter as stable revenue levels, lower expenses and lower taxes partially offset an increase in provision expense of $1.1 billion. The retail deposit story remains very positive as I have mentioned. Though the pace of growth is down from levels a year ago we continue to generate net new checking and savings accounts. For the second year in a row we grew net new checking accounts by more than 2 million. The recent drop in interest rates is driving a significant increase in mortgage applications, mainly refi’s, which is providing a very good start to production levels for 2009.

Global wealth and investment management earned $511 million in the fourth quarter which is actually up from the third quarter and from the fourth quarter a year ago. Driving the comparison from last quarter was the fact that our support of the Columbia cash funds of $226 million was less than the support from the third quarter.

Global corporate investment banking lost $2.4 billion in the quarter as positive earnings and business lending was $301 million and treasury services was $656 million were offset by the market results and CMAS. Treasury services actually had a pretty good year with earnings this quarter up significantly from the third quarter. For the full year they earned $2.7 billion benefiting from core deposit growth and the flight to quality.

Business lending produced quarterly average commercial loan growth of $10 billion or 3% with revenue growth up 15%. CMAS lost $3.6 billion which Joe will address in a minute.

Not included in the three business segments is equity investment income of negative $387 million. These results were driven by minimal cash gains offset by lower valuations and impairments.

Now before I turn it over to Joe let me make a couple of comments about the current environment some of which reference my earlier comments. As I said, the economy is experiencing a severe recession. We are seeing home prices; rising unemployment and bankruptcies make it difficult to predict the timing of an economic rebound. We believe the economy will continue to be challenged throughout 2009 with some potential early signs of stabilization during the second half of the year. Currently employment weakness is expected to continue through a good part of 2009 as it lags the trend in GDP with unemployment rising in excess of 8%.

Credit quality will continue to be an issue in the next few quarters with provision and charge off’s remaining at elevated levels and perhaps not improving until the latter half of 2009. Our tier-1 capital ratio is estimated to be 9.15% at year-end with a tangible common ratio of approximately 2.83%. As a point of reference if you consider the OCI associated with higher quality NBS that we expect will pay off in full and the restricted CCB shares that would add more than 40 basis points to the ratio or 3.27%. My point being that this ratio, while important, is impacted by certain factors that don’t really influence how we run the business.

Joe will discuss what our pro forma ratios will look like given our actions so far this year. Given our economic outlook we still believe most of our core businesses can produce positive earnings for 2009 assuming a continued tight grip on expense levels across the company. We expect these earnings will also be accretive to capital in 2009. Remember, we sold some of our CCB investment in January which will result in an approximate pre-tax gain of $2 billion in the first quarter.

Most importantly we remain committed to serving our customers and clients while driving profitability during these tougher times. I know I am repeating myself here but these times continue to be increasingly difficult on all of us including our shareholders, associates and our customers. With the expanding investment in our company by the Federal government we intend to play a major role in restoring the economy of the United States to a healthy rate of growth. We will do this by providing credit to consumers, small and large businesses and state and local governments.

I have recently created a senior management team to oversee the Bank of America credit initiative which will meet weekly to review lending levels in each of the categories that I mentioned. This team will report monthly to the public on lending activity. This reporting will be in addition to any reports requested by our regulators, the Treasury or Congress. Going forward the role of banks must be to fuel the economy with credit while abiding by the inescapable transparency and accountability inherent in the use of public money for any purpose.

Bank of America acknowledges the responsibilities that accompany the use of public funds and stands ready to play the role as the leading bank to help refurbish the economic recession and restore America as the world’s leader in business innovation and progress. Our acquisitions of both Countrywide and Merrill Lynch were directed at strengthening the franchise but also contributed to marketplace stability and we remain a partner for our customers and clients critically providing credit, helping them restructuring their balance sheets and giving them advice on how to best navigate their individual financial situations.

