Note 12
Commitments and Contingencies
In the normal course of
business, the Corporation enters into a number of off-balance sheet
commitments. These commitments expose the Corporation to varying degrees of
credit and market risk and are subject to the same credit and market risk
limitation reviews as those recorded on the Corporation’s Consolidated Balance
Sheet.
Credit Extension Commitments
The Corporation enters into commitments
to extend credit such as loan commitments, standby letters of credit (SBLCs)
and commercial letters of credit to meet the financing needs of its customers.
The outstanding unfunded lending commitments shown in the following table have
been reduced by amounts participated to other financial institutions of $23.4
billion and $12.5 billion at December 31, 2004 and 2003, respectively. The
carrying amount for these commitments, which represents the liability recorded
related to these instruments, at December 31, 2004 and 2003 was $520 million
and $418 million, respectively.
| |
December 31, 2004 |
December 31, 2003 |
|
FleetBoston April 1, 2004 |
| |
December 31 |
|
FleetBoston
April 1, 2004 |
|  | |
(Dollars in millions) |
2004 |
2003 |
|
| | | |
| Loan commitments(1) |
$247,094 |
$180,078 |
|
$ 61,012 |
| Home equity lines of credit |
60,128 |
31,703 |
|
13,891 |
| Standby letters of credit and financial guarantees |
42,850 |
31,150 |
|
12,914 |
| Commercial letters of credit |
5,653 |
3,260 |
|
1,689 |
| | |
| Legally binding commitments |
355,725 |
246,191 |
|
89,506 |
| Credit card lines |
185,461 |
93,771 |
|
77,997 |
| | |
| Total |
$541,186 |
$339,962 |
|
$167,503 |
| | |
|
Legally binding
commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrowers’ ability to pay.
The Corporation issues SBLCs and financial
guarantees to support the obligations of its customers to beneficiaries.
Additionally, in many cases, the Corporation holds collateral in various forms
against these SBLCs. As part of its risk management activities, the Corporation
continuously monitors the creditworthiness of the customer as well as SBLC
exposure; however, if the customer fails to perform the specified obligation to
the beneficiary, the beneficiary may draw upon the SBLC by presenting documents
that are in compliance with the letter of credit terms. In that event, the
Corporation either repays the money borrowed or advanced, makes payment on
account of the indebtedness of the customer or makes payment on account of the
default by the customer in the performance of an obligation to the beneficiary
up to the full notional amount of the SBLC. The customer is obligated to
reimburse the Corporation for any such payment. If the customer fails to pay,
the Corporation would, as contractually permitted, liquidate collateral and/or
set off accounts.
Commercial letters of credit, issued primarily to
facilitate customer trade finance activities, are usually collateralized by the
underlying goods being shipped to the customer and are generally short-term.
Credit card lines are unsecured commitments that are not legally binding.
Management reviews credit card lines at least annually, and upon evaluation of
the customers’ creditworthiness, the Corporation has the right to terminate or
change certain terms of the credit card lines.
The Corporation uses various techniques to manage
risk associated with these types of instruments that include collateral and/or
adjusting commitment amounts based on the borrower’s financial condition;
therefore, the total commitment amount does not necessarily represent the
actual risk of loss or future cash requirements. For each of these types of
instruments, the Corporation’s exposure to credit loss is represented by the
contractual amount of these instruments.
Other Commitments
At December 31, 2004 and
2003, charge cards (nonrevolving card lines) to individuals and government
entities guaranteed by the U.S.
government in the amount of $10.9 billion and $13.7 billion, respectively, were
not included in credit card line commitments in the previous table. The
outstandings related to these charge cards were $205 million and $233 million,
respectively.
At December 31, 2004, the Corporation had whole
mortgage loan purchase commitments of $3.3 billion, of which $2.9 billion will
settle in January 2005, and $430 million will settle in February 2005. At
December 31, 2003, the Corporation had whole mortgage loan purchase commitments
of $4.6 billion, all of which were settled in January and February 2004. At
December 31, 2004 and 2003, the Corporation had no forward whole mortgage loan
sale commitments.
The Corporation has entered into operating leases
for certain of its premises and equipment. Commitments under these leases approximate
$1.4 billion in 2005, $1.1 billion in 2006, $995 million in 2007, $854 million
in 2008, $689 million in 2009 and $3.4 billion for all years thereafter.
Other Guarantees
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, 457 plans, etc. 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 withdraw funds when market value is below
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 zero coupon bonds with the proceeds of the liquidated
assets to assure the return of principal. To hedge 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 booked as derivatives and marked to market in
the trading portfolio. At December 31, 2004 and 2003, the
notional amount of these guarantees totaled $26.3 billion and $24.9 billion,
respectively, with estimated maturity dates between 2006 and 2034. As of
December 31, 2004 and 2003, the Corporation has not made a payment under these
products, and management believes that the probability of payments under these
guarantees is remote.
