Welcome to today's program. At this time, all participants are in listen only mode. You may register to ask a question by pressing the star and 1 on your touch-tone phone. We'll take questions in turn during our Q&A session. Please note today's call is being recorded. It's now my pleasure to introduce Kevin Stitt. Please begin, sir.
Good morning. Before Brian Moynihan and Bruce Thompson begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results, and that these statements involve certain risks that may cause actual results in the future to be different from our current expectations. For additional factors, please see our press release and SEC documents. With that, let me turn it over to Brian.
Thank you, Kevin. Thank all of you for joining us on a busy day. In 2012, we laid out our four focus areas for the year: capital, managing our risk, reducing costs, and driving our core business growth. In each area, we achieved strong results this year, and we are carrying that momentum forward as we look to 2013. Let's start on page four of our presentation. We positioned our company with a strong balance sheet this year. The estimated capital ratios now are above current Basel III requirements, and we've seen improving credit quality. As you know, we've addressed many legacy issues that Bruce will talk about later. As a result, the core earnings power of the company, the core earnings power that our team has been driving all year, can now shine through more clearly as we look forward.
We position our company to driving our core customer relationship strategy. That strategy continues to accelerate our growth by simply helping those people we serve with their financial lives. We position our company by reducing costs, making our operations leaner and more efficient, and investing in our growth initiatives at the same time. We continue to streamline all our businesses. We focus it on those three customer groups that we talk about on each call: people, companies, institutional investors. On page five, we highlight some of the progress we made in the last quarter and last year. On the consumer side, our deposits continue to grow. Our retail mortgage production has increased by an average of 10% per quarter over the past three quarters. The pipeline today remains as strong as it was at the end of the third quarter.
As you know, we continue to optimize our service network, our branch network, as online and mobile banking numbers continue to increase. We are now averaging about 10,000 new mobile subscribers a day. In our preferred client area, the growth this year has been strong. The evidence of that is our brokerage assets in Merrill Edge are up 14% from a year ago. Moving to our wealth management businesses, U.S. Trust and Merrill Lynch. Those businesses had strong loans, strong deposits, strong revenue growth this year, and earnings and pre-tax margin were also at record levels. As we think about the companies, the corporations, and middle-market companies we serve across the country and around the world, our loan growth continues to expand, particularly in the second half of 2012. Global Banking ended with loans of $288 billion, up from $265 billion at the end of June.
Investment banking fees for these clients are strong, we maintained our number 2 market position. In the fourth quarter, we had a leadership position in debt underwriting. As we move to our Global Markets business, it serves the institutional investors, our research capabilities continue to be recognized as the best in the world for the second straight year. As we look at 2012, sales and trading revenue did well in a relatively difficult environment. In 2012, our trading revenues were up 20% from 2011, excluding the impacts of DVA. We did that while we reduced cost in this business by over 10%. Thinking about it and looking across every customer group we serve, you can see our strategy that we put in place continues to drive results.
We continue to fine-tune this strong core franchise, focusing on those industry-leading capabilities we have to serve our clients and customers in every area. While we're doing that, we continue to work on expenses. Bruce is going to take you through the highlights in a few pages. If you think about it from the top, we've reduced our delinquent mortgage count, which allows to reduce our LAS expenses. We've reduced our employee count in each quarter in the last 5, we've done that while we continue to invest in our targeted growth areas. Our strategy continues to work. We're seeing growth across all the core businesses. We're seeing that momentum continue to accelerate. As we look forward to 2013, we're going to continue to drive this strategy and drive the core earnings power of our company.
Thank you, I'll turn it over to Bruce to take you through the results in detail.
Great. Thanks, Brian, and good morning, everyone. I'm going to start on slide six. As you all saw this morning, we reported net income for the quarter of $732 million, or $0.03 a share for the quarter. I want to spend a moment on the previously announced items in the geography on the income statement, so that you can better understand the quarter. Reported revenues, net of interest expense, were $18.9 billion during the quarter. If you look in the bottom left-hand corner of the slide, you can see our revenues were negatively impacted by five items totaling approximately $3.7 billion. Those items included a $2.5 billion charge for reps and warranties, with respect to the Fannie Mae settlement. Approximately half a billion related to the clarification of our obligations under mortgage rescissions.
Negative DVA and FVO of approximately $700 million relating to the significant tightening of our credit spreads that we saw during the quarter. A positive $700 million between the change in the MSR valuation related to the servicing sales as well as our sale in our Japan joint venture. If we move to the right on the expense side, our expenses were negatively impacted by approximately $2.3 billion. Due to our previously announced Independent Foreclosure Review Acceleration Agreement, as well as approximately $900 million of litigation expense and $300 million of compensatory fees. In addition, during the quarter, we did have a positive net tax adjustment, primarily related to tax credits that are associated with certain non-U.S. subsidiaries. If we turn to slide seven, a lot of numbers. I'd like to draw your attention to three line items.
The first, deposits were up $42 billion or 4% from the end of the third quarter to the end of the fourth quarter. During the fourth quarter, we reduced our long-term debt footprint by approximately $11 billion. More significantly, during all of 2012, our debt footprint came down by almost $100 billion or 26%. We accomplished that reduction in our debt footprint while our overall liquidity sources remained in the range of $370 billion-$380 billion. Turning to slide eight, in looking at Basel I capital. Basel I capital declined during the quarter to a still very strong 11.06%. The decline was the result of our pre-tax loss, as well as approximately $500 million of common and preferred stock dividends.
In addition, during the quarter, our risk-weighted assets grew by approximately $10 billion as the strong growth that we saw in the investment in Corporate Bank more than offset the reductions in the consumer business. If we turn to slide nine, I'd like to spend a few minutes on Basel III capital. We estimate that our Tier 1 common capital under Basel III on a fully phased-in basis would've been 9.25% at the end of the year. Our estimate once again assumes approval of all models, with the exception of the change in the comprehensive risk measure or CRM after one year under the U.S. Basel III NPRs. This 9.25% is a 28-basis point improvement over our estimate of 8.97% at the end of the third quarter of this year.
While our Tier 1 common capital declined as a result of the pre-tax loss, lower OCI, and higher threshold deductions, this was more than offset by a reduction in our risk-weighted assets. Driving the RWA decline during the quarter were lower exposures, particularly in consumer real estate and market risk, improved credit quality, and updates of our recent loss experience in our models. We estimate that our Tier 1 common capital at the end of the quarter was $128.6 billion, while our risk-weighted assets were approximately $1.4 trillion under Basel III. As you all know, Basel III ratios are more sensitive to changes in credit quality, portfolio composition, interest rates, as well as earnings performance. If we turn to slide 10 and look at funding and liquidity.
