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Judicial Watch • Fdic Docs Boa Minutes 02182011

Fdic Docs Boa Minutes 02182011

Fdic Docs Boa Minutes 02182011

Page 1: Fdic Docs Boa Minutes 02182011

Category:General

Number of Pages:13

Date Created:February 18, 2011

Date Uploaded to the Library:February 20, 2014

Tags:losses, Corston, billion, banks, Insured, Reserve, Chairman, Department of the Treasury, Division, staff, Merrill, treasury, Lynch, america, National, federal, thomas, board, EPA, IRS, ICE, CIA, financial


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56740 

Minutes 
The Meeting the Board Directors the 
Federal Deposit Insurance Corporation Conference Call 
Closed Public Observation 
January 15, 2009 -10:03 P.M. 10:03 p.m. Thursday, January 15, 2009, the Chairman called special meeting the Board Directors the Federal Deposit Insurance Corporation which was held means telephone conference call. 
Sheila Bair, Chairman the Board Directors; Martin Gruenberg, Vice Chairman the Board Directors; Thomas Curry, Director (Appointive); John Dugan, Director 
(Comptroller the Currency); John Reich, Director 
(Director, Office Thrift Supervision); John Bovenzi, Deputy the Chairman and Chief Operating Officer; Jesse Villarreal, Chief Staff; Michael Krimminger, Special Advisor for Policy, Office the Chairman; Barbara Ryan, Deputy the Vice Chairman; Lisa Roy, Deputy the Director 
(Appointive); William Rowe, III, Deputy the Director 
(Comptroller the Currency); Claude Rollin, Deputy the Director (Director, Office Thrift Supervision); John Thomas, Acting General Counsel; Sandra Thompson, Director, Division Supervision and Consumer Protection; Arthur Murton, Director, Division Insurance and Research; Mitchell Glassman, Director, Division Resolutions and Receiverships; Eric Spitler, Director, Office Legislative Affairs; Andrew Gray, Director, Office Public Affairs; and Robert Feldman, Executive Secretary, participated the meeting. 
Also participating the meeting were: Roberta Mcinerney, Valerie Best, and Mark Flanigan, from the Legal Division; Christopher Spoth, Daniel Frye, Robert Mooney, John Corston, and Pete Hirsch, from the Division 

56741 Supervision and Consumer Protection; Tiffany Froman, from the Division Information Technology; Christopher Newbury and Mike Anas, from the Division Insurance and Research; James Wigand, from the Division Resolutions and Receiverships; and Alice Goodman, from the Office Legislative Affairs. 
Julie Williams, First Senior Deputy Comptroller and Chief Counsel, Douglas Roeder, Senior Deputy Comptroller, Large Bank Supervision, Grace Dailey, Deputy Comptroller, Large Bank Supervision, and Morris Morgan, National Bank Examiner, Office the Comptroller the Currency; and Scott Polakoff, Senior Deputy Director and Chief Operating Officer, Office Thrift Supervision also participated the meeting. 
Chairman Bair presided the meeting; Mr. Feldman acted 
Secretary  the  meeting.  
Chairman Bair called the Gruenberg then moved that the Corporation business required  meeting order. Board Directors its consideration  Vice Chairman determine that the matters  

which were the subject the meeting less than seven days' notice the public; that earlier notice the meeting was practicable; that the public interest did not require consideration the matters which were the subject the meeting meeting open public observation; and that the matters could considered meeting closed public observation authority subsections (c) (4), (c) (8), 
(c)(9) (A) (ii), and (c) (9) (B) the "Government the Sunshine Act" u.s.c. 552b(c) (4), (c) (8), (9) (A) (ii), and (c) (9) (B)). Director Dugan seconded the motion and, with Director Curry, Director Reich, and Chairman Bair concurring, the motion was carried. 
Staff presented its recommendation that the Board find that significant operational disruptions Bank America Corporation, Charlotte, North Carolina ("BAC"), and its insured affiliate institutions would have serious adverse effects domestic economic conditions and financial stability and that significant operational impairments BAC and its insured depository affiliate institutions would seriously affect counterparty relationships Qualified Financial Contract markets, and would significantly disrupt short-term interbank lending and bank senior and subordinated debt markets, well related markets derivative products and other markets, which BAC significant participant. Further, staff stated that highly likely that, 