The Corporation also sells products that guarantee
the return of principal to investors at a preset future date. These guarantees
cover a broad range of underlying asset classes and are designed to cover the
shortfall between the market value of the underlying portfolio and the principal
amount on the preset future date. To manage its exposure, the Corporation
requires that these guarantees be backed by structural and investment
constraints and certain pre-defined triggers that would require the underlying
assets or portfolio to be liquidated and invested in zero-coupon bonds that
mature at the preset future date. The Corporation is required to fund any
shortfall at the preset future date between the proceeds of the liquidated
assets and the purchase price of the zero-coupon bonds. These guarantees are
booked as derivatives and marked to market in the trading portfolio. At
December 31, 2004 and 2003, the notional amount of these guarantees totaled
$8.1 billion and $6.7 billion, respectively; however, at December 31, 2004 and
2003, the Corporation had not made a payment under these products, and
management believes that the probability of payments under these guarantees is
remote. These guarantees have various maturities ranging from 2006 to 2016.
The Corporation has also written puts on highly
rated fixed income securities. Its obligation under these agreements is to buy
back the assets at predetermined contractual yields in the event of a severe
market disruption in the short-term funding market. These agreements have
various maturities ranging from two to seven years, and the pre-determined yields are
based on the quality of the assets and the structural elements pertaining to
the market disruption. The notional amount of these put options was $653
million and $666 million at December 31, 2004 and 2003, respectively. Due to the high quality of the
assets and various structural protections, management believes that the
probability of incurring a loss under these agreements is remote.
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. These agreements typically contain an early
termination clause that permits the Corporation to exit the agreement upon
these events. The maximum potential future payment under indemnification
agreements is difficult to assess for several reasons, including 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. Management has assessed the probability of making such
payments in the future as remote.
The Corporation has entered into additional
guarantee agreements, including lease end obligation agreements, partial credit
guarantees on certain leases, real estate joint venture guarantees, sold risk
participation swaps and sold put options that require gross settlement. The
maximum potential future payment under these agreements was approximately $2.1
billion and $1.3 billion at December 31, 2004 and 2003, respectively. The
estimated maturity dates of these obligations are between 2005 and 2033. At
December 31, 2004 and 2003, the Corporation had made no material payments under
these products.
The Corporation provides credit and debit card
processing services to various merchants, processing credit and debit card
transactions on their 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 cardholder's favor and the merchant
defaults upon its obligation to reimburse the cardholder. A cardholder, through
its issuing bank, generally has until the later of up to four months after the
date a transaction is processed or the delivery of the product or service to
present a chargeback to the Corporation as the merchant processor. If the
Corporation is unable to collect this amount from the merchant, it bears the
loss for the amount paid to the cardholder. In 2004 and 2003, the Corporation
processed $143.1 billion and $71.8 billion, respectively, of transactions and
recorded losses as a result of these chargebacks of $6 million in both years.
At December 31, 2004 and 2003, the Corporation held
as collateral approximately $203 million and $182 million, respectively, of merchant
escrow deposits which the Corporation has the right to set off against amounts
due from the individual merchants. The Corporation also has the right to offset
any payments with cash flows otherwise due to the merchant. Accordingly, the
Corporation believes that the maximum potential exposure is not representative
of the actual potential loss exposure. Management believes the maximum
potential exposure for chargebacks would not exceed the total amount of
merchant transactions processed through Visa and MasterCard for the last four
months, which represents the claim period for the cardholder, plus any
outstanding delayed-delivery transactions. As of December 31, 2004 and 2003,
the maximum potential exposure totaled approximately $93.4 billion and $25.0
billion, respectively.
Within the Corporation’s brokerage business, the
Corporation has contracted with third parties to provide clearing services that
include underwriting margin loans to the Corporation’s clients.These contracts stipulate that the Corporation
will indemnify the third parties for any margin loan losses that occur in their
issuing margin to the Corporation’s clients.
The maximum potential future payment under these indemnifications was
$1.2 billion and $486 million at December 31, 2004 and 2003, respectively. Historically, any payments made under these
indemnifications have not been material.
As these margin loans are highly collateralized by the securities held
by the brokerage clients, the Corporation has assessed the probability of
making such payments in the future as remote.
These indemnifications would end with the termination of the clearing
contracts.
For additional information on recourse obligations
related to residential mortgage loans sold and other guarantees related to securitizations,
see Note 8 of the Consolidated Financial Statements.
Litigation and Regulatory Matters
In the ordinary course of business, the Corporation
and its subsidiaries are routinely defendants in or parties to
many pending and threatened legal actions and proceedings, including actions
brought on behalf of various classes of claimants. In certain of these actions and proceedings,
claims for substantial monetary damages are asserted against the Corporation
and its subsidiaries, and certain of these actions and proceedings are based on
alleged violations of consumer protection, securities, environmental, banking,
employment and other laws.