Our global excess liquidity sources were at $372 billion at the end of the fourth quarter, down $8 billion from the prior quarter, driven by a reduction of our long-term debt footprint of approximately $11 billion during the quarter. During the fourth quarter, we redeemed $5.3 billion of trusts and other long-term debt. You may have seen last week we raised approximately $6 billion in the aggregate for three, five, and 10-year notes to take advantage of strong investor demand. As we look forward, though, we do expect to continue to see long-term debt decline primarily through maturities consistent with our overall goal of optimizing the cost associated with both our debt and capital. As we do so, we expect that our time to required funding will consistently remain above two years coverage, and that metric at the end of 2012 was at 33 months.
On slide 11, net interest income. We reported an increase in net interest income from $10.2 billion in the third quarter to $10.6 billion in the fourth, in an improvement in our net interest margin of about three basis points to 2.35%. As we consider that number, we benefited during the quarter from less negative impact of market-related premium amortization expense. We continued to benefit from the shrinkage in our long-term debt footprint, as well as improved trading-related net interest income. Partially offsetting those benefits were lower asset yields, as well as lower consumer loan balances. If you adjust for the market-related items that I just referred to, we are in line with the estimated range of net interest income, $10.5 billion before market-related impacts we've discussed during our past earnings announcements.
Given long-end rate levels at the end of December, we estimate that quarterly net interest income may come in around a base of $10.5 billion, plus or minus for FAS 91 and day count for the next several quarters. The impact of our liability management actions and long-term debt maturities are expected to help offset headwinds from continued pressure on consumer loan balances, as well as the overall low rate environment. On slide 12, we highlight the results of our Consumer Banking and business banking. Earnings were $1.4 billion for the quarter, an increase of $143 million or 11% from the third quarter, driven by higher revenue, more than offsetting higher non-interest expense. Service charges were lower, due in part to our actions that we took around Hurricane Sandy to further support our customers in the region. Average deposits increased more than $6 billion or 1.3% from the third quarter.
On slide 13, we list some of the key indicators for our consumer and business banking for the quarter. In our deposits business, the average rate paid on deposits declined three basis points during the quarter to 17 basis points. Our mobile banking customer base reached 12 million, which is an 8% increase from the prior quarter and up 31% from a year ago. We reduced banking centers as we continue to optimize the delivery network around customer behaviors. Credit card purchase volumes per active account increased 7% from the fourth quarter of 2011. The U.S. credit card loss rate is at its lowest level since 2006, while the 30-plus day delinquency rate is at a historic low.
On slide 14, before we get into legacy assets and servicing, we summarize the specific mortgage items that we announced on January 7th, including our settlements with Fannie Mae, sales of mortgage servicing rights, and the acceleration agreement on the IFR. During the quarter, these items had a negative pre-tax income on fourth quarter LAS revenue of $2.6 billion and in the expense category of $2 billion, resulting in an aggregate net income impact of $2.9 billion in LAS within our consumer real estate services segment. If we turn to slide 15 now, we break out the two businesses within CRES: home loans and LAS. Home loans reported an increase in net income to $281 million, while LAS reported a net loss of $4 billion, including the approximately $2.9 billion of items I just highlighted.
As you all are aware, the home loans business is responsible for first lien and home equity originations within CRES. First mortgage retail originations of $21.5 billion were up 6% from the third quarter, driven by refinancings and up 42% compared with retail originations of approximately $15 billion in the prior year-ago quarter. You can see the same type of trend in our core production income, which is up from the third quarter and almost double results from a year ago. As you know, we exited the correspondent business in late 2011, so correspondent originations are nonexistent versus volumes of approximately $6.5 billion a year ago. The MSR asset within LAS ended the quarter at $5.7 billion, up $629 million from the end of the third quarter, due in part to the valuation adjustments previously discussed related to the sale of MSRs.
MSR hedge results during the quarter were positive, and we ended the period with the MSR rate at 55 basis points versus 45 basis points in the third quarter and 54 basis points one year ago. If we turn to slide 16, we show some comparisons of certain metrics in legacy assets and servicing on a linked-quarter basis, as well as compared to fourth quarter a year ago, to reflect the work done to reduce delinquent loans and find homeowner solutions. As you recall, legacy assets and servicing reflects all of our servicing operations and the results of our MSR activities. Total staffing in the quarter, including contractors and offshore, decreased approximately 9,000 from the third quarter. The number of first-lien loans serviced dropped 7% in the quarter, while the number of 60-plus day delinquent loans dropped 17% to 773,000 units.
We expect this drop in 60-day-plus delinquencies should have a positive impact on our staffing levels and servicing costs going forward, as we were fully staffed in the second half of last year to handle the various new programs and regulations. We've referenced our January 7th announcement of agreements to sell MSRs totaling $306 billion aggregate unpaid principal balance. This represents 2 million loans, of which 232,000 are 60-plus day delinquent. The transfer of these servicing rights are scheduled to occur in stages over the course of 2013, with the delinquent loans scheduled to be transferred after the current loans. Currently, we recognize approximately $200 million in servicing fees per quarter associated with these loans, which is expected to decrease throughout the year as we actually transfer the servicing.
The impact on earnings from lower revenue is expected to be negligible for the year as we expect expenses to also decrease as we transfer the servicing, especially the 60-plus day delinquent loans. We believe our service 60-plus day delinquent loans at the end of 2013 may be around 400,000 units versus 773,000 units at the end of 2012, a decrease of approximately 50%. That implies an additional decrease of 150,000 units beyond the 232,000 units that are expected to go with the scheduled transfers. Given the projected declines in 60-plus day delinquent loans, and notwithstanding there being a one to two quarter lag between delinquent loan transfers and expense decrease, we believe we can get expenses in the fourth quarter of 2013 down by more than $1 billion from the $3.1 billion in the fourth quarter of 2012, excluding the impact of IFR and litigation.
On slide 17, we show outstanding claims at the end of December, as you know, a significant portion of GSE claims has been addressed in our settlement with Fannie Mae. If we exclude the rep and warrant amounts addressed in the settlement of $12.2 billion from GSE outstanding claims of $13.5 billion, pro forma outstanding GSE claims would've been $1.3 billion at the end of the year. Total outstanding claims on a pro forma basis would be $16.1 billion. Remember that the table reflects unpaid principal amounts versus the actual losses projected on the loans. Outstanding claims in the quarter from private label counterparties increased approximately $1.7 billion from the end of September.