Most of you I think are well aware of our home loan modification program that is projected to modify over $100 billion in mortgages and over three years keep up to 630,000 borrowers in their homes. We have 6,000 associates in our home retention division working with borrowers. During 2008 the home retention division completed over 300,000 workouts. We are working out two troubled loans for every one on which we foreclose. Bank of America last year provided more than $150 billion toward lending, investing and grant dollars to America’s small businesses and communities and to support lower to moderate income individuals and communities. Bank of America’s $1.5 trillion commitment in 10 years is unparalleled in the business.

Business lending remains strong and we have continued making loans to states and municipalities in a time of extraordinary uncertainty. Our team is doing everything they can to operate as efficiently as possible and to build the earnings power of the franchise so when conditions improve you will see the benefits.

With that I will turn it over to Joe to expand a bit on the quarter as well as some of the points I have references.

Joe Price

Thanks Ken. As Ken mentioned we entered into several agreements with various government agencies in light of Merrill Lynch’s fourth quarter loss. These actions will replenish capital and provide protection, essentially insurance, against significant downside risk on a pool of $118 billion in capital markets related exposures. Now in doing this we have insulated in large part future significant losses from the asset classes that drove Merrill Lynch’s loss. This wrapped pool includes assets that when combined with other losses where exposure no longer exists represents some 2/3 of Merrill Lynch’s fourth quarter loss.

In doing so we expanded the coverage to include substantially similar exposures on the Bank of America platform as these assets will be managed together in the ongoing company. From the standpoint of the Bank of America capital markets loss in the fourth quarter the pool includes assets that drove about the same percentage of our losses. Generally speaking, the wrap covers domestic, pre-disruption or legacy leverage loans and commercial real estate loans, those that were largely acquisition related facilities originally intended to be securitized, CDO’s, financial guarantor counter-party exposure, certain trading counter-party exposure and certain investment securities.

Terms of the agreement are that in exchange for us issuing preferred stock of $4 billion which pays a dividend of 8% and warrants, the combined government agencies will absorb 90% of the losses on this pool after the initial $10 billion first loss that we retained. We retained 10% of the losses in excess of the first loss division. We will continue to manage these assets in the ordinary course of business and retain the income from the aggregate pool.

There are some more details in our filings on the specific provisions. While platforms still carry market and credit risk, while entering the agreement we have limited the downside on much of the capital market legacy cash positions as well as select counter-parties in exchange for the first loss position and a premium. Assets included in the wrap will carry a 20% risk weighting for capital purposes.

Let me now turn to earnings and begin by elaborating a bit more on fourth quarter results before turning to credit quality, capital and Merrill Lynch. Turning first to GCIB, and more specifically capital markets and advisory services.

As Ken mentioned this was one of the most difficult capital market environments in history and the fourth quarter was particularly severe. Prices continue to decline across a broad spectrum of asset classes. Global de-leveraging accelerated. Volatility and illiquidity continue to disrupt equity and credit markets and correlation trades experienced significant diversions, all of which made for an incredibly challenging backdrop in addition to normal fourth quarter seasonality.

Now all this led to very disappointing results. Net loss of $3.6 billion in CMAS. On a positive note, investment banking fees were up 30% from the third quarter to $618 million. Now we would characterize our market disruption charges this quarter as approximately $4.6 billion. These charges continued to be centered in CDO related write downs as well as couple of other areas.

Let me start with leverage lending where we ended the quarter with exposure of $3.6 billion which is all funded, down $2.9 billion from September. $1.7 billion of the reduction was the transfer of bonds to the corporate investment portfolio where they will be carried as an investment. The remaining reduction was a combination of sales, write downs and terminations. Legacy or pre-disruption exposure is down $2.3 billion and is carried at $0.67.

During the quarter we wrote down an additional $425 million versus $648 million in the first nine months of 2008 as valuations continue to erode due to spread widening. On the CMBS side we ended the year with $7.6 billion in exposure, down 7% from the third quarter of which $6.9 billion is funded. As always, I remind you approximately 80% is comprised of larger ticket, floating rate debt most of which is acquisition related. This floating rate debt was written down approximately $500 million.