56742 any significant legal entity within BAC suffers loss market confidence, this would have serious adverse effect all BAC legal entities, including the second largest insured depository institution the United States. While BAC undergoing significant stress, staff pointed out that the opinion that management competent and there substantive evidence that management has failed comply with applicable laws, rules, and supervisory directives and orders. Consequently, staff recommended that the Board make systemic risk determination and authorize staff take action required avoid mitigate such risk. Staff informed the Board that, based preliminary information, the most likely outcome that provision the proposed assistance will not result loss the Deposit Insurance Fund. 
John Carston, Associate Director, Large Institutions and Analysis Branch, Complex Financial Institutions, Division Supervision and Consumer Protection, informed the Board that Bank America, National Association, Charlotte, North Carolina 
("BANA"), nationally chartered bank that the lead bank within BAC, financial holding company regulated the Board Governors the Federal Reserve System ("Federal Reserve"). stated that BANA the second largest bank the United States, with $1.4 trillion assets and that, prior BAC's 
acquisition  Merrill  Lynch  Co.,  Inc.  ("Merrill  Lynch"),  BANA  
represented  approximately  percent  BAC's  consolidated  
assets.  also  noted  that  BANA  the  largest  holder  
insured  deposits  the  United  States,  with  over  percent  
total  domestic  deposits.  

Mr. Corston continued, noting that BANA's core business its domestic retail banking franchise with over 6,100 branches states and that participates virtually every financial activity permissible banks. added that BAC held seven insured bank charters addition that BANA: Countrywide Bank, FSB, Alexandria, Virginia ("Countrywide"); FIA Card Services, National Association, Wilmington, Delaware; Merrill Lynch Bank USA, Salt Lake City, Utah; Merrill Lynch Bank Trust Co., FSB, New York, New York ("MBLTC"); Bank America Oregon, National Association, Portland, Oregon; Bank America, Rhode Island, National Association, Providence, Rhode Island; and Bank America California, National Association, San Francisco, California. Beyond those banks, Mr. Carston said, BAC has four significant non-insured affiliates: Banc America Securities, LLC, full-service investment bank and brokerage firm; Banc America Investment Services, Inc., retail brokerage business; Banc America Specialist, Inc., New York 
56743 

Stock Exchange specialist firm; and Columbia Management, the nation's eighth largest mutual fund company. 

Next, Mr. Corston explained that BAC's risk profile has increased over the past year result trading losses, declining asset quality largely home equity and credit card portfolios, and acquisition three higher risk institutions since October 2007, including LaSalle National Bank, Chicago, Illinois; Countrywide; and Merrill Lynch. emphasized that Merrill Lynch reported $23.8 billion net losses prior the fourth quarter 2008, and that the merger with Merrill Lynch significantly increases BAC's exposure 2009. 
Mr. Corston continued, stating that negative market perception BAC has been building recently; that, over the past year, the holding company's stock price declined approximately percent concerns associated with several factors, including the cost the Merrill Lynch merger, and general uncertainty regarding further deterioration credit quality and capital markets; that BAC will announce fourth quarter results that are significantly lower than market expectations for both legacy BAC and legacy Merrill Lynch January 20, 2009; that resulting post-merger tangible common equity capital levels will also reported well below expectations; and that market reaction these announcements could significantly impair BAC's access required funding sources and its ability meet obligations going forward. 
Mr. Corston then stated that BAC's capital position has also become strained with recent acquisitions and losses, particularly terms tangible common equity capital. While BAC's regulatory capital ratios are considered adequate, said, tangible equity capital low and presents market perception issues, equity analysts, rating agencies, and counterparties have increased their focus common tangible capital. Mr. Carston continued, stating that fourth quarter 2008 losses conjunction with 2009 forecasted net operating losses billion will further strain the capital position and impair the ability raise common equity. Next, stated that the 2009 earnings outlook for the BAC not favorable, and that the Corporation and the Office the Comptroller the Currency's ("OCC") supervisory staff believe that BAC's management's projection net income for the company combined basis approximately $14.8 billion ($13.4 billion for legacy BAC and $1.4 billion for legacy Merrill Lynch) very optimistic. said that staff has developed adjusted forecast showing loss $3.0 billion, based higher loan 