An anticipated increase in our aggregate non-GSE claims was taken into consideration when we developed our reserves at the time of the Gibbs & Bruns settlement, and we continue to review our assumptions on a quarterly basis. Unresolved claims with monolines remain static as much of our activity with the monolines revolves around litigation issues. Reserves for representation and warranties at the end of the quarter increased to $19 billion, of which $8.5 billion is associated with the Gibbs & Bruns settlement and approximately $6 billion is associated with the GSEs. We currently estimate that the range of possible loss for both GSE and non-GSE representations and warranties exposures could be up to $4 billion over accruals at December 31st, compared to up to $6 billion over accruals at September 30th. This decrease is the result of our settlement with Fannie Mae, and the range of possible loss now principally covers non-GSE exposures.
On slide 18, in Global Wealth and Investment Management, earnings for the quarter of $578 million were up slightly from record results in the third quarter. The pre-tax margin was 21%. This quarter, we did move two businesses that we agreed to sell, International Wealth Management and our brokerage joint venture in Japan, to the all other segment, including the results in past quarters for comparability. Overall client activity in the wealth management business in the quarter across all categories was quite robust and was aided by client actions due to the fiscal cliff. Period-end deposit growth of approximately $23 billion and period-end loan growth of $3.5 billion helped offset the impact of the continued low rate environment. Ending loan balances were at record levels, and long-term AUM flows of $9.1 billion were the second highest quarterly amount since the Merrill merger and the 14th consecutive positive quarter.
Net income of $1.4 billion in Global Banking on slide 19 is an increase of more than 10% from the third quarter and reflects higher revenue and lower expenses. Average loans and leases increased $10.8 billion or 4% from the third quarter, with growth across C&I as well as commercial real estate. Average deposit balances increased $15.8 billion or 6% from the third quarter to $268 billion as our customer base continued to be very liquid. Asset quality continued to improve from prior quarters as we've seen over the last year. NPAs dropped 20% to $2.1 billion, and reservable utilized criticized exposure declined 11%. On slide 20, we outline our investment banking fees for the quarter.
You can see that our debt underwriting area was up $213 million from the third quarter to $1.078 billion in revenues, and our advisory business was up approximately $80 million to $301 million for the quarter. Corporation-wide investment banking fees were up 20% from the third quarter and 58% from the year ago period. Debt underwriting fees were a record for the quarter, and we believe number one on a global basis during the quarter. From an overall investment banking fee perspective, we maintained our number two global ranking in net investment banking fees during 2012 based on Dealogic data. Switching to Global Markets on slide 21, earnings excluding DVA were $326 million. Excluding DVA in the U.K. corporate tax charge in the third quarter, net income decreased compared to the third quarter, driven by lower sales and trading revenue, reflecting a seasonally slower fourth quarter.
Sales and trading revenue, excluding DVA, was down 23% from the third quarter, but improved substantially from levels a year ago. Within our FIC area, excluding DVA, revenues of $1.8 billion decreased from $2.5 billion in the third quarter, primarily as a result of lower volumes and reduced client activity, but were up $1.3 billion or 37% from a year ago. In equities, excluding DVA, results were flat with the third quarter as lower volatility and continuing lack of investor appetite for equity products kept volumes suppressed. Expenses declined from both the third quarter and the prior year, primarily driven by lower personnel expense.
On slide 22, we show you the results of all other, which includes our global principal investments business, the non-U.S. consumer card business, our discretionary portfolio associated with interest rate risk management, the International Wealth Management business we agreed to sell insurance, as well as our discontinued real estate portfolio. The revenue improvement in all other from the third quarter was mainly due to a lower negative valuation adjustment on structured liabilities under fair value option of $442 million, compared to a negative $1.3 billion in the third quarter, and higher equity investment income as a result of the sale of our brokerage joint venture in Japan. Non-interest expense declined compared to the third quarter due to lower litigation costs as the third quarter included the Merrill Lynch class action settlement.
Also contributing to net income in the quarter was the foreign tax credit benefit that I mentioned at the beginning of the presentation. As you can see on slide 23, total expenses increased compared to the third quarter, but were down from a year ago. Excluding LAS expenses, the independent foreclosure review and litigation expenses in the quarter were $13.3 billion versus $12.9 billion in the third quarter and $14.7 billion a year ago. The $400 million increase from the third quarter reflects the normal seasonal trend and represented non-personnel cost. FTE at the end of the quarter was down approximately 5,000 from the third quarter and 15,000 from a year ago. An important driver behind the reduction of $1.4 billion in expenses from fourth quarter a year ago is New BAC, which we have discussed with you several times.
If you remember, total annual cost savings targeted with New BAC are $8 billion per year or $2 billion on a quarterly basis, which we said we would hit sometime in mid-2015. In the fourth quarter, we achieved approximately $900 million of the $2 billion, which is 45% of our target. As a reminder, the first quarter every year includes the annual retirement eligible stock compensation, which was $900 million in the first quarter of 2012, and this year we expect will be a similar amount, plus or minus. While we are talking about expenses, let me comment on taxes. Tax expense for the quarter was a benefit of $2.6 billion, consisting of the expected tax benefit of the pre-tax loss, our recurring tax preference items, and the $1.3 billion primarily related to the non-U.S. restructurings.
For 2013, we estimate the effective tax rate to be somewhere around 30%, including $800 million or so for another expected 2% U.K. tax rate reduction, which we would expect in the third quarter. If we switch to overall credit quality on slide 24, provision was $2.2 billion versus $1.8 billion in the third quarter as lower charge-offs were more than offset by lower release. Overall credit quality trends continue to be positive even when we normalize for the events in the third quarter. If you recall, regulators provided new guidance to the industry in the third quarter of this year around loans discharged as part of a Chapter 7 bankruptcy, which resulted in increased net charge-offs of $478 million in the third quarter. In addition, we incurred charge-offs of $435 million in the third quarter in connection with the national mortgage settlement.