We also recorded approximately $328 million of losses associated with equity investments we made in acquisition related financing transactions. There were several other legacy books where we continued to record losses including $740 million in structured credit trading of which about $400 million was counter-party valuation losses. This book, as well as our other credit products, experienced losses as cash spreads gapped out disproportionately and extreme dislocations and basis correlations occurred.

We also lost $589 million on non-U.S. high grade NBS as the severe spread movements were not limited to the U.S. Now finally in the supplemental packet you can see our CDO and sub-prime related exposure along with the changes during the quarter where we recorded losses of $1.7 billion.

The losses were largely comprised of approximately $848 million of super senior CDO write downs, a charge of approximately $400 million to reflect the counter-party risk associated with our insured super senior position and additional write downs of $423 million mainly on positions we retained from CDO liquidations.

At the end of December our un-hedged, sub-prime super senior related exposure dropped to just below $1 billion, $980 million to be specific, while bonds retained from the liquidations were about $2 billion. Un-hedged super senior related exposure including the securities retained from liquidations now total $5.3 billion. Our remaining hedged exposure of $1.5 billion which is all high grade is carried at $0.41 on the dollar and approximately 71% of the wrappers are from mono lines.

This exposure is included on the schedules in the supplemental package along with the relevant information.

Before I move off these legacy exposures let me say that the domestic CMBS and leverage loans as well as the CDO’s both hedged and un-hedged are now covered under the government wrap.

As I told you last quarter we agreed to offer to buy back auction rate securities that we sold to certain customers. During the fourth quarter we actually repurchased approximately $4.7 billion bringing our total holdings to $7.6 billion. Valuation declines in the quarter cost us approximately $410 million of which most was recorded in the GCIB unit. Our estimated remaining repurchase commitment was $675 million at year-end.

Now let me switch to credit quality. We began seeing a decidedly negative impact on our customers from the slowing economy, particularly the consumer and these pressures accelerated in December. This is evident in spending patterns as well as credit performance. As result, fourth quarter provision of $8.5 billion exceeded net charge off’s resulting in the addition of approximately $3 billion to the reserve. Reflective of continued economic stress on the consumer, reserves were added for most consumer related products, most notably home equity, credit card and consumer lending.

Now the reserve addition also includes $750 million associated with the reduction in expected principle cash flows on the Countrywide impaired portfolio driven by continued deterioration in the economy and the home price outlook. On the commercial side we added approximately $460 million to the reserves for small business, broad based deterioration in the non-real estate commercial portfolios as well as the home builder portfolio.

This commercial increase is reflective of a slow down in consumer spending, continued global financial markets turmoil and housing value declines. Our reserve now stands at $23.1 billion or 2.5% of our loan and lease portfolio. On a held basis, net charge off’s in the quarter increased 52 basis points from the third quarter to 2.36% of the portfolio or $5.5 billion. On a managed basis, total net losses in the quarter also increased 52 basis points to 2.84% of the managed loan portfolio or about $7.5 billion.

Managed net losses in the consumer portfolios were 3.46% versus 2.89% in the third quarter. Managed consumer credit card net losses represent 54% of total consumer losses. Managed consumer credit card net losses as a percent of the portfolio increased to 7.16% from 6.4% in the third quarter. 30 day plus delinquencies in managed consumer credit card increased 79 basis points to 6.68% while 90 day plus delinquencies increased 28 basis points to 3.16%.

We have continued to see increased delinquencies across our card portfolio even more so in the states most affected by housing problems. California and Florida make up a little less than a quarter of our domestic consumer card book but represent about 1/3 of the losses. Clearly with unemployment levels projected to go beyond 8% in the U.S. we would expect the consumer credit card net loss ratio to increase as well and probably exceed unemployment levels by at least 100 basis points and be further impacted by decreasing loan levels.

Credit quality in our consumer real estate business also continued to deteriorate from the third quarter. Our largest concentrations are in California and Florida which combined represent about 40% of the home equity portfolio and represent about 65% of the losses. Home equity net losses increased approximately $149 million to $1.1 billion or 2.92% versus 2.53% in the prior quarter. 30 plus performing delinquencies increased 47 basis points to 1.75% while NPA’s increased 41 basis points to 1.86%.