In view of
the inherent difficulty of predicting the outcome of such matters, particularly
where the claimants seek very large or indeterminate damages or where the cases
present novel legal theories or involve a large number of parties, the
Corporation cannot state with confidence what the eventual outcome of the
pending matters will be, what the timing of the ultimate resolution of these
matters will be or what the eventual loss, fines or penalties related to each
pending matter may be. Based on current
knowledge, management does not believe that liabilities, if any, arising from
pending litigation or regulatory matters, including the litigation and
regulatory matters described below, will have a material adverse effect on the
consolidated financial position or liquidity of the Corporation, but may be
material to the Corporation's operating results for any particular reporting
period.
Adelphia Communications Corporation (Adelphia)
Bank of America, N.A. and Banc of America Securities LLC (BAS) are
defendants, among other defendants, in a putative class action and other civil
actions relating to Adelphia. The first
of these actions was filed in June 2002; these actions have been consolidated
for pre-trial purposes in the U.S. District Court for the Southern District of
New York. BAS was a member of seven
underwriting syndicates of securities issued by Adelphia, and Bank of America,
N.A. was an agent and/or lender in connection with five credit facilities in
which Adelphia subsidiaries were borrowers. Fleet National Bank and Fleet
Securities, Inc. (FSI) are also named as defendants in certain of the
actions. FSI was a member of three
underwriting syndicates of securities issued by Adelphia, and Fleet National
Bank was a lender in connection with four credit facilities in which Adelphia
subsidiaries were borrowers. The
complaints allege claims under the Securities Act of 1933, the Securities
Exchange Act of 1934 and various state law theories. The complaints seek
damages of unspecified amounts. Bank of
America, N.A., BAS, Fleet National Bank and FSI have moved to dismiss all
claims asserted against them, with the exception of certain claims brought
under Sections 11 and 12 of the Securities Act of 1933. That motion is pending.
Bank of America, N.A., BAS,
Fleet National Bank and FSI are also defendants in an adversary proceeding
pending in the U.S. Bankruptcy Court for the Southern District of New York. The
proceeding is brought by the Official Committee of Unsecured Creditors on
behalf of Adelphia; however, the bankruptcy court has not yet given the
Creditors’ Committee authority to bring this lawsuit. The lawsuit names over
400 defendants and asserts over 50 claims under federal statutes, including the
Bank Holding Company Act, state common law and various provisions of the
Bankruptcy Code. The Creditors’ Committee seeks avoidance and recovery of
payments, equitable subordination, disallowance and recharacterization of
claims and recovery of damages in an unspecified amount. The Official Committee
of Equity Security Holders has filed a motion seeking to intervene in the
adversary proceeding and to file its own complaint. The proposed complaint is
similar to the Creditors’ Committee complaint, and also asserts claims under
RICO and additional state law theories. Bank of America, N.A., BAS and FSI
have filed objections to the standing of the Creditors’ and Equity Committees
to bring such claims, and have also filed motions to dismiss. Those motions are pending.
American Express
On November 15, 2004, American Express Travel
Related Services Company (American Express) brought suit in the U.S. District
Court for the Southern District of New York against the Visa and MasterCard associations, as well as several banks, including Bank of
America, N.A. (USA) and the Corporation.
American Express alleges that it has incurred damages in an unspecified
amount by reason of certain MasterCard and Visa rules that allegedly restricted
their member banks from issuing American Express-branded debit and credit
cards. Motions to dismiss are
pending. Enforcement of the MasterCard
and Visa rules was enjoined by the court in United
States v. Visa USA, et al., in which none of
the Corporation or its subsidiaries was a defendant.
Argentine
Re-Dollarization
In December 2001, the Argentine Government issued a decree imposing
limitations on the ability of FleetBoston bank customers in Argentina to
withdraw funds from their accounts in Argentine banks (the corralito). Since
the corralito was issued, a large number of customers of the FleetBoston
Argentine operations (BankBoston Argentina)
have filed complaints in a number of Argentine federal and provincial courts
against BankBoston Argentina
seeking to invalidate the corralito on constitutional grounds and withdraw
their funds. Since 2002, Argentine
courts have ordered many of these deposits to be paid out at original dollar
value.
Enron Corporation
(Enron)
The Corporation was named as a defendant, along with a number of other
parties, in a putative consolidated class action pending in the U.S. District
Court for the Southern District of Texas filed on April 8, 2002 entitled Newby
v. Enron. The amended complaint
alleges claims against the Corporation and BAS under Sections 11, 12 and 15 of
the Securities Act of 1933 related to the role of BAS as an underwriter of two
public offerings of Enron debt and as an initial purchaser in a private
placement of debt issued by an Enron-affiliated company.