We did not have impacts to net charge-offs of a similar magnitude in the fourth quarter, but did have $73 million related to the completion of the implementation of the regulatory guidance. Excluding these items, net charge-offs were down $178 million or 6%. We believe most portfolios are close to stabilization, and overall reserve reductions are expected to continue, but at reduced levels. Given our outlook for a slow growth but healthy economy, we believe provision expense in 2013 will range between $1.8 billion and $2.2 billion per quarter, the levels experienced between the second and fourth quarters of 2012. Excluding the fully insured portfolio, 30-plus day performing delinquencies continued to drop. NPAs were down $1.4 billion from the third quarter, and $4.2 billion from a year ago. On the commercial side, reservable criticized levels showed a decline of 8% from the third quarter and 42% from a year ago.
Before we open up for questions, let me say and reiterate Brian's comments that we feel very good about our accomplishments in 2012. We improved the balance sheet, we managed risk, and we addressed significant legacy issues, and were successful in reducing certain of our exposures. We've stepped up our focus on growing the business, and some of that focus is evident this quarter when you look at deposit growth across the franchise, loan growth in the Global Banking, solid investment banking results, and in GWIM, strong deposits, AUM, and loan flows. We enter 2013 all about moving the ball forward and winning in the marketplace with what we think is the best banking franchise in the world. With that, let me go ahead and open it up for questions.
Thank you, sir. To ask a question, please press the star and one on your touch-tone phone. If your question has been answered, you may remove yourself from the queue by pressing the pound key. Again, to ask a question, please press the star and one keys at this time. We'll pause for a brief moment to give everyone an opportunity to join the queue. We appreciate your patience. We'll take our first phone question in just a moment. We'll take our first question from the site of Matthew O'Connor from Deutsche Bank. Your line is open.
Good morning.
Morning.
Morning.
A couple of follow-ups. I guess starting on the expenses, appreciate the outlook on the legacy cost. As we think about kind of the all other expenses that you pointed to of $13.3 billion, with some seasonal stuff this quarter, maybe you could just frame what we can expect for that level or for that bucket for 2013.
You're saying expenses not including LAS and the litigation?
Exactly. Yeah, the $13.3 that you pointed to in the fourth quarter.
Yeah. I think as you look at that number, if we keep LAS out of this, obviously, the big new savings bucket that we have is New BAC. We had indicated that we are on a quarterly basis at $900 million a quarter as we leave 2012. We expect that our New BAC cost savings, when we get to the fourth quarter of 2013, will be at $1.5 billion per quarter. You can expect to see on a core basis with New BAC about a $600 million increase from where we leave 2012 to where we leave 2013.
As we think about that $13.3, I guess we could take out $600 million for New BAC. Was there other bulk, or how much, I guess, of the seasonal stuff is there that maybe we should adjust for?
The seasonal stuff, if you're going Q4 to Q4, you'd expect the seasonal stuff to be there. As we indicated, we looked at, and for this quarter relative to the third quarter, there was $300 to $400 million of stuff that we would characterize as seasonal.
Just in terms of underlying, call it inflation, or just normal investments, if we take that $13.3 4Q to 4 Q, would you expect that to be down? You have minus $600 million from additional New BAC savings, and then there's always some offsets from inflation or investments. Do you think that net number will be down?
We would expect it, and the one thing that we're being very cognizant of is that while we're investing in the business, we're not going to let inflation outrun the progress that we're working on New BAC. I think on a net basis, thinking about that $600 million number from New BAC is a good assumption.
Okay. Just separately, if we look at the FICC revenue, a little bit weaker than maybe we've seen so far, although it's still early in the earnings process here. I guess I noticed that the asset level in the trading book went up. The VaR doubled quarter-to-quarter. Just wondering if there was anything unusual in terms of positioning or that you would point to.
Sure. I think it's important when you look at the FICC business to go back and look at the progress that we've made during 2012. If you look at FICC revenues 2012 compared to 2011, pre-DVA, they were up 36% year-over-year. If you go back and look at each of our quarterly releases in 2012, in each quarter in 2012, pre-DVA, revenues were higher than 2011 at the same time that we were taking cost out. The third thing I would say is that you have to realize that we run the FICC and overall debt underwriting business and look at that as one consolidated business. From a debt underwriting perspective, at over $1 billion of revenue, we believe that was, as I indicated earlier, more than anyone else did this quarter on a global basis. We feel very good about that.
Your point on the VaR is a fair one, and we did see VaR increase during the fourth quarter. We would expect to see the benefits of that VaR flow through during the first quarter of this year.
Sorry, benefits meaning higher revenue?
That's correct.
Okay. All right, thank you.
We'll go next to the site of John McDonald with Sanford Bernstein. Your line is open.
Yeah. Hi, Bruce. Does the goal of reducing the delinquents in LAS, the 150,000, does that include additional planned MSR sales that you might have in mind?
It does not, John, because I think the one thing when we announce these sales that you have to realize is that it's very important that the transition of the loans that are being sold work through a process and go in a way that's as consumer-friendly as we can do it. There is a lot of work that goes through that. As we look at the servicing business, that does not include, in any meaningful way, incremental sales. There may be some small ones over above that. At the same time, somebody could come and look to do something as well. At this point, I would consider that 150 to be more organic reduction.
Okay. What kind of pace throughout the year would you expect for reducing that 3.1 LAS expense by your goal of $1 billion by the fourth quarter? Kind of steady throughout the year, or is it bumpy?
I would assume that you should generally expect it to come out throughout the year. It's not something that you're going to have to wait for the fourth quarter to see.
Okay. Then getting to Matt's question earlier. A lot of moving parts on your expenses. If we look top of the house, trying to think about a jumping-off point for total BAC expenses as you start the first quarter, it seems like you might be in the $17 billion ballpark with the stock option expense. Does that feel like the right area?
Yeah. I'm hesitant, John, to give you specific numbers in a quarter. What I would say is that we gave you guidance as to how much of the fourth quarter was seasonal that we obviously wouldn't expect in the first quarter. You've got the $900 of stock compensation expense that will come through. Expect to see a little bit of benefit in the first quarter as we continue to implement Project New BAC. Probably the biggest variable that you could see in the first quarter that I didn't mention is really compensation expense that varies based on actual business performance. I think if you think and look at those different metrics, you'll get pretty close.
Okay. Then with the Fannie Mae settlement this quarter, how should we think about the rep and warrant provisioning going forward here? Will you need to add on a quarterly basis to the rep and warrant provision?
Yeah. If you look back over the course of 2012, absent any settlements or any unusual activity, you had a run rate throughout the quarter of around $300 million per quarter in 2012. With the Fannie Mae settlements, as well as obviously the fact that Freddie Mac was settled at Countrywide Financial, you'd expect that number to be $150 million or so going forward.