We have seen HELOC utilization rates tick up about 200 basis points to 52% driven by additional draws and slower payments. Our ending home equity balance of $153 billion was up slightly during the quarter. New business and increased utilization net of pay downs contributed approximately $5.1 billion in growth which was partially offset by closed accounts and charge offs.

As we said last quarter with the increased economic and credit pressures we continue to believe that the loss rate will cross the 4% mark in 2009. Our residential mortgage portfolio showed an increase in net losses to $466 million or 73 basis points for the quarter. That would be 62 basis points net of the insurance wrap that we have on that product. Excluding our community investment act portfolio and that portfolio totals 7% of the residential book; losses would have been $340 million or 57 basis points so about 46 basis points net of both the CRA and the insurance wrap.

We have continued to see increased delinquencies and losses across our portfolio, again even more so in the states most affected by the housing problems. California and Florida, which combined comprise 42% of the balances drove 63% of the net losses. Although approximately $119 billion or 48% of our residential mortgage portfolio carried the risk mitigation protection it does not cover our CRA programs.

$70 million of net losses this quarter were covered by insurance which reduces the net losses to 62 basis points on the portfolio versus the reported 73 basis points. I should note that we continue to reduce home loan balances through sales or by converting them to securities as examples of many actions taken to fortify liquidity. This has the effect of bringing down the average loan balances thereby negatively impacting the reported loss rate. However, having said that we do see continued deterioration and worsening economic conditions could drive a loss rate in excess of 100 basis points net of our insurance.

Turning to our other consumer portfolios, the auto portfolio at the end of December was about $26 billion in loans. Net losses in the quarter were $155 million or an annualized 2.44% of the portfolio up from 1.68% in the third quarter. Although a portion of this increase was due to seasonality in this business, reduced collateral values as well as economic stress on the consumer also contributed to the higher losses.

Within car services we have the consumer lending business that has about $28 billion which is mostly comprised of unsecured consumer loans. Largely due to increased unemployment and increased bankruptcies this portfolio is also experiencing rising delinquencies and losses. Net credit losses were 10.37% in the fourth quarter, up 193 basis points over the third.

Loss rates have also been impacted by tightening in underwriting criteria resulting in a significant slow down of new loan production. Like our own portfolios, California and Florida continue to have out-sized delinquency and loss contributions in relation to the outstandings. During the quarter we increased reserves on this portfolio by about $450 million to a level of around 12.3% of ending loans.

Switching to our commercial portfolios, new charge offs increased $399 million in the quarter to $1.36 billion or 159 basis points, up 46 basis points from the third quarter. The deterioration this quarter was broadly spread across various businesses although on a semi-positive note small business had the smallest increase, i.e. about $35 million, we have seen in several quarters. Net losses in small business, which are reported as commercial loan losses, increased to 11.5%.

If you exclude small business from commercial domestic our total commercial loss rate is about 99 basis points. Further excluding commercial real estate where losses have been concentrated in home builders, the loss rate is 65 basis points.

As we have discussed before, many of the issues in small business relate to the rapid growth of the portfolio over the past few years which is now compounded by current economic trends. The continued increases are consistent with the seasoning of these vintages and while clearly too high they are generally in line with our forecast from last quarter.

Reservable criticized utilized exposure in our commercial book increased to 8.9% of the book from 7.45% at the end of the third quarter. The increase is scattered across industries, lines of businesses and products. Commercial NPA’s rose $1.7 billion to $6.8 billion. Nearly 56% of commercial NPA’s was in the commercial real estate business spread across home builders, retail and apartments.

Let me move off credit quality and discuss net interest income. Compared to the third quarter on a managed and fully tax equivalent basis, net interest income was up $1.5 billion of which core, which excludes our trading related margin, represented $994 million. The increase in core NII was driven mainly by lower short-end rates on market based funding and core deposit products.

The core net interest margin on a managed basis increased 16 basis points over third quarter to 3.95% due primarily to the improved rate environment. As you can see in our material our interest rate positioning is now asset sensitive to parallel moves in rates compared to our liability sensitive position at the end of September. The change in sensitivity is primarily due to the changes in the forward curve as well as the absolute low level of rates.

