Bank of America 2009 Annual Report Download - page 49

Global Markets
(Dollars in millions) 2009 2008
Net interest income
(1)
$ 6,120 $ 5,151
Noninterest income:
Investment and brokerage services
2,552 752
Investment banking income
2,850 1,337
Trading account profits (losses)
11,675 (5,809)
All other income (loss)
(2,571) (5,262)
Total noninterest income (loss)
14,506 (8,982)
Total revenue, net of interest expense
20,626 (3,831)
Provision for credit losses 400 (50)
Noninterest expense
10,042 3,906
Income (loss) before income taxes
10,184 (7,687)
Income tax expense (benefit)
(1)
3,007 (2,771)
Net income (loss) $ 7,177 $ (4,916)
Return on average equity
23.33% n/m
Efficiency ratio
(1)
48.68 n/m
Balance Sheet
Average
Total trading-related assets
(2)
$507,648 $338,074
Total market-based earning assets
481,542 360,667
Total earning assets
490,406 366,195
Total assets
656,621 427,734
Allocated equity
30,765 12,839
Year end
Total trading-related assets
(2)
$411,212 $244,174
Total market-based earning assets
404,467 237,452
Total earning assets
409,717 243,275
Total assets
538,456 306,693
(1) FTE basis
(2) Includes assets which are not considered earning assets (i.e., derivative assets).
n/m = not meaningful
Global Markets provides financial products, advisory services, financ-
ing, securities clearing, settlement and custody services globally to our
institutional investor clients in support of their investing and trading activ-
ities. We also work with our commercial and corporate clients to provide
debt and equity underwriting and distribution capabilities and risk
management products using interest rate, equity, credit, currency and
commodity derivatives, foreign exchange, fixed income and mortgage-
related products. The business may take positions in these products and
participate in market-making activities dealing in government securities,
equity and equity-linked securities, high-grade and high-yield corporate
debt securities, commercial paper, MBS and asset-backed securities
(ABS). Underwriting debt and equity, securities research and certain
market-based activities are executed through our global broker/dealer
affiliates which are our primary dealers in several countries. Global Mar-
kets is a leader in the global distribution of fixed income, currency and
energy commodity products and derivatives. Global Markets also has one
of the largest equity trading operations in the world and is a leader in the
origination and distribution of equity and equity-related products.
Net income increased $12.1 billion to $7.2 billion in 2009 compared to a
loss of $4.9 billion in 2008 as increased noninterest income driven by trading
account profits was partially offset by higher noninterest expense.
Net interest income, almost all of which is market-based, increased
$969 million to $6.1 billion due to growth in average market-based earn-
ing assets which increased $120.9 billion or 34 percent, driven primarily
by the Merrill Lynch acquisition.
Noninterest income increased $23.5 billion due to the Merrill Lynch
acquisition, favorable core trading results and decreased write-downs on
legacy assets partially offset by negative credit valuation adjustments on
derivative liabilities due to improvement in our credit spreads in 2009.
Noninterest expense increased $6.1 billion, largely attributable to the
Merrill Lynch acquisition. This increase was partially offset by a change in
compensation that delivers a greater portion of incentive pay over time.
Sales and Trading Revenue
Global Markets revenue is primarily derived from sales and trading and
investment banking activities which are shared between Global Markets
and Global Banking.Global Banking originates certain deal-related trans-
actions with our corporate and commercial clients that are executed and
distributed by Global Markets. In order to reflect the relative contribution of
each business segment, a revenue-sharing agreement has been
implemented which attributes revenue accordingly (see page 46 for a dis-
cussion of investment banking fees on a consolidated basis). In addition,
certain gains and losses related to write-downs on legacy assets and select
trading results are also allocated or shared between Global Markets and
Global Banking. Therefore, in order to provide a complete discussion of our
sales and trading revenue, the following table and related discussion
present total sales and trading revenue for the consolidated Corporation.
Sales and trading revenue is segregated into fixed income (investment and
noninvestment grade corporate debt obligations, commercial mortgage-
backed securities (CMBS), residential mortgage-backed securities (RMBS)
and CDOs), currencies (interest rate and foreign exchange contracts),
commodities (primarily futures, forwards, swaps and options) and equity
income from equity-linked derivatives and cash equity activity.
(Dollars in millions) 2009 2008
Sales and trading revenue (1, 2)
Fixed income, currencies and commodities (FICC) $12,727 $(7,625)
Equity income
4,901 743
Total sales and trading revenue $17,628 $(6,882)
(1) Includes $356 million and $257 million of net interest income on a FTE basis for 2009 and 2008.
(2) Includes $1.1 billion and $1.2 billion of write-downs on legacy assets that were allocated to Global
Banking for 2009 and 2008.
Sales and trading revenue increased $24.5 billion to $17.6 billion in
2009 compared to a loss of $6.9 billion in 2008 due to the addition of
Merrill Lynch and the improving economy. Write-downs on legacy assets in
2009 were $3.8 billion with $2.7 billion included in Global Markets as
compared to $10.5 billion in 2008 with $9.3 billion recorded in Global
Markets. Further, we recorded negative net credit valuation adjustments
on derivative liabilities of $801 million resulting from improvements in our
credit spreads in 2009 compared to a gain of $354 million in 2008.
FICC revenue increased $20.4 billion to $12.7 billion in 2009 com-
pared to 2008 primarily driven by credit and structured products which
continued to benefit from improved market liquidity and tighter credit
spreads as well as new issuance capabilities.
•
During 2009, we incurred $2.2 billion of losses resulting from our CDO
exposure which includes our super senior, warehouse, sales and trad-
ing positions, hedging activities and counterparty credit risk valuations.
This compares to $4.8 billion in CDO-related losses for 2008. Included
in the above losses were $910 million and $1.1 billion of losses in
2009 and 2008 related to counterparty risk on our CDO-related
exposure. Also included in the above losses were other-than-temporary
impairment charges of $1.2 billion in 2009 compared to $3.3 billion in
2008 related to CDOs and retained positions classified as AFS debt
securities. See the following detailed CDO exposure discussion.
•
During 2009 we recorded $1.6 billion of losses, net of hedges, on
CMBS funded debt and forward finance commitments compared to
losses of $944 million in 2008. These losses were concentrated in the
more difficult to hedge floating-rate debt. In addition, we recorded
$670 million in losses associated with equity investments we made in
acquisition-related financing transactions compared to $545 million in
losses in the prior year. At December 31, 2009 and 2008, we held
$5.3 billion and $6.9 billion of funded and unfunded CMBS exposure
of which $4.4 billion and $6.0 billion were primarily floating-rate
Bank of America 2009 47