Okay. Then one last thing on NII. Was that a pretty clean number? Was there any impact from hedging or premium amortization in the NII number this quarter?
There was less than $100 million to the negative.
Okay. Your guidance of the kind of $10.5 billion is the run rate you think for the next couple of quarters? That's excluding any of that, right?
Excluding any of that. Realize that we've got a couple less days in the first quarter of this year.
Okay. Okay, thanks.
Thank you, John.
We'll go next to the line of Paul Miller from FBR Capital Markets. Your line is open.
Hey, thank you very much. Hey, guys, on your guidance for NII, which was really good, you talked about you can maintain that net interest margin at current levels. What about average earning assets? Do you think you can maintain your average earning assets at these levels or grow them?
I think the average earning asset levels that you're probably at a level that you're not going to see an enormous amount of growth. What we do hope that happens, though, is that the composition of those earning assets change so that we can look at, and particularly in the institutional businesses that I mentioned, as well as in GWIM, there was very strong loan growth during the fourth quarter. We're focused on continuing to drive that forward, and that obviously reduces the need to invest in securities and other things, and we think ultimately has a positive impact on NII and is also, quite frankly, consistent with managing OCI risk going forward.
Okay. I have to ask one mortgage question. I asked the same question in the third quarter. I think, Brian, you've been out in a lot of interviews talking about how much you like mortgage banking. You're still really just going to be focused on retail. Am I correct? On retail, will you be focusing just on your own customers, or will you be focusing on customers outside of your deposit mix or your customer base?
Well, Paul, focusing on the customers and our customer base is not real restrictive since you're one in two households.
There's plenty of market share to go. Our penetration of the product in our preferred segment and our wealth management segment is still relatively low, so there's tremendous growth. As you think about shaping the mortgage business, we're kind of-
This quarter kind of starts moving announcements as we close these servicing sales to where we end up with maybe 5 million serviced loans going forward, producing $20 billion and growing a quarter direct to retail. That's kind of what we want with a market share that steadily grows, and that's kind of the equilibrium, and the team has to go. The next challenge at hand is obviously, Paul, replacing the HARP volumes over the next year. This year we had to replace the correspondent volumes. Next year, we have to replace the HARP volumes, and the team's working diligently on that. It is really focused on the core customers.
If you think about the cost of servicing mortgages and stuff, we need to really focus on people that we are very comfortable to credit and keep the delinquencies down and stay away from the stray products and just chasing volume.
Okay. Hey, guys, thank you very much.
Thank you.
We'll go next to the side of Glenn Schorr from Nomura. Your line is open.
Morning, Glenn.
Good morning. First one's a question on risk-weighted assets. On one of your slides, you show Basel I assets going actually up a little in the quarter, Basel III coming down. It's all in the net change in credit and other risk-weighted assets. I'm just curious, what do you see on the credit side that drives that model enhancement? The reason I ask is, it makes sense intuitively it's just different to the tune of half the Basel I to Basel III jump. It's different versus all the other big banks.
Okay. I think it's a good question, Glenn. When you look, let's just first spend a minute on Basel I. As I think you know that the majority of regular way loans in Basel I are 100% risk-weighted, so that as you look at our $10 billion increase in risk-weighted assets under Basel I, it's generally speaking, the net increase in our loan book. If you go to Basel III, I think you're referring to Slide 9, where we talk about the different reductions. Why don't I spend a moment on each of the buckets? The first is that we referenced that we had about $23 billion less through consumer real estate exposures. The way that Basel III works is that as opposed to these general risk-weighted buckets, they look at loan-to-value, delinquency, and other type metrics.
During the quarter, the $23 billion benefit we saw declines in the loan-to-value within our residential mortgage book. The percentage of loans that were 90-plus day delinquencies, each of those went down, which I think in large part is reflective of the changes in the underwriting standards that we've talked about before, that we implemented in the fourth quarter of 2008 and the first quarter of 2009. The second thing is, if you look at our home equity book, the delinquencies as well as the loan-to-value continue to improve there, as well as the notional amount outstanding has also gone down. We benefit there as well. The third bucket within consumer real estate are our other retail exposures, which generally represent the runoff portfolio that we've talked about. That decreased during the quarter as well.
Those three different buckets within the consumer exposure are what drove the $23 billion decline there. If you move to the $64 billion number that we referenced largely in market risk, really go through a couple different areas where we had benefits. The first is we did have a pretty significant decline on a net basis of CVA, stressed VaR, as well as our CRM risk-weighted assets during the quarter. Over and above that, you know that some of the securitization products have very high risk-weighted asset content. We were able to fairly significantly decrease some of those securitization exposures. During the quarter, the industry also got some guidance from a regulatory perspective on risk-weighted assets with certain securitization products that was favorable. That helped.
The last piece that we had is that there were some index tranches and other things within the markets business, which came down pretty significantly as well. Those were really the big items in the $64 billion bucket. With respect to the $23 billion bucket, I want to spend just a moment on that because the $23 billion reduction is not a function of going in and changing models. The $23 billion is that each year when you update your models for actual loss experience, it drives changes in risk-weighted assets. Given the strength and improvement across the credit portfolios in 2012, we benefited from that when the models were updated.
Great.
If you look forward, I would just say looking forward, I think we're generally in a place now where we told you a couple of quarters ago the optimization on Basel I was largely done, and the risk-weighted assets would vary pretty proportionally with the amount of loans. From a pure risk-weighted asset perspective, I think we're largely through those reductions. Keep in mind, from a numerator or a common perspective going forward, we will benefit given our deferred tax position in that the pre-tax number will generally grow capital on a pre-tax basis, and we still do have some threshold deductions we can work down there.
That's super helpful. I think you just said it, I just want to confirm. This happens on an annual basis? In other words, whether the balances come down on pay down, run off, charge off, whatever, or credit improves, the models get updated on an annual basis, and there's no permission process, in other words, just happens in real time?
There's not a permission aspect to it. It's required that we update these on an annual basis. That's correct, Glenn.
Okay. Really appreciate-
Hey, Glenn, the balances move every quarter. I think it's the models, the factors that change on risk.
Yep, that's super helpful.
Yes, the balances. Yes.
I appreciate all of that. Inside the average balance sheet, the securities yield went up 11 basis points in the quarter. Most banks are trending lower as things run off. This is part of your defending the NIM. I get it. Just curious, is it just extending a little bit on the duration curve? Just curious what you're doing on the asset side to help support those yields.