Due to this low level of rates some of our longer term assets are re-pricing faster while our shorter term liabilities have already or are unable to re-price much lower. Given how low rates are an asset sensitive position makes sense as we are positioned to benefit as rates rise in the future. While we are asset sensitive to parallel moves in interest rates we continue to benefit from curve steepening.

As a heads up we expect net interest income to drop in the first quarter for seasonal reasons as well as the negative impact of lower interest rates on our asset re-pricing.

Now let me switch and talk about fourth quarter results for Merrill Lynch. As Ken mentioned Merrill Lynch’s fourth quarter preliminary results totaled $15.5 billion loss. In our supplemental material we have included a preliminary P&L and balance sheet. The Merrill Lynch data we are providing today is a preliminary overview as Merrill’s ordinary and usual process for analyzing the numbers continues. Once the results are fully complete Merrill Lynch and Co. will file a form 10K for 2008 so there will be more information in that report for you.

Before I take you through the details on the large items let me say that the difficult capital markets environment, particularly the severe impact late in the fourth quarter, hit the Merrill Lynch platform very hard. As asset prices continued to decline across all categories, volatility and illiquidity spread throughout the markets and the correlation trades were really hit hard. All this led to very disappointing results.

However, starting off on a positive note, Global Wealth Management continued to deliver solid results despite the environment with global private client net revenues down only 10% sequentially and even less in the U.S. advisory portion of the business, a testament to the quality of the franchise. Certain other businesses also performed relatively well such as investment banking down only 4% sequentially and commodities which was up substantially on strength in trading gas and coal in Europe.

Now in the fourth quarter Merrill Lynch overall reported negative revenues by $12.6 billion. Let me take you through the principle drivers of those losses and the related remaining exposures. Starting with the transitory leverage lending exposures, charges totaled $1.9 billion during the quarter driven by several credits under significant duress. Remaining exposure in that transitory book totaled $5.6 billion carried on average at $0.42 on the dollar or $2.4 billion on a market value basis. The portfolio is comprised mainly of less liquid positions such as revolvers and bridge loans.

Of this total market value about $1 billion is domestic and covered under the wrap. The remaining commercial real estate exposure excluding the First Republic portfolio is $9.7 billion. Commercial real estate losses were $1.1 billion of which $475 million related to whole loan conduits. The remaining whole loan conduit exposure is $3.8 billion and is currently carried at $0.72 on the dollar of which about $2 billion is covered under the wrap. The remaining $600 million of losses were due to real estate related debt and equity investments involving smaller credit in the [DMDA and the Pack Rim]. The remaining exposure of these investments was $5.7 billion at the end of the year.

The U.S. super senior ABS CDO losses were $369 million this quarter and remaining un-hedged exposure was $800 million. It is carried about $0.14 on the dollar. The hedged loan exposure is just over $1 billion and it is carried at about $0.20 on the dollar. Both of these are to be covered under the wrap. Merrill Lynch experienced a loss of about $300 million on the financial guarantors covering the U.S. super senior ABS CDO’s. The remaining receivable from guarantors on that portfolio is $1.5 billion and this exposure is also covered under the wrap.

Regarding credit default swaps with mono line financial guarantors excluding those I just mentioned covering the U.S. ABS CDO’s, total notional was $50 billion with a mark to market before adjustment for counter-party risk of $12.8 billion, $7.8 billion after the counter-party risk adjustment. As part of Merrill Lynch’s correlation trading and credit trading books they have entered into various derivative contracts with mono line insurers to hedge risk in the portfolios. Of the notional amount of the insurance of about $50 billion, one half relates to CLO and various hybrid basket trades and the other half relates primarily to CMBS and RMBS on which the underlying collateral varies from AAA to BBB.

To date, Merrill has taken credit valuation adjustments of approximately 39% on the receivable balance. Both the remaining receivable balance as well as the remaining net notional are covered under the wrap. CBA taken during the fourth quarter on these exposures totaled about $3 billion.