On July 2, 2004, the Corporation reached an
agreement to settle the above litigation.
Under the terms of the settlement, which is subject to court approval,
the Corporation will make a payment of approximately $69 million to the
settlement class in Newby v. Enron.
The class consists of all persons who purchased or otherwise acquired
securities issued by Enron during the period from October 19, 1998 to November
27, 2001. On January 18, 2005, the lead
plaintiff filed a motion seeking preliminary approval of the settlement, and on
February 4, 2005, the court granted preliminary approval of the settlement and
set a hearing date of April 11, 2005 for final approval.
In addition, the Corporation and certain of
its affiliates have been named as defendants or third-party defendants in
various individual and putative class actions relating to Enron. These actions were either filed in or have
been transferred to the U.S. District Court of the Southern District of Texas
and consolidated or coordinated with Newby v. Enron. The complaints assert claims under federal
securities laws, state securities laws and/or state common law or statutes, or
for contribution. In nine cases,
plaintiffs seek damages or contribution for damages ranging from at least
$15,000 to $472 million from all defendants, including financial institutions,
accounting firms, law firms and numerous individuals. In the remaining cases, the plaintiffs seek
damages in unspecified amounts.
Fleet Specialist
On March 30, 2004, Fleet Specialist and certain other specialist firms
entered into agreements with the SEC and the New York Stock Exchange (the NYSE)
to settle charges that the firms violated certain federal securities laws and
NYSE rules in the course of their specialist trading activity. The settlement,
which involves no admission or denial of wrongdoing, includes disgorgement and
civil penalties for Fleet Specialist totaling approximately $59.1 million, a
censure, cease and desist order, and certain
undertakings, including the retention of an independent consultant to review
compliance systems, policies and procedures.
Separately, putative class action complaints seeking unspecified damages
have been filed in the U.S. District Court for the Southern District of New
York against Fleet Specialist, FleetBoston, the Corporation, and other
specialist firms (and their parent companies) on behalf of investors who traded
stock on the NYSE between 1998 and 2003, and were allegedly disadvantaged by the
improper practices of the specialist firms.
These federal court actions have been consolidated. A multi-defendant motion to dismiss has been
filed. The settlement with the SEC and
NYSE does not resolve the putative class actions, although a portion of the
payment is expected to be allocated to restitution for allegedly disadvantaged
customers.
Foreign Currency
Bank of America, N.A. (USA) and the Corporation,
together with Visa and MasterCard associations and several other banks, are
defendants in a consolidated class action lawsuit pending in U.S. District
Court for the Southern District of New York entitled In re
Currency Conversion Fee Antitrust Litigation. The plaintiff cardholders allege that Visa
and MasterCard, together with their member banks, conspired to set the price of
foreign currency conversion services on credit card transactions and that each
bank failed to disclose the applicable price in compliance with the Truth in
Lending Act resulting in damages to the class of an unspecified amount. By decision dated July 3, 2003, the court
granted the motion of the Corporation and Bank of America, N.A. (USA) to compel
arbitration of the claims asserted by Bank of America, N.A. (USA)
cardholders. However, the court denied a
motion brought by all defendants to dismiss the antitrust claims, so Bank of America, N.A. (USA) and the Corporation remain as defendants with respect
to antitrust claims alleged on behalf of certain co-defendants’
cardholders. By order dated October 15,
2004, the court granted plaintiffs’ motion to certify a class of cardholders of
the defendant banks who used MasterCard or Visa-branded credit cards for one or
more transactions denominated in foreign currency.
In re Initial
Public Offering Securities
Beginning in 2001, Robertson Stephens, Inc. (an
investment banking subsidiary of FleetBoston that ceased operations during
2002), BAS, other underwriters, and various issuers and others, were named as
defendants in purported class action lawsuits alleging violations of federal
securities laws in connection with the underwriting of initial public offerings
(IPOs) and seeking unspecified damages. Robertson Stephens, Inc. and BAS were
named in certain of the 309 purported class actions that have been consolidated
in the U.S. District Court for the Southern District of New York as In re
Initial Public Offering Securities Litig.
The plaintiffs contend that the defendants failed to make certain
required disclosures, manipulated prices of IPO securities through, among other
things, alleged agreements with institutional investors receiving allocations
to purchase additional shares in the aftermarket, and false and misleading
analyst reports. On October 13, 2004, the court granted in part and denied in
part plaintiffs' motions to certify as class actions six of 309 cases
filed. The underwriter defendants are
currently seeking a discretionary appeal of that decision in the U.S. Court of
Appeals for the Second Circuit. Discovery is proceeding in the underlying
actions.