56744 

losses and larger provisions reflect continued deterioration the credit portfolios, the lack securitizations 2009, 
and decreased trading results associated with continued market 
disruptions. Mr. Corston concluded his presentation noting 
that all BAC's insured depository institutions are rated 
CAMELS composite "2," with the exception Countrywide and MLBTC, which are each rated composite 
Christopher Newbury, Associate Director, Risk Analysis Branch, Risk Analysis and Banking Statistics, Division Research, informed the Board that the risk profile BAC increasing rapidly due negative market perception resulting from poor performance, asset quality problems, and high-profile acquisitions, with liquidity pressures that may increase critical levels following the announcement fourth quarter 2008 operating results that are significantly worse then market expectations. 
Next, Mr. Newbury stated that market reaction BAC's operating results may have systemic consequences, given the size the institution and the volume counterparty transactions involved. Without systemic risk determination and implementation proposed measures outlined being proposed the Board, said that significant market disruption may ensue counterparties lose confidence BAC's ability fund ongoing operations, whereas staff believes the proposed assistance, outlined staff, will serve mitigate this systemic risk. 
Mr. Newbury then said that the consequences not providing open bank assistance BAC would likely have major systemic effects. observed that both financial stability and overall economic conditions would adversely affected, and that staff believes the consequences could extend the broader economy. Mr. Newbury continued, explaining that the U.S. economy entered recession December 2007 that already the longest since. the 16-month recession that ended 1982, demonstrated the decline payroll employment each month 2008; the elimination 2.6 million jobs last year, with over 1.5 million those having been lost the fourth quarter; and the sharp declines retail sales each month fourth quarter 2008. Mr. Newbury concluded his presentation stating that these developments, among others, point clear relationship between the financial market turmoil recent months and impaired economic performance that could expected worsen further BAC and its insured subsidiaries were 
56745 

allowed fail, and that staff believes that the proposed assistance will serve mitigate these systemic risks. 

John Thomas, Acting General Counsel, then informed the Board that, order prevent the foregoing systemic risk, staff was recommending that the Board authorize the Corporation enter into agreement with BAC, the United States Department the Treasury ("Treasury"), and the Federal Reserve exchange for consideration. Under the agreement, Mr. Thomas said, Treasury will inject $20 billion capital from the Troubled Asset Relief Program ("TARP"), and, addition, the United States Government ("USG") would provide for shared loss coverage specified BAC assets, with the Corporation's potential loss protected the issuance preferred stock BAC. stated further that the Corporation and the TARP will provide guarantees certain residential assets for years and certain other assets for period years. BAC, Mr. Thomas said, will bear the first $10 billion losses, while additional losses will shared with the Corporation, Treasury, and the Federal Reserve covering percent the losses and BAC bearing percent. After the first $10 billion losses, Mr. Thomas continued, the Corporation and Treasury will cover losses pro rata proportions percent for the Corporation and percent for Treasury cap $2.5 billion for the Corporation and $7.5 billion for the Treasury. stated that further losses will covered percent the Federal Reserve through nonrecourse lending. The Corporation, Mr. Thomas stated, will receive compensation the form what projected billion preferred stock and warrants with aggregate exercise value percent the amount preferred issued. 
Mr. Thomas explained the Board that BAC will manage the assets, with instructions provided the Corporation, the TARP, and the Federal Reserve. The terms the transaction, said Mr. Thomas, will include foreclosure mitigation policy agreeable the USG, and, addition, BAC will subject specific limitations executive compensation and dividends during the loss share period. then described the BAC proposed asset pool, which contains $115 billion financial instruments including cash assets with current book (i.e., carrying) value 
$32 billion and derivatives portfolio with maximum potential future losses $83 billion. 
Next, Mr. Thomas stated that the Corporation and OCC have determined that the insured entities meet the requirements under section 13(c) (8) the Federal Deposit Insurance Act ("FDI Act") for receiving direct financial assistance before the 

56746 

appointment receiver. Additionally, said, assistance will increase existing capital levels and improve liquidity. 

Director Curry commented that the staff recommendation appropriate, given the relationship between the insured institutions and Merrill Lynch. Director Dugan, turn, commented that the issue presented the case hand would not occurring had BAC not acquired Merrill Lynch. added that supported the systemic risk determination because the losses from the deepening recession create too much perception risk and the possibility that BAC's losses due the Merrill Lynch acquisition could affect other depository institutions. 
Director Reich called the Board's attention the fact that the ratings provided for BAC the case materials accompanying the Board presentation were dated January 2007, and therefore asked whether those were the most recent ratings available for BAC. Mr. Corston responded that the ratings provided are the ratings record even through they are currently under review BAC's primary Federal regulator. Director Reich expressed his surprise that those were the most current ratings and that those ratings were "2" every category light the reasons the Board was gathered for this meeting. Chairman Bair asked Director Dugan, the primary Federal regulator BAC's lead bank-BANA-to respond Director Reich's concerns. 
Director Dugan responded that the ratings record were put place before BAC's acquisition Merrill Lynch and before the changes economic climate that were presented staff. addition, said thought was likely that the OCC would downgrading least some BANA's ratings components. 
Director Reich then asked Mr. Thomas confirm that the Board's authority take the action recommended predicated the existence failing-bank scenario and that the Board lacked the authority act that manner unless prevent failure. Mr. Thomas confirmed that the case. Chairman Bair indicated Director Reich that the above questions and his subsequent questions regarding BAC's capital and liquidity were excellent questions and that the Corporation has posed them over the past few days the Federal Reserve and the OCC. She then said that the systemic risk exception exists where chance failure would have systemic ramifications. While she observed that Mr. Thomas had well justified the use the systemic risk exception this instance, she pointed out 