Merrill Lynch also recorded about $1.2 billion in losses on their U.S. banks investment portfolio during the quarter. This portfolio had a year end market value of $10.4 billion with $9.3 billion of cumulative loss adjustments recorded in OCI reducing their shareholder’s equity at year-end. As you know, OCI gets adjusted to purchase accounting so carrying or market value will be equal to our basis at acquisition. The remaining market value 95% is covered under the wrap.

Counter-party valuation costs on the derivatives book other than the mono lines I talked about just a minute ago during the quarter were almost $2.5 billion. This cost included approximately $800 million due to the narrowing of Merrill Lynch spreads due to the merger announcement which would normally provide an offset but obviously in this case went the same direction. There is about $17 billion of selected counter-party notional on derivatives, $3.2 billion of which is mark to market and is covered under the wrap previously discussed.

Write downs on private equity and principle investments totaled $1.7 billion driven by valuation adjustments on private holdings and marks on the public holdings. Other write downs included $2.3 billion in goodwill impairment related to the fixed income and investment banking businesses.

In addition to pressure on legacy exposures, the market dislocation and contagion caused many businesses to have very weak results particularly credit, proprietary trading and principle investments. As I mentioned earlier while large write downs occurred in the fourth quarter we have limited the significant downside risk in these asset classes under the wrap.

We will provide more details on the Merrill Lynch exposures and what portion is covered under the wrap in future SEC filings.

Since we closed the acquisition of Merrill Lynch on January 1, the results I just detailed are not reflected in our fourth quarter. Integration efforts continue to move ahead and we remain confident in the long-term prospects of the combined company. So let me quickly cover some of the merger specifics.

We issued approximately 1.4 billion Bank of America shares at an exchange rate of .8595 for each Merrill share. I’ll give you some preliminary purchase accounting estimates but realize they will probably change somewhat as we are currently finalizing those.

From an accounting standpoint under the revised purchase accounting guidelines we will mark Merrill Lynch’s balance sheet to fair value levels as of January 1. As required under FAS 141R the total purchase price for the transaction will be reported for accounting purposes as the value as of the close or $29.1 billion. That includes the $20.5 billion in common shares and the $8.6 billion in preferred equities.

Subtracting Merrill Lynch’s estimated tangible book value, adjusted for the impact of the preliminary purchase accounting of approximately $19.8 billion, and $3.9 billion in identifiable intangibles net of tax, results in goodwill of about $5.4 billion. Other changes in purchase accounting adjustments from our prior disclosures include using the actual year-end number for Merrill Lynch’s total shareholders equity which at $20.6 billion reflects the fourth quarter loss and incorporating a write down on Merrill Lynch’s debt of $15.5 billion reflecting fair value given Merrill Lynch’s year-end credit spreads.

As you can see, total assets at Merrill Lynch at the end of December before purchase accounting marks were $663 billion. Loans held for investment net of the allowance were $58 billion and deposits were $98 billion. Expect some shifting around of what is in the accrual book versus the market books as we move further down the path of consolidating operations and management.

You can see from the material our updated restructuring costs of $3 billion pre-tax or $2 billion after tax is consistent with our initial estimates. At this point we expect to hit our target cost save of $7 billion pre-tax and it looks like we will get more in 2009 than expected. We originally indicated 20-25% but now it looks like we could be north of 35%. This will likewise accelerate our merger charges a little.

Under FAS 141R the $2 billion of after-tax restructuring charges will be reported through the income statement as restructuring expense through 2011. The restructuring charge for 2009 is estimated to be approximately half of the total spread somewhat evenly over the four quarters.

Given the size of the balance sheet, adding Merrill Lynch to Bank of America would reduce Bank of America’s tier-1 capital by approximately 45 basis points. 8.7% on a pro forma basis which includes the $10 billion of preferred that funded January 9 that was part of the initial TARP equity program. Adding incremental preferred issuance we announced this morning plus the risk weighted asset adjustment due to the asset wrap, pro forma tier-1 would be approximately 10.67%. Estimated risk weighted assets from Merrill after purchase accounting adjustments of approximately $379 billion for your reference.

