Bank of America 2009 Annual Report Download - page 173

Operating Leases
The Corporation is a party to operating leases for certain of its premises
and equipment. Commitments under these leases are approximately $3.1
billion, $2.8 billion, $2.3 billion, $1.9 billion and $1.5 billion for 2010
through 2014, respectively, and $8.1 billion for all years thereafter.
Other Commitments
At December 31, 2009, the Corporation had commitments to enter into
forward-dated resale and securities borrowing agreements of $51.8 bil-
lion. In addition, the Corporation had commitments to enter into forward-
dated repurchase and securities lending agreements of $58.3 billion. All
of these commitments expire within the next 12 months.
Beginning in the second half of 2007, the Corporation provided sup-
port to certain cash funds managed within GWIM. The funds for which the
Corporation provided support typically invested in high quality, short-term
securities with a portfolio weighted-average maturity of 90 days or less,
including securities issued by SIVs and senior debt holdings of financial
service companies. Due to market disruptions, certain investments in
SIVs and senior debt securities were downgraded by the ratings agencies
and experienced a decline in fair value. The Corporation entered into capi-
tal commitments under which the Corporation provided cash to these
funds as a result of the net asset value per unit of a fund declining below
certain thresholds. All capital commitments to these cash funds have
been terminated. In 2009 and 2008, the Corporation recorded losses of
$195 million and $1.1 billion related to these capital commitments.
The Corporation does not consolidate the cash funds managed within
GWIM because the subordinated support provided by the Corporation did
not absorb a majority of the variability created by the assets of the funds.
In reaching this conclusion, the Corporation considered both interest rate
and credit risk. The cash funds had total assets under management of
$104.4 billion and $185.9 billion at December 31, 2009 and 2008.
In connection with federal and state securities regulators, the Corpo-
ration agreed to purchase at par ARS held by certain customers. During
2009, the Corporation purchased a net $3.8 billion of ARS from its cus-
tomers. At December 31, 2009, the Corporation’s outstanding buyback
commitment was $291 million.
In addition, the Corporation has entered into agreements with pro-
viders of market data, communications, systems consulting and other
office-related services. At December 31, 2009, the minimum fee
commitments over the remaining life of these agreements totaled $2.3
billion.
Other Guarantees
Bank-owned Life Insurance Book Value Protection
The Corporation sells products that offer book value protection to
insurance carriers who offer group life insurance policies to corporations,
primarily banks. The book value protection is provided on portfolios of
intermediate investment-grade fixed income securities and is intended to
cover any shortfall in the event that policyholders surrender their policies
and market value is below book value. To manage its exposure, the
Corporation imposes significant restrictions on surrenders and the man-
ner in which the portfolio is liquidated and the funds are accessed. In
addition, investment parameters of the underlying portfolio are restricted.
These constraints, combined with structural protections, including a cap
on the amount of risk assumed on each policy, are designed to provide
adequate buffers and guard against payments even under extreme stress
scenarios. These guarantees are recorded as derivatives and carried at
fair value in the trading portfolio. At December 31, 2009 and 2008, the
notional amount of these guarantees totaled $15.6 billion and $15.1 bil-
lion and the Corporation’s maximum exposure related to these guaran-
tees totaled $4.9 billion and $4.8 billion with estimated maturity
dates between 2030 and 2040. As of December 31, 2009 and 2008,
the Corporation has not made a payment under these products. The
probability of surrender has increased due to investment manager under-
performance and the deteriorating financial health of policyholders, but
remains a small percentage of total notional.
Employee Retirement Protection
The Corporation sells products that offer book value protection primarily
to plan sponsors of Employee Retirement Income Security Act of 1974
(ERISA) governed pension plans, such as 401(k) plans and 457 plans.
The book value protection is provided on portfolios of intermediate/short-
term investment-grade fixed income securities and is intended to cover
any shortfall in the event that plan participants continue to withdraw
funds after all securities have been liquidated and there is remain-
ing book value. The Corporation retains the option to exit the contract at
any time. If the Corporation exercises its option, the purchaser can
require the Corporation to purchase high quality fixed income securities,
typically government or government-backed agency securities, with the
proceeds of the liquidated assets to assure the return of principal. To
manage its exposure, the Corporation imposes significant restrictions and
constraints on the timing of the withdrawals, the manner in which the
portfolio is liquidated and the funds are accessed, and the investment
parameters of the underlying portfolio. These constraints, combined with
structural protections, are designed to provide adequate buffers and
guard against payments even under extreme stress scenarios. These
guarantees are recorded as derivatives and carried at fair value in the
trading portfolio. At December 31, 2009 and 2008, the notional amount
of these guarantees totaled $36.8 billion and $37.4 billion with esti-
mated maturity dates between 2010 and 2014 if the exit option is
exercised on all deals. As of December 31, 2009 and 2008, the Corpo-
ration has not made a payment under these products and has assessed
the probability of payments under these guarantees as remote.
Indemnifications
In the ordinary course of business, the Corporation enters into various
agreements that contain indemnifications, such as tax indemnifications,
whereupon payment may become due if certain external events occur,
such as a change in tax law. The indemnification clauses are often stan-
dard contractual terms and were entered into in the normal course of
business based on an assessment that the risk of loss would be remote.
These agreements typically contain an early termination clause that per-
mits the Corporation to exit the agreement upon these events. The max-
imum potential future payment under indemnification agreements is
difficult to assess for several reasons, including the occurrence of an
external event, the inability to predict future changes in tax and other
laws, the difficulty in determining how such laws would apply to parties in
contracts, the absence of exposure limits contained in standard contract
language and the timing of the early termination clause. Historically, any
payments made under these guarantees have been de minimis. The
Corporation has assessed the probability of making such payments in the
future as remote.
Merchant Services
On June 26, 2009, the Corporation contributed its merchant processing
business to a joint venture in exchange for a 46.5 percent ownership
interest in the joint venture. The Corporation indemnified the joint venture
for any losses resulting from transactions processed through June 26,
2009 on the contributed merchant portfolio.
The Corporation, on behalf of the joint venture, provides credit and
debit card processing services to various merchants by processing credit
and debit card transactions on the merchants’ behalf. In connection with
these services, a liability may arise in the event of a billing dispute
between the merchant and a cardholder that is ultimately resolved in the
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