Lessons Learned

Today, we at Bank of America are turning over a new leaf. Your Bank of America will be a Bank for America. And much as we would show an incoming CEO our full balance sheet, giving him or her the full knowledge needed to chart a new course, we are committed to transparency with you as well, and to displaying for you our liabilities as well as our assets.

Claim liabilities

We will, naturally, vigorously defend ourselves in any and all of these cases and any others that may arise, so long as we remain in command of our destiny. Still, it is obvious that this volume of litigation will at the very least present a challenge for those seeking to make positive business changes.

Investors claims
Our Bank is today facing over a dozen major lawsuits for selling fraudulent securities to institutional investors. Though we have settled for $8.5 billion in damages with one such group of investors, we still face a further $10 billion in similar claims from AIG, and $700 million more from Allstate, as well as a fraud suit for just over $1 billion by U.S. Bancorp.

Insurer claims
We are being sued for $1.4 billion by a major bond insurer, MBIA, which claims it was fraudulently induced to insure worthless Countrywide mortgages. Another bond insurer, Assured, is seeking $1.6 billion in damages in a very similar suit. Additionally, Ambac, an insurance company which is now bankrupt, claims it lost $466 million as a result of fraud by our Bank.

Pensioner claims
Last year, we settled for $624 million in a case that claimed we had knowingly sold in fraudulent securities to New York public pension funds. We also settled for $315 million in a case involving the Mississippi state pension fund. Similar cases from other states are unfortunately in the pipeline.

Depositor claims
A federal judge ruled in May that Bank of America had systematically overcharged depositors with inflated overdraft fees, forcing us to pay more than $410 million in damages.

Federal Government claims
A federal case alleges that our Bank sold over $3 billion of worthless securities to Fannie Mae and Freddie Mac. The settlement in that case is pending.

Minority claims
Earlier this year we paid $335 million to settle claims that Countrywide had systematically sold minorities riskier adjustable “sub-prime” loans when they were, in fact, well-qualified for safer, fixed-rate mortgages.

Homeowner claims
Our Bank faces over a dozen class-action suits alleging improper foreclosure on thousands of homeowners, some even alleging perjured, "robo-signed" evidence. We have also been accused of deliberately slowing down mortgage modification claims to avoid having to comply with programs to aid distressed families, requirements imposed on us as one of the largest recipients of 2008 bailout funds.

County and town claims
Dozens of localities are alleging that Bank of America systematically evaded hundreds of millions of dollars in local taxes by using MERS, an electronic mortgage registration system that allows the avoidance of county-level mortgage-registration fees.

Shareholder claims
After purchasing the ailing Merrill Lynch with taxpayer funds, bonuses we paid Merrill executives—in order to ease the merger approval process—came into question and became the subject of a lawsuit. While we agreed to settle with the S.E.C. for $33 million, a judge later quadrupled the fine to $125 million to resolve the claim of fraud.

Other direct liabilities

Inherited liabilities
After acquiring Merrill Lynch in 2009, along with its assortment of debt, toxic assets, and junk investments, Bank of America has found itself beset by thousands of complaints, class action lawsuits and even criminal charges brought by over a dozen state attorneys general. In 2011 we paid out $5.6 billion in litigation-related expenses, up from $2.6 billion for 2010. In 2012 those costs are likely to continue to rise; in the first quarter of 2012 alone, for example, Bank of America has committed to a $3.25 billion payout to the federal government to satisfy a multi-state settlement in the fraudulent “robo-signing” fiasco.

Service-charge reductions
A significant share of our annual income is derived from the various service charges contributed by our customers. Last year, service-charge revenue decreased by almost $2 billion, due to a populist “move your money” campaign which included a highly-publicized internet petition. The aggregate effect has been devastating to a core node of our business, and makes clear the need to rethink a model that needs to sustain high overheads through such a wide variety of means.

Indirect liabilities

These are, essentially, factors that make our Bank unpopular with the general public, and increase the difficulty of doing business. These do not have a direct effect on our bottom line, but may accentuate other effects—for example, by creating a hostile judicial environment in which non-objective judges more readily accept claims against us.

Taxation issues
Due in part to our continued losses, and the compensation imbalances outlined above, Bank of America paid no federal tax for 2011, just as in 2010 and 2009. Part of this can be tied to the immense complexity of our business and the global nature of our client base, which has necessitated the creation of hundreds of foreign subsidiaries, including many in traditionally tax-averse territories, such as the Cayman Islands. It is also largely due to the ongoing efforts of our world-class legal team. But regardless of the reasons, this great asset has, with the advent of a more politicized public, become a liability. Many more people have come to resent the fact that the bank with the most branches, customers and checking accounts of any US bank pays no federal income tax, and that public brand-tarnishing presents unknown risk. Even more, the fact that even without taxes, we still don't turn a profit leads many to suggest that our business model is fundamentally flawed.

Embroilment in the foreclosure market
The Bank of America never intended to become a used-home dealer. By finding ourselves in a foreclosure-mill of unprecedented size, our Bank has come to take charge of a vast stock of underwater homes that in many cases remain vacant, eventually bringing the value of entire neighborhoods down. Perceived abandonment of foreclosed homes, coupled with heartbreaking images of evictions, has perpetuated a vast reservoir of ill-will about our brand which also presents a hard-to-assess bottom-line risk. It has also created a platform for critics, who have even gone so far as to engage in stunts that distort the facts, like when one irate Florida mortgage holder, who had won a small court-ordered financial judgment against our bank, mobilized their local sheriffs department to “foreclose” on one of our branches in order to collect their judgment.

Environmental liabilities unpopular
Part of our Bank's strength has come from our predominance within key industries. From 2009 to 2010, for example, we invested more than $4 billion in coal, more than any other bank. This has led some to claim that we are responsible not only for exacerbating the global climate crisis, but for contributing to thousands of deaths due to cardiac and respiratory diseases, as well as 1.6 million lost work days due to heart attacks, chronic bronchitis cases, asthma attacks, and the like.

Inequality
Finally, in this time when the issue of "inequality" is so prominent for Americans, much has been made of the contrast between our stock losses (40% in 2011) and the year-end compensation of our senior executives (7% more than the year before), as well as in the contrast between our CEO's rate of earning and that of a typical teller (441 times more). Regardless of the merits of these points, they do appeal to a wider and wider swath of the American public, creating a deficit of good-will about the brand, which also exposes us to bottom-line risk, especially in the retail banking sector.

Summary

Some of the issues we have outlined above will be easier to address than others. Some may even disappear on their own should there be a federal receivership process, thus it may be premature to worry about them now. But we are committed to demonstrating showing you that we have changed. We wish to provide you, the American taxpayer—who even own our bank in the near future—with the information you are likely to need in pursuing success of the sort you're defining. That was then. This is now. Your Bank of America.