No, it's not extending duration. If you look at our securities portfolio, we continue to run that duration in and around two years. What you have to keep in mind is that we had, during the third quarter, you had some of the FAS 91 amortization expense. That flows through it and hits the yield on the securities portfolio. We did not see a significant change in the actual yields during the quarter. It was really more FAS 91. I think as you look at our company going forward, I think we're a little bit different in that between the fact that the duration of what we have continues to be short. As we look forward, we clearly think the worst of the recouponing of the securities portfolio is behind us based on where rates are today.
Okay. Thanks, Bruce. I appreciate it.
We'll go next to the side of Ed Najarian from ISI Group. Your line is open.
Good morning, guys.
Good morning.
With the capital ratios up significantly and credit quality getting better, the mortgage repurchase risk getting resolved over time, could you give us any thoughts in terms of how you're thinking about capital return for 2013? We've had a number of the other big banks, JPMorgan, Wells, USB. At least give us some insight in terms of how they're thinking about capital return for this year going into the CCAR, and wondered if you'd be willing to do the same. Thanks.
I think I'd say, Ed, that we completed our results. We're in a better position this year than last year. We'll let you know once we get through the test. I think it's the Fed's doing its work. We've been clear with people that the issue for us is not necessarily capital levels or balance sheet cleanup and stuff. The issue is of recurring earnings levels. We've been consistent on that. We'll let you know once we get there. Bruce and the team have done a great job on submitting it. We'll see what happens.
Well, you're already above the capital ratios that you need to be at least according to FSB guidelines. Now that you continue to generate excess capital, is that something that you think you'd like to return to shareholders over time, or is that something that needs to be retained in the near term for safety and soundness reasons until you get more litigation resolved? Any thoughts in terms of the excess above and beyond where you have indicated you sort of intend to run the company?
If you look at what we did in 2012, we took capital and redeemed preferred instruments and subordinate debt and other things and continued to do that during the year, getting approvals to do so as we went along. We've been clear that all the capital we have, now that we're above the levels, will be in a position when we get the approvals to return to the shareholders. You know the viewpoints of the relative preferences of the CCAR process in terms of dividends versus stock buybacks and things like that. We would be no different than anybody else. It's clear it's either on the balance sheet tangible value.
It is not needed for the risk of the balance sheet because you can see that with all the risk weighting and everything, the capital's there. It will all get returned as part of the business proposition. If we retain any to grow, that's actually a good problem. So far, we still have optimization left in the balance sheet, as Bruce described, that allow us to continue to return capital. Our intention is to return it. The question is we've got to get through the processes. We'll do it.
Okay, thanks. I guess my second question is just fairly technical. When I look at what you've outlined in terms of reserve recapture, it looks like about $900 million in terms of loan loss reserve, a $2.2 billion provision, $3.1 billion charge-offs. It looks like the loan loss reserve itself dropped by about $2 billion from the third quarter. Can you reconcile that for me?
Yeah. The reason it dropped by that amount is that, and you saw it in the third as well as the fourth quarter, that with some of the DOJ, AG settlement modification and other things, that as you dispose, get repaid, or write off the purchase credit-impaired portfolio, it reduces your loan loss reserve.
Okay. That's not coming through the charge-off line?
That's correct.
Okay. All right. Thank you.
We'll go next to the site of Brennan Hawken with UBS. Your line is open.
Good morning. Thanks for taking the question. Quick one following up actually on one of Ed's questions, and it's related to your capital levels and the SIFI buffer.
Is there any view from your guys' perspective that you'll intend to run with a buffer above the required 8.5, because many of your money center competitors are going to be running at the 9.5 level. Maybe either for funding market reasons or potentially competitive reasons, is it in your mindset or strategic vision that you might run a bit above that 8.5 level, or is that the wrong way to think about it?
Make a couple observations on that. The first is that at 9.25% today, regardless of required CET1 buffers, we have more on a Basel III basis than anyone else. The second thing I would say is, given the position that we're in and the fact that we do have DTAs going forward, the rate at which we accrete capital, given it's on a pre-tax basis, we would expect to be more significant than our peers. I think going forward, we still think we have the opportunity as core earnings rebound to grow capital more quickly than our peers. As it relates to the exact level, we've always looked at and thought that you want to run at least an extra 50 basis point cushion.
Given that these ratios are more sensitive to changes in the market, depending on what the market looks like at the time your ratio is, you may vary that a little bit based on the market. I would say generally, if we look at what we saw in the third quarter, what we saw today, that we're generally in the range of where do you expect us to run. As we look out at and see how our counterparties from a credit perspective view the company now and look at our credit spreads, we feel like we're doing the right things right now.
Yeah. Okay. That's fair. Then thinking about maybe the fact that you guys might be in the market to sell another chunk of MSRs, or at least you hear about that through speculation from various sources. Is the idea behind that we're at a point where that's not really a capital issue for you all anymore, right? Because you're below the threshold from that perspective. Is it more about getting an opportunity to further eliminate and push down these legacy costs? Is it that you just strategically don't view the business as very attractive, and you just want to be out of it altogether? Can you help maybe give some color around that thought process?
If you go back and look what we did in the beginning of 2011, when we split our portfolio into two thought processes, our mortgage servicing portfolio. We split a chunk into what we called the home loans at that point and a chunk into what we called LAS. It was about round numbers, 11, 12 million of loans at that time. Half went to LAS and half went to home loans. The criteria which we looked at that was customers products and loans and stuff that were going to be a go forward business we think of in the home loans business. The other half was products that were never going to be done again in the way we're going to run the business because frankly, you lose a lot of money on them due to the delinquency levels and customer strife, et cetera.
Since that time, and if you go back and look, we showed that exact break. Since that time, we've been busily trying to work the $6 million non-core loan book portfolio down, and we've gotten it down around $2.5 million-ish now. With its sales, $2 million, not all of it comes out of that because of combined pools and stuff, but a significant amount. We are really accelerating the ability to get to the end state on the bad mortgage servicing book, for lack of a better term. That is what we're up to. We had gotten it to a level from a capital level and all that stuff we were comfortable with. Once we get this out, these are products that we just aren't going to continue with.
We've been focusing on rebuilding the business into the core business, as I spoke about earlier. If you think about in that context, think about something that might have taken us all the way into 2015 to finish up and think about through the sales of a significant part of the $2.5 million. The question is, we're bringing that into 2013 and early 2014 as we finish up, which then accelerates our reposition of our company away from products and services which we didn't plan to continue two years ago.