56747 
that the Corporation was relying data analysis the Federal Reserve and the OCC. result, Chairman Bair stated that the Corporation very much needs proceed with systemic risk determination with respect BAC. 
Chairman Bair indicated that the Corporation was taking role the transaction team player along with the Federal Reserve and Treasury prove the systemic risk case and provide the package assistance described. She added that she hoped very much that this was the last individual bailout deal that the Corporation would doing, and she pointed out that the Corporation and others have been saying for quite some time that programmatic approach needed for troubled assets. She noted that impaired the public's confidence the regulatory system performing such individual deals. She expressed her concern that this transaction would lead another bad round criticism the agencies but affirmed that the agencies were doing what they need pending the development programmatic response that transparent and open and that all banks that are willing meet the criteria will able participate in. 
Then, accordance with the recommendation staff and motion Director Dugan, seconded Vice Chairman Gruenberg, concurred Director Curry, Director Reich, and Chairman Bair, the Board adopted the following resolution: 
(1) 	
finding that the instability the insured bank affiliates Bank America Corporation ("BanksH) would have serious adverse effects economic conditions financial stability and would create systemic risk the credit markets; 

(2) 	
finding that severe financial conditions exist which threaten the stability significant number insured depository institutions insured depository institutions possessing significant financial resources and the Banks are insured depository institutions under such threat instability and that the Board takes this action order lessen the risk the insurance fund posed the Banks; 

(3) 	
finding that the recommended actions will mitigate the serious adverse effects, and systemic risks, posed the Banks; 

January 15, 2009 (Closed) 
56748 

(4) 	finding that the proposal, which involves the provision assistance other action authorized under section 13(c) (1) the FDI Act, U.S.C. 
 1823 (c) the form guarantees against loss 
to, contributions to, the Banks, will mitigate the 
serious adverse effects economic conditions 
financial instability that would caused the 
Banks' continued seriously weakened condition; 
(5) 	
finding that the conditions for receiving direct financial assistance before the appointment receiver under section (c) (8) (A) (i) and (ii) the FDI Act have been satisfied; 

(6) 	
authorizing the Chairman the Board, her designee, provide the written recommendation the Secretary the Treasury specified under section 13(C) (4) (G) (i) the FDI Act, U.S.C. 

 and 

(7) 	
authorizing the Director, Division Resolutions and Receiverships, his designee, and all other Corporation staff take all appropriate action implement the provision assistance authorized hereunder, including, but not limited to, credit support the form loan guarantees, and loss sharing; and take any other action necessary and appropriate connection with this matter: 

WHEREAS, staff has presented information the Board Directors ("Board") the Federal Deposit Insurance Corporation ("FDIC" "Corporation") indicating that the recent unprecedented disruption credit markets and the resultant effects the abilities banks fund themselves and intermediate credit place the United States danger suffering adverse economic conditions and financial instability; and 
WHEREAS, these conditions threaten the stability significant number insured depository institutions, thereby increasing the potential for losses the insurance fund the resolutions such insured depository institutions; and 
WHEREAS, staff has advised the FDIC Board that Bank America, National Association, Charlotte, 

56749 

North Carolina, Countrywide Bank, FSB, Alexandria, Virginia, FIA Card Services, National Association, Wilmington, Delaware, Merrill Lynch Bank USA, Salt Lake City, Utah, Merrill Lynch Bank Trust Co., FSB, New York, New York, Bank America Oregon, National Association, Portland, Oregon, Bank America, Rhode Island, National Association, Providence, Rhode 
Island, Bank America California, National Association, San Francisco, California ("Banks"), and their affiliates are seriously weakened condition; and 
WHEREAS, staff has advised that severe financial conditions exist which threaten the stability the Banks which are insured depository institutions possessing significant financial resources; and 
WHEREAS, proposal for the stabilization the Banks and their affiliates without the appointment the FDIC receiver has been developed consultation with the Board Governors the Federal Reserve System ("Federal Reserve Board") and the Secretary the Treasury ("Treasury") 
(collectively, the "USG"), which involves the USG provision guarantees against loss certain 
residential assets for years and certain other assets for period years; and 
WHEREAS, Bank America Corporation, Charlotte, North Carolina ("BOA"), will take first loss position equal $10 billion; and 
WHEREAS, for losses above $10 billion, there loss sharing agreement where losses are shared percent BOA and percent the USG with Treasury and the Corporation taking second loss position $10 billion, with the Corporation taking 25% share such losses maximum $2.5 billion, and the Federal Reserve Board having agreed take the remaining risk through non-recourse lending the pool assets ("Proposal"); and 
WHEREAS, the Corporation receiving billion preferred stock compensation for its taking the 25% participation the second loss position; and 