In addition, the plaintiffs have reached a settlement with 298 of the
issuer defendants in which the issuer defendants guaranteed that the plaintiffs
will receive at least $1 billion in the settled actions and assigned to the
plaintiffs the issuers’ interest in all claims against the underwriters for
“excess compensation.” On February 15,
2005, the court conditionally approved the settlement, with a fairness hearing
still to be scheduled. The plaintiffs
have not reached a settlement with any of the underwriter defendants, including
Robertson Stephens, Inc. and BAS.
Robertson Stephens, Inc. and
other underwriters also have been named as defendants in class action lawsuits
filed in the U.S. District Court for the Southern District of New York under
the antitrust laws alleging that the underwriters conspired to manipulate the
aftermarkets for IPO securities and to extract anticompetitive fees in connection
with IPOs. Those antitrust lawsuits have been dismissed. Plaintiffs have
appealed that decision to the Court of Appeals for the Second Circuit.
Miller
On August 13, 1998, Bank of America, N.A.’s
predecessor was named as a defendant in a class action filed in Superior Court
of California, County
of San Francisco entitled Paul J.
Miller v. Bank of America,
N.A. challenging
its practice of debiting accounts that received, by direct deposit,
governmental benefits to repay fees incurred in those accounts. The action alleges fraud, negligent
misrepresentation and violations of certain California laws. On October 16, 2001, a class was certified
consisting of more than one million California
residents who have, had or will have, at any time after August 13, 1994, a
deposit account with Bank of America, N.A. into which payments of public
benefits are or have been directly deposited by the government. The case proceeded to trial on January 20,
2004.
On February 15,
2004, the jury found that Bank of America,
N.A. violated certain California
laws and imposed damages of approximately $75 million and awarded the class
representative $275,000 in emotional distress damages. The jury also assessed a $1,000 penalty as to
those members of the class suffering substantial economic or emotional harm as
a result of the practice but did not determine which or how many class members
are entitled to the penalty.
On December 30,
2004, the trial court issued a final ruling on claims tried to the court at the
conclusion of the February 2004 jury trial.
The ruling awards the plaintiff class restitution in the amount of $284
million, plus attorneys’ fees. The
ruling also concludes that any class members whose account was wrongfully
debited and suffered substantial emotional or economic harm is entitled to an
additional $1,000 penalty, but did not determine which or how many class
members are entitled to the penalty, and includes injunctive relief, which is
temporarily stayed.
Once the jury verdict and
final decision are entered as a judgment, Bank of America, N.A. will appeal to
the California Court of Appeal, First Appellate District and move
to stay the injunction pending appeal.
Mutual Fund
Operations Matters
On March 15, 2004, the Corporation announced agreements in principle with
the New York Attorney General (the NYAG) and the SEC to settle matters related
to late trading and market timing of mutual funds. The Corporation agreed, without admitting or
denying wrongdoing, to (1) pay $250 million in disgorgement and $125 million in
civil penalties; (2) the issuance of an order against three subsidiaries of the
Corporation, Banc of America Capital Management, LLC (BACAP), BACAP
Distributors, LLC (BACAP Distributors), and BAS to cease and desist from
violations of the federal securities laws, as well as the implementation of
enhanced governance and compliance procedures; (3) retain an independent
consultant to review BACAP’s, BACAP Distributor’s and BAS applicable
compliance, control and other policies and procedures; and (4) exit the
unaffiliated introducing broker/dealer clearing business. In addition, the agreement with the NYAG
provides for reduction of mutual fund management fees of the Nations Funds by
$80 million over five years. These
settlements were finalized with the NYAG and the SEC on February 9, 2005.
On February 24, 2004, the SEC filed a civil action in
the U.S. District Court for the District of Massachusetts against two
FleetBoston subsidiaries, Columbia Management Advisors, Inc. and Columbia Funds
Distributor, Inc. (the Columbia Subsidiaries), alleging that the Columbia
Subsidiaries allowed certain customers to engage in short-term or excessive
trading without disclosing this fact in the relevant fund prospectuses. The complaint alleged violations of federal
securities laws in relation to at least nine trading arrangements pertaining to
these customers during the period 1998-2003, and requested injunctive and
monetary relief. A similar action was
filed the same day in a state court in New York
by the NYAG, claiming relief under New
York state statutes.
On March 15, 2004, FleetBoston and its subsidiaries announced agreements
in principle with the NYAG and the SEC, agreeing, without admitting or denying
wrongdoing, to (1) pay $70 million in disgorgement and $70 million in civil
penalties; (2) the issuance of an order requiring the Columbia Subsidiaries to
cease and desist from violations of the federal securities laws, as well as the
implementation of enhanced governance and compliance procedures; and (3) retain
an independent consultant to review the Columbia Subsidiaries’ applicable
compliance, control and other policies and procedures. In addition, the agreement with the NYAG
provides for reduction of mutual fund management fees of the Columbia funds by $80 million over five
years. These
settlements were finalized with the NYAG and the SEC on February 9, 2005.