Yep. Cool. Thanks for that. Last one. The billion-dollar decline in mortgage cost, the legacy cost you guys provided from the $3.1 billion to the $2.1 billion by Q4. Just kind of curious about the starting point there. The $3.1 billion, I thought that included $0.3 billion of compensatory fees from this Fannie Mae deal. Why is that the starting point rather than like $2.7 billion? Is there something in that $0.3 billion that is recurring, or what's the deal there?
Yeah. The number was slightly less than $300 million rounded to that number. In any one quarter in that business, you have some pluses and some minuses that are flowing through. You're right. The $1 billion, though, is starting from a $3.1 billion base.
Let's be clear. We signed the sales transaction January 7th, working through the buyers, the timing of the movement of the assets, finalizing that. How fast you can move. There's transition issues that you got to deal with in terms of people who are in the middle of the modification process and stuff. Let me flip the other thing. This quarter, the total resources you saw on the one slide dedicated to LAS went down by 9,000 between FTEs and contractors dedicated to this team. We will continue to drive that down. There's nothing more important to our company to get this done as quickly as possible.
Bruce was giving the outline, and whether it's from this call item or that item, the idea is that we need to get the work out of here, and that's what'll actually take the cost, and the sales, the closing, the continued progress on the remaining piece that we have left. Think about in a single quarter, 9,000 change in headcount, and think about we're going as fast as we can.
Yeah. No. Well, clearly, it's been really tough to try to forecast how this would run down, and you guys are clearly not alone in having challenges. Everybody in the industry, I think, has been struggling with that. Just was kind of curious whether or not there was something in there better understand it. Thanks for giving the color.
We'll go next to the site of Betsy Graseck with Morgan Stanley. Your line is open.
Good morning. A couple other questions on mortgage. One is around the Fannie settlement. Now you'll be originating through Fannie as you used to, regular way mortgages for the home loan section. I'm wondering how fast you think you can get your market share back up as a result of that.
Our market share overall, when you put the whole thing together, I think has gone up about 0.2% per quarter as best I have. Remember, we're only competing in the direct-to-consumer part of the market. I think it's moved from 4.2% to 4.4% to 4.6% type of numbers. Expect us to keep driving our market share up. Now, again, we've got the HARP volumes, which is in the $21 billion this quarter, $7 billion-$8 billion type of number, think of that we got to replace. That's the team's challenge. On the other hand, we're not closing loans as quickly as we should, honestly, and we've been adding significant resources as we downsize LAS into the home loans business to increase our fulfillment capacity.
You put all that together, our market share continues to grow every quarter, the last three or four. We'll continue to drive it. Where it will settle in, I'm not exactly sure. As I talked about earlier, Betsy, if you think about us having think of an 8% share of servicing. We've got to get our origination share moving towards that direction over the next couple of years in order to have sort of equilibrium, for lack of a better term.
Right. It's just that when you stopped originating through Fannie, the share came down rather sharply in a short period of time. I was just wondering if with higher throughput, you might be able to do more there.
Look, the issue isn't liquidity in the market for the kind of loans going through. The issue was when they happen to correspond with each other, but they really had nothing to do with each other. The issue is we stopped the correspondent business.
Right.
If you thought about our market share when it was the strongest in the high teens, two-thirds of it or more were correspondents, and that's what dropped our share down. The retail market share is actually from this year, direct to retail, excluding even HARP, it's flat year-over-year in terms of production and fell a little bit, and it's grown every quarter. We're selling to Freddie, and we'll work it out with Fannie over time. The point I'm really saying is it's not the secondary market liquidity that caused our market share drop. It was getting out of the correspondent business. If you just look in this quarter, remember that there's $6.5 billion last year, fourth quarter versus this year, fourth quarter that was in the correspondent.
That is a carryover from when we quit it in the third quarter at the same time we announced that we're going to stop with Fannie.
Right. Okay. Lastly, on the home loans, are you anticipating more reinvestment in the home loans group to drive that faster throughput, or do you think you're at the investment spend that you want to make in that business?
Well, with the volumes there, we'll continue to invest in the servicing fulfillment teams. Tony Meola has done a great job, Ron Sturzenegger in that business working with the LAS has now taken over sort of the good side of production, along with a fellow named Steve Boland. Dean Athanasiou in the retail and the preferred group under David Darnell drives the production side. We've added mortgage loan officers every single quarter, focused them on the branches, what we're seeing is tremendous uptake when we get them working with our teammates. We're better when we're connected as a company across things, we've seen it. We are investing both on the front end and on the service and fulfillment, the middle office, so to speak.
We've moved, I think, 4,000 people increase this year so far in fulfillment, we'll continue to move them because ultimately, the retail production side is a good business right now.
Okay. Thanks.
We'll go next to the site of Nancy Bush with NAB Research, LLC. Your line is open.
Good morning, guys.
Morning, Nancy.
Morning.
First question, on the credit card business, Brian, could you just give us some color about what's going on right there? Your numbers are not robust, and I'm wondering, you have lost share there. What's being invested into that business?
If we think about it starting in 2009, Nancy, we started to reposition that business because it had gotten too far into the broader credit. After the crisis, as you remember, we charged off $60, $70 billion of charge-offs in that business. We started repositioning it. We've got it about now where we want it. In other words, we have an affinity group of businesses that's very core and we like a lot, and we have the core business. This quarter, I think we did 840,000 new cards, about 350,000 or more or less through the franchise, another 100 some thousand, I think, on online. We're producing what we need to do. Balances grew point to point. You got to be careful the fourth quarter. You get a little kick around Christmas, obviously.
If you look at it as we look across the last few quarters, and we'll have to wait till everybody gets out this quarter, we're holding around 14%-ish market share which is fine. Now the question is we push a little bit harder on the, and I use the broad context, marketing, not direct mail market, but marketing and driving through the franchise. What we've done is position the credit quality well. It's a much more of a payment business now, 19%+ pay rate, which basically up from 14%, probably six, eight quarters ago. It's a higher quality business. It's drilled the core customer base, the 123 card and the rewards cards we have that drill off the core platform are working well in our retail segments. Then obviously in the wealth management segments, we have a greater array of products.
I'd say that we've got this where we want it now. It's stabilized. The runoff book that we are fighting on a growth basis is down to $3.5 billion, down from $15 billion at the top. I think they should start to see some growth, but it's going to bump around where it is right now for a few quarters. I'd say that there's nothing wrong with the business and we're making a fair amount of money in it right now. The risk-adjusted margin is the highest it's ever been.