56750 

WHEREAS, the Proposal subject prudential regulatory oversight and executive compensation restrictions, with the guarantees having limited duration, and staff believes that the Proposal will avoid mitigate the serious adverse effects economic conditions financial stability the most cost effective available method; and 
WHEREAS, the Corporation and the Office the Comptroller the Currency have determined that the bank meets the conditions under section 13(c) (8) (A) (i) and (ii) the Federal Deposit Insurance Act ("FDI Act"} for receiving direct financial assistance before the appointment receiver; and 
WHEREAS, staff has recommended that the FDIC Board make systemic risk recommendation supporting action the provision assistance the FDIC necessary avoid mitigate such risk; and 
WHEREAS, the Corporation has been advised that the Federal Reserve Board expected make similar recommendation and that the Treasury, after consultation with the President, expected make the systemic risk determination this situation. 
NOW, THEREFORE, RESOLVED that the Board finds that the instability the Banks would have serious adverse effects economic conditions financial stability and would create systemic risk the credit markets. FURTHER RESOLVED, that the Board finds that severe financial conditions exist which threaten the stability significant number insured depository institutions insured depository institutions possessing significant financial resources and the Banks are insured depository institutions under such threat instability and that the Board takes this action order lessen the risk the insurance fund posed the Banks. FURTHER RESOLVED, that the Board finds that the recommended actions will mitigate the serious adverse effects, and systemic risks, posed the Banks. 
56751 FURTHER RESOLVED, that the Board finds that the Proposal involves the provision assistance other action authorized under section 13(c) (1) the FDI Act, U.S.C.  1823 (c) (1), the form guarantees against loss to, contributions to, the Banks, and that the Proposal will mitigate the serious adverse effects economic conditions financial instability that would caused the Banks' continued seriously weakened condition. FURTHER RESOLVED, the Board finds that the conditions for receiving direct financial assistance before the appointment receiver under section 13(c) (8) (A) (i) and (ii) the FDI Act have been satisfied. FURTHER RESOLVED, the Board hereby authorizes the Chairman the Board, her designee, provide the written recommendation the Secretary the Treasury specified under section 13(C) (4) (G) (i) the Act, U.S.C.  1823 (C) (4) (G) (i). FURTHER RESOLVED, the Board hereby authorizes the Director, Division Resolutions and Receiverships, his designee, and all other FDIC staff take all appropriate action implement the provision assistance other actions authorized hereunder, including but not limited to: credit support the form loan guarantees, and loss sharing; and take any other action necessary and appropriate connection with this matter. 
[EXECUTIVE SECRETARY'S NOTE: Thursday, January 15, 2009, the United States Government entered into agreement with Bank America Corporation, Charlotte, North Carolina, provide package guarantees, liquidity access, and capital, part its commitment support financial market stability, whereby, the Department the Treasury and the Corporation will provide protection against the possibility unusually large losses asset pool approximately $118 billion loans, securities backed residential and commercial real estate, and other such assets, the large majority which were assumed Bank America Corporation result its acquisition Merrill Lynch Co., Inc., and which will remain Bank America Corporation's balance sheet. fee for that arrangement, Bank America Corporation will issue preferred shares the Treasury and the Corporation. addition, Bank America 
56752 

Corporation will comply with enhanced executive compensation restrictions and implement the Corporation's mortgage modification program.] 
Documents and materials relevant the Board's consideration the foregoing are marked exhibit for identification, are filed the jacket this meeting, and, reference, are made part these minutes and the permanent files the Board Directors. 
Following the Board's action the above matter, the Board members and staff briefly discussed their concern that the need for the BAC transaction may have negative consequences for the stability Citigroup, Inc., and its insured affiliate banks and thrifts, which were suffering from their own unique problems and had already been the recipient USG assistance, including assistance from the Corporation, November 23, 2008. 
There being further business, the meeting was adjourned. 

Executive Secretary