On February 9, 2005, the
Corporation entered an agreement with the Federal Reserve Bank of Richmond, and Bank of
America, N.A. entered an agreement with the Office of the Comptroller of the
Currency (OCC). Under the agreements, the
Corporation and Bank of America, N.A. agreed to continue with existing plans to
implement remedial actions. The federal
banking regulators did not impose any monetary penalties or fines under the
agreements.
The Corporation
is continuing to respond to inquiries from federal and state regulatory and law
enforcement agencies concerning mutual fund related matters.
Private lawsuits seeking
unspecified damages concerning mutual fund trading against the Corporation and
its pre-FleetBoston-merger subsidiaries include putative class actions
purportedly brought on behalf of shareholders in Nations Funds mutual funds,
derivative actions brought on behalf of one or more Nations Funds mutual funds
by Nations Funds shareholders, putative ERISA class actions brought on behalf
of participants in the Corporation’s 401(k) plan, derivative actions brought
against the Corporation’s directors on behalf of the Corporation by
shareholders in the Corporation, class actions and derivative actions brought
by shareholders in third-party mutual funds alleging that the Corporation or
its subsidiaries facilitated improper trading in those funds, and a private
attorney general action brought under California law. The lawsuits filed to date with respect to
FleetBoston and its subsidiaries include putative class actions purportedly
brought on behalf of shareholders in Columbia
mutual funds, derivative actions brought on behalf of one or more Columbia mutual funds or trusts by Columbia mutual fund shareholders, and an
individual shareholder action.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
(MDL Panel) ordered that all lawsuits pending in federal court with respect to
alleged late trading or market timing in mutual funds be transferred to the
U.S. District Court for the District of Maryland for coordinated pretrial
proceedings. The private lawsuits have
been transferred to the court with the exception of one case that was remanded
to a state court in Illinois
and two cases where motions to remand to state court remain pending. On September 29, 2004, plaintiffs filed
consolidated amended complaints in the U.S. District Court for the District of
Maryland. Motions to dismiss the
consolidated amended complaints are to be filed on February 25, 2005.
Parmalat
Finanziaria S.p.A.
On December 24, 2003, Parmalat Finanziaria S.p.A.
was admitted into insolvency proceedings
in Italy,
known as “extraordinary administration.”
The Corporation, through certain of its subsidiaries, including Bank of
America, N.A., provided financial services and extended credit to Parmalat and its related entities. On June 21, 2004, Extraordinary Commissioner Dr.
Enrico Bondi filed with the Italian Ministry of Production Activities a plan of
reorganization for the restructuring of the companies of the Parmalat group
that are included in the Italian extraordinary administration proceeding.
In July 2004,
the Italian Ministry of Production Activities approved a restructuring plan, as
amended, for the Parmalat group companies that are included in the Italian
extraordinary administration proceeding. This plan will be voted on by
creditors whose claims the Court of Parma recognizes as valid. Voting is expected to take place by June 30,
2005. In August 2004, the Extraordinary
Commissioner filed objections to certain claims with the Court of Parma, Italy.
In that filing, the Extraordinary Commissioner rejected all the Corporation’s
claims on various grounds. On September 18, 2004, the Corporation filed its
responses to the filing with the Court of Parma and on December 16, 2004, the
court admitted and accepted the majority of the Corporation’s claims. The Corporation will appeal the court’s
decision regarding the portion of its claims which were not admitted.
On January 8,
2004, The Public Prosecutor’s Office for the Court of Milan, Italy identified Luca
Sala, a former employee, as a subject of its investigation into the Parmalat
matter. On March 2, 2004, the Public
Prosecutor further advised the Corporation that the activities of the
Corporation and two additional employees in Milan, Italy,
Luis Moncada and Antonio Luzi, were also under investigation. These employees concurrently submitted
letters of resignation.
On May 26,
2004, the Public Prosecutor’s Office filed criminal charges against the
Corporation’s former employees, Antonio Luzi, Luis Moncada, and Luca Sala,
alleging market manipulation in connection with Parmalat. The Public
Prosecutor’s Office also filed a related charge against the Corporation
asserting administrative liability based on an alleged failure to maintain an
organizational model sufficient to prevent the alleged criminal activities of
its former employees.
Preliminary hearings regarding the
administrative charge against the Corporation and the criminal charges against
the former employees have been held in the Court of Milan, Italy, the first of
which took place on October 5, 2004. At this and subsequent hearings, a number
of persons filed requests to participate in the proceedings as damaged civil
parties under Italian law. Various preliminary
hearings and pre-trial proceedings are ongoing.
On March 5, 2004, a First
Amended Complaint was filed in a putative securities class action pending in
the U.S. District Court for the Southern District of New York entitled Southern
Alaska Carpenters Pension Fund et al. v. Bonlat Financing Corporation et al.,
which names the Corporation as a defendant.