Adjusting for the wrap, combined risk weighted assets dropped by around $70 billion.

As a reminder, we also strengthened tier-1 somewhat two weeks ago with the sale of some of our investment in China Construction Bank, generating a pre-tax gain of approximately $2 billion.

Turning to tangible common, as Ken mentioned earlier we ended the quarter at 2.83%. On a pro forma basis including Merrill Lynch and the other actions that ratio would be 2.66%. If you consider the same adjustments that Ken mentioned earlier related to higher quality debt securities and our restricted shares of CCB you could add about another 30 basis points to the ratio so call it just under 3%.

We are clearly comfortable running the company at this level of tier-1 realizing that it is in excess of what is appropriate and more normal times is needed. The tangible ratio, while adequate, will be rebuilt through earnings given the dividend action we announced this morning. While I am not going to predict capital ratio levels at the end of March, we will continue to be more efficient with the use of our balance sheet including the combined trading books of Bank of America and Merrill Lynch.

From an earnings perspective we believe Merrill Lynch on a GAAP basis will be dilutive to Bank of America’s earnings over the next two years due to what we believe will be below normal investment banking and trading environments. While we have not formally guaranteed the debt of Merrill Lynch we clearly view it as supporting a critical part of our ongoing operations.

Before turning it back to Ken let me say a couple of things about liquidity. Parent company liquidity remains strong with time to required funding at 23 months on a pro forma basis with Merrill Lynch. It is actually 37 months before Merrill Lynch at the end of the year. The additional actions today, meaning the TARP capital, will add an additional 7 months to that for our parent company liquidity. Also during our fourth quarter we rated nearly $20 billion in debt under the TOGP primarily at the holding company level to ensure robust and excess liquidity to prepare for the Merrill Lynch merger. Our primary bank [BANA] is running the highest levels of excess cash in the company’s history on a daily basis and although somewhat inefficient from a margin perspective it is prudent given the environment.

Positive inflows remain strong and customers clearly prefer to keep cash in safe and liquid form. This is one of the strongest aspects of our franchise and where we truly benefit from being the largest coast-to-coast financial institution.

With that now let me turn it back to Ken.

Kenneth Lewis

Thank you Joe. Going into 2009 let me reiterate that there is considerable uncertainty about the economic environment and the ongoing health of the consumer. Due to that uncertainty we won’t go into the detail we have provided in the past as far as our expectations for 2009. However, those banks with market presence and strong balance sheets can weather and even benefit from the situation and we do feel good about our relative position in our businesses versus the competition.

Making pro forma revenue comparisons between 2008 and 2009 is difficult given the market disruptions and losses experienced by both companies in 2008. However, we believe core net interest income will benefit given the favorable rate environment. However, trading net interest income will drop given the targeted reduction in the trading books and as was mentioned before we expect net interest income in the first quarter to be down due to seasonal impacts as well as lower pricing of assets but then positive in comparison in each of the quarters thereafter.

Non-interest income will obviously grow if you assume some stabilization in the markets but I will let you hazard a guess on the health of the global markets in 2009. One area we do have control over is non-interest expense. For 2009 we originally targeted approximately 20% of the $7 billion in cost savings from the Merrill integration and we now believe, as Joe said, we can get closer to 35% or even north of 35%.

Additional cost savings from Countrywide and LaSalle should also have a positive impact on expense levels. Consumer credit quality will continue as a headwind due to what appears to be further deterioration in housing and unemployment levels and its subsequent impact on consumer asset quality.

Similarly, we would expect to see challenges in the consumer dependent sectors of our commercial portfolio. Given this scenario, for the next several quarters we would expect net losses to be at or above levels we experienced in the fourth quarter. While provision is dependent on future credit losses, everything we are seeing currently points to no relief in provision for at least the next several quarters.

Clearly a real positive for us in 2009 would be for the trading environment to settle down. Under that scenario we can manage through the tough credit environment which unfortunately is with us for the next few quarters.

With that let me open it for questions.

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