Okay. Secondly, Bruce, if you could just speak to the comp ratios in the investment bank and how you guys are trying to position yourself relative to your competition.
Yeah. I think generally we're in that 40% area from a compensation perspective. Obviously, given the performance and where we are, we need to be competitive with where the peers are. I don't think you've really seen that change materially during the course of 2012.
All right, great. Thank you.
We'll go next to the side of Mike Mayo with CLSA. Your line is open.
Hi. First, just to follow up, the FAS 91 amortization expense. What would have been the change in the securities yield and the margin, if not for that, looking third quarter to fourth quarter?
I'll have to get back to you with that exact number. Mike, I think I have a gut, but I want to make sure I'm right. Why don't we get back to you with that number?
Okay. Do you just know generally? Your margin was up, that's good, and the securities yield is up 11 basis points. Do you think it would have been down if not for that?
I want to think, Mike, it was somewhere between nine and 11 basis points. I just don't have the exact number.
Okay, that's fine. Going to the mortgage put backs. The Fannie settlement, you got that done. It sounds like you're feeling better about the rep and warranty expense. I think I heard you say it might go from $300 million to $150 million per quarter. I sense you're feeling better. I'm trying to reconcile that with what's taking place with the MBIA versus Countrywide court moves. Correct my thinking if anything's wrong here, I think it's an issue of Bank of America successor liability, or is Bank of America responsible for Countrywide? As of January 9th and 10th, the oral arguments were completed. I understand it's in the hands of Justice Bransten, the New York State Supreme Court.
The motion says that Bank of America is responsible for Countrywide, and if so, I guess that could put the $8.5 billion private label settlement at risk. My question is, could that $8.5 billion settlement be at risk? Do I understand what's happening in the court correctly? What happens if the $8.5 billion private label settlement does not go through?
Yeah. I think a couple of things on that, Mike. First, I think from our perspective, the $8.5 billion Gibbs & Bruns settlement is going through the court process, would likely get wrapped up sometime in the second quarter or early in the third quarter. That's completely independent from what's going on at MBIA. With respect to MBIA in the broader monolines, as we've said before, generally, if you look at geography within the financial statements, the majority of the work that we do and where the monolines are accrued for at this point is within the litigation line item as opposed to within our provision for reps and warranties.
The third thing I would say is that as it relates to kind of the general rep and warrant question, I think the most important thing to go back to is that the large majority of everything that was done with the GSEs at this point between our global settlement with Freddie and Countrywide and our global settlement with both Countrywide and Bank of America with the GSEs just takes away a significant amount of risk relative to where we've been before.
We're really just talking private label at this point.
As I referenced, you've got the several monolines that we're working through on a litigation perspective, and then you're right, you've got the private label piece. I think if you go back to the comments that we made about the geography of the representations and warranties, you can see we have a pretty sizable amount set aside to work through the private label exposures.
What is the significance of the decision by Judge Bransten in the Supreme Court of the State of New York? There was a The Wall Street Journal article on January 11th, some other chatter saying that if this motion goes against you and you're deemed responsible for the legal liability as a Countrywide, then that could be a negative event for you. Do you agree with that?
Mike, I think if you think about this litigation goes back and forth, and the judge has a lot of decisions to make on a lot of cases, and we'll play it out here. We're comfortable with our legal positions across the board.
Okay. For that, you think we'll hear next month as opposed to mid-year?
I'm not sure the exact time.
Okay. Just last question on that, because how do we get our arms around that risk? That's really my question. If you wanted to just give advice to somebody, okay, here's the potential hit if things go wrong, what would be your answer to that? Just is there no answer?
I think what I would suggest you do, I'm not going to quote somebody else's financial statements, but I think you can go look on MBIA's financial statements and see how much that they believe that we're owed or that they're owed from us. That's disclosed in their financial statements, so you can look at that. The corollary is, I think you have to keep in mind that there's a significant amount of money that they owe us within our Global Markets business, that's very significant that we have marked at cents on the dollar.
Great. All right, thank you.
We'll take a final question, this one from the site of Guy Moszkowski from Autonomous Research. Your line is open.
Good morning.
Good morning.
You guys have done a great job countering the net interest margin pressure, obviously, with managing your long-term debt down. Maybe it's too early to think about this, but obviously, under orderly liquidation authority in Dodd-Frank, there is some provision for bail-in debt. I was wondering how you guys are thinking about that and how you might implement it over time.
Yeah. I think the biggest thing, Guy, that you have to go back to is that you've seen the different reports that it's the people are looking at these amounts based on not only the amount of debt, but also the amount of equity that you have on the balance sheet. If you go and look at our ratios, we obviously, as far as the amount of pure common equity and other equity-related instruments on the balance sheet now are more than virtually all of our peers. Because of the way through the series of mergers that happened, our debt footprint on an absolute basis as well as on a relative basis, is higher than our peers.
As we look at this and as we talk about going forward, I think we still have a lot of work to do and opportunity to get our interest expense down through shrinking the size of the debt footprint and just bringing it down to where the rest of the industry is. We can't predict with certainty where this goes, but we know as we look at the different ratios and the different metrics, we still have some opportunity to continue to benefit the interest expense line just to get to where our peers are from an overall debt and equity perspective.
Okay. That's fair. Just one last question regarding expenses. Obviously, you've stuck with your guidance on Project New BAC, and you told us where you are along the path of getting to those goals. You've updated us on the LAS expense reduction initiatives as well, but you're also talking about reinvesting and specifically around mortgage origination, but I think more broadly as well, because obviously you don't want to ignore revenue growth opportunities. How do we reconcile those things and how much reinvestment at this point should we expect to see of Project New BAC $8 billion and of the LAS $10 billion?
On the LAS, I don't think you'd see it. Project New BAC is net of the cost of achieving the results, which is largely technology implementation cost. If you look at our technology development costs over the last few years, we've gone from about $2 billion and change to $3.6 billion per year. The investments we're making in Project New BAC are investments in the franchise. In other words, to get the efficiencies embedded in there is a rework of our entire trading platform systems, and things like that. We are investing to get the savings, but investing to also strengthen the franchise at the same time. It's all netted in there.
Okay. You would encourage analysts to continue to bring those entire amounts to the bottom line by 2015?
Yeah.
Okay. That's great. Thank you.
This concludes our Q&A. I'll go back to our presenters for any closing remarks.
Thank you for your time and attention. Look forward to next quarter.
This will conclude today's program. Have a great day. May disconnect at this time.