The First Amended Complaint alleges causes of action against the
Corporation for violations of the federal securities laws based upon the
Corporation’s alleged role in the alleged Parmalat accounting fraud. This action was consolidated with several
other class actions filed against multiple defendants, and on October 18, 2004,
an Amended Consolidated Complaint was filed. Unspecified damages are being sought. The Corporation filed a motion to dismiss the
Amended Consolidated Complaint. The
motion to dismiss is pending.
On October 7, 2004, Enrico
Bondi filed an action in the U.S. District Court for the Western District of
North Carolina against the Corporation and various related entities, entitled Dr.
Enrico Bondi, Extraordinary Commissioner of Parmalat Finanziaria, S.p.A., et al
v. Bank of America Corporation, et al (the Bondi Action). The complaint alleges federal and state RICO
claims and various state law claims, including fraud. The plaintiff seeks $10
billion in damages. A motion to dismiss
is pending.
The Corporation
has requested that the MDL Panel consolidate and/or coordinate pre-trial
proceedings in the Bondi Action with other lawsuits filed by Enrico Bondi
against non-Bank of America
defendants. On December 14, 2004, the
Corporation requested that the Bondi Action be transferred to the federal court
in New York
for pre-trial purposes. That request is
pending before the MDL Panel.
Pension Plan
Matters
The Corporation is a defendant in a putative class
action, entitled Anita Pothier, et al. v. Bank of America Corp., et al.,
which was filed in June 2004 in the U.S. District Court for the Southern
District of Illinois. The action is
brought on behalf of all participants in or beneficiaries of any cash balance
defined benefit plan maintained by the Corporation or its predecessors. The
complaint names as defendants the Corporation, Bank of America, N.A., The Bank
of America Pension Plan (formerly known as the NationsBank Cash Balance Plan)
and its predecessor plans, The Bank of America 401(k) Plan (formerly known as
the NationsBank 401(k) Plan) and its predecessor plans, the Bank of America
Corporation Corporate Benefits Committee and various members thereof, various
current and former directors of the Corporation and certain of its
predecessors, and PricewaterhouseCoopers LLP. The named plaintiffs are alleged
to be current or former participants in one or more employee benefit pension
plans sponsored or participated in by the Corporation or its predecessors.
The complaint alleges the
defendants violated various provisions of ERISA, including that the cash
balance formula of The Bank of America Pension Plan and a predecessor plan, the
BankAmerica Pension Plan, violated ERISA’s defined benefit pension plan
standards. In addition, the complaint alleges age discrimination in the design
and operation of the cash balance plans at issue, improper benefit to the
Corporation and its predecessors, interference with the attainment of pension
rights, and various prohibited transactions and fiduciary breaches. The
complaint further alleges that certain voluntary transfers of assets by
participants in The Bank of America 401(k) Plan and certain predecessor plans
to The Bank of America Pension Plan violated ERISA.
The complaint
alleges that the participants in these plans are entitled to greater benefits
and seeks declaratory relief, monetary relief in an unspecified amount,
equitable relief, including an order reforming The Bank of America Pension
Plan, attorneys’ fees and interest.
On February 9,
2005, the defendants in the Pothier action moved to transfer the venue of the
Pothier action to the U.S. District Court for the Western District of North
Carolina and to dismiss the complaint.
These motions are pending. On
February 8, 2005, plaintiffs informed the court that they intend to file a
motion for partial summary judgment with respect to their claim relating to the
calculation of lump sum benefits under the NationsBank Cash Balance Plan and/or
The Bank of America Pension Plan. On
February 18, 2005, one of the named plaintiffs moved to certify a class with
respect to that claim. The motion for
class certification is pending.
The IRS is
conducting an audit of the 1998 and 1999 tax returns of The Bank of America
Pension Plan and The Bank of America 401(k) Plan. This audit includes a review
of voluntary transfers by participants of 401(k) plan assets to The Bank of
America Pension Plan and whether such transfers were in accordance with
applicable law. By letter dated December
10, 2004, the IRS advised the Corporation that the IRS has tentatively
concluded that the voluntary transfers of participant accounts from The Bank of
America 401(k) Plan to The Bank of America Pension Plan violated the
anti-cutback rule of Section 411(d)(6) of the Internal Revenue Code. The Corporation is entitled to a conference
of right to discuss this tentative conclusion before the IRS reaches a final
decision, and the Corporation intends to exercise this right. The Corporation believes that it could be approximately one to two years before these IRS audit issues are resolved.
On September 29, 2004, a
separate putative class action, entitled Donna C. Richards vs. FleetBoston
Financial Corp. and the FleetBoston Financial Pension Plan (Fleet Pension
Plan), was filed in the U.S. District Court for the District of Connecticut on
behalf of any and all persons who are former or current Fleet employees who on
December 31, 1996, were not at least age 50 with 15 years of vesting service
and who participated in the Fleet Pension Plan before January 1, 1997, and who
have participated in the Fleet Pension Plan at any time since January 1, 1997.
The complaint
alleges that FleetBoston or its predecessor violated ERISA by amending the
Fleet Financial Group, Inc. Pension Plan (a predecessor to the Fleet Pension
Plan) to add a cash balance benefit formula without notifying participants that
the amendment significantly reduced their plan benefits, by conditioning the
amount of benefits payable under the Fleet Pension Plan upon the form of
benefit elected, by reducing the rate of benefit accruals on account of age,
and by failing to inform participants of the correct amount of their pensions
and related claims. The complaint also alleges that the Fleet Pension Plan
violates the “anti-backloading” rule of ERISA.
The complaint seeks
equitable and remedial relief, including a declaration that the cash balance
amendment to the Fleet Pension Plan was ineffective, additional unspecified
benefit payments, attorneys’ fees and interest.
On December 28,
2004, plaintiff filed a motion for class certification. On January 25, 2005, the defendants in the
Richards case moved to dismiss the action.
These motions are pending.
WorldCom, Inc.
(WorldCom)
BAS, Banc of America Securities Limited (BASL), FSI, other underwriters
of WorldCom bonds issued in 2000 and 2001, and other parties have been named as
defendants in a class action lawsuit filed in the U.S. District Court for the
Southern District of New York entitled WorldCom Securities Litigation. The complaint alleges claims against BAS and
Fleet under Sections 11 and 12 of the Securities Act of 1933 in connection with
2000 (BAS) and 2001 (BAS and Fleet) public bond offerings and is brought on
behalf of purchasers and acquirers of bonds issued in or traceable to these
offerings. On October 24, 2003, the
court certified a class consisting of “all persons and entities who purchased
or otherwise acquired publicly-traded securities of WorldCom during the period
beginning April 29, 1999 through and including June 25, 2002 and who were
injured thereby.” Plaintiffs seek
damages up to the amount of the public bond offerings underwritten by BAS and
FSI, allegedly totaling approximately $1.5 billion. The court granted BASL’s motion to dismiss
all claims against BASL. On December 15,
2004, the court issued a ruling, which granted in part and denied in part the
underwriters’ summary judgment motion and the lead plaintiff’s summary judgment
motion. On December 30, 2004, the
underwriters filed a motion for reconsideration on the issue of plaintiff
standing and a motion seeking resolution of certain issues not decided by the
summary judgment ruling. These motions
are pending. A trial date has been
scheduled for March 17, 2005.
In addition,
the Corporation, BAS, BASL, Fleet and Robertson Stephens International Limited
(RSIL), along with other persons and entities, have been named as defendants in
numerous individual actions that were filed in either federal or state courts
arising out of alleged accounting irregularities of the books and records of
WorldCom. Plaintiffs in these actions
are typically institutional investors, including state pension funds, who allegedly purchased debt securities issued by WorldCom
pursuant to public offerings in 1997, 1998, 2000 or 2001 and a private offering
in December 2000. The majority of the
complaints assert claims under Section 11 of the Securities Act of 1933, and
some complaints include additional claims under the Securities Act of 1933
and/or claims under the Securities Exchange Act of 1934, state securities laws,
other state statutes and common law theories.
The complaints seek damages of unspecified amounts. Most of these cases were filed in state
court, subsequently removed by defendants to federal courts and then
transferred by the MDL Panel to the court where they were consolidated with
WorldCom Securities Litigation for pre-trial purposes. Certain plaintiffs in these actions appealed
the court’s decision denying their requests that the court remand their actions
to the state courts in which they were originally filed. The Court of Appeals for the Second Circuit
affirmed the court in May 2004. Certain
plaintiffs petitioned the U.S. Supreme Court for a writ of certiorari, which
the U.S. Supreme Court denied on January 10, 2005.
Three other
such actions, one in Illinois state court,
another in Tennessee state court, and another
in Alabama
state court remain pending.
Other Regulatory Matters
In the course of its business, the Corporation is subject to regulatory
examinations, information gathering requests, inquiries and investigations. BAS
and Banc of America Investment Services, Inc. (BAI) are registered
broker/dealers and are subject to regulation by the SEC, the National
Association of Securities Dealers, the New York Stock Exchange and state
securities regulators. In connection with several formal and informal inquiries
by those agencies, BAS and BAI have received numerous requests, subpoenas and
orders for documents, testimony and information in connection with various
aspects of their regulated activities.
The SEC is currently conducting a formal
investigation with respect to certain trading and research-related activities
of BAS during the period 1999 through 2001.
The investigation is continuing, and the SEC staff has recently
indicated informally that it is considering whether to recommend enforcement
action against BAS with respect to certain of the matters under investigation.
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