Welcome to today's program. At this time, all participants are in listen only mode. Call. 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. And with that, let me turn it over to Brian.
Thank you, Kevin, and thank all of you for joining us on a busy day. In 2012, we laid out our 4 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. So let's start on Page 4 of our presentation. We positioned our company with a strong balance sheet this year.
Estimated capital ratios now are above current Basel III requirements and we've seen improving credit quality. And as you know we've addressed many legacy issues that Bruce will talk about later. As a result of the Corning's power that our team has been driving all year can now shine through more clearly as we look forward. We positioned our company to driving our core customer relationship strategy. That strategy continues to accelerate our growth by helping 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 the 3 customer groups that we talk about on each call, people, companies, institutional investors. And on Page 5, we highlight some of the progress we made in the last quarter 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 3 quarters. The pipeline today remains as strong as it was at the end of the 3rd 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.
Evidence to 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 twenty twelve. Global Banking ended with loans of $288,000,000,000 up from $265,000,000,000 at the end of June. Investment banking fees for these clients are strong and we maintained our number 2 market position. In the Q4, we had a leadership position in debt underwriting. As we move to our global markets business and it serves the institutional investors, Our research capabilities continue to be recognized as the best in the world for the 2nd straight year.
As we look at 2012, sales and trading revenue did well a relatively difficult environment. In 2012, our trading revenues were up 20% from 2011 excluding the impacts of DVA. And we did that while we reduced cost in this business by over 10%. So thinking about it, looking across every customer group we serve, you can see our strategy we put in place continues to drive results. We continue to fine tune a strong core franchise focusing on those industry leading capabilities we have to serve our clients and customers in every area.
But while we're doing that, we continue to work on our expenses. Priscilla, this is going to take you through the highlights in a few pages. But 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 and we've done that 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. So as we look forward to 2013, we're going to continue to drive this strategy and drive the earnings power of our company. Thank you and 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 6. As you all saw this morning, we reported net income for the quarter of $732,000,000 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 $18,900,000,000 during the quarter. If you look in the bottom left hand corner of the slide, you can see our revenues were negatively impacted by 5 items totaling approximately $3,700,000,000 Those items included a $2,500,000,000 charge for reps and warranties respect to the Fannie Mae settlement, approximately $500,000,000 related to the clarification of our obligations under mortgage recisions, negative DVA and FBO of approximately $700,000,000 relating to the significant tightening of our credit spreads that we saw during the quarter and then a positive $700,000,000 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 $2,300,000,000 due to our previously announced independent foreclosure review acceleration agreement as well as approximately $900,000,000 of litigation expense and $300,000,000 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. We turn to Slide 7, a lot of numbers. I'd like to draw your attention to 3 line items. The first deposits were up $42,000,000,000 or 4 percent from the end of the 3rd quarter to the end of the 4th quarter. During the 4th quarter, we reduced our long term debt footprint by approximately $11,000,000,000 but more significantly during all of 2012, our debt footprint came down by almost a $100,000,000,000 or 26%.
We accomplished that reduction in our debt footprint, while our overall liquidity sources remained in the range of $370,000,000,000 to $380,000,000,000 Turning to Slide 8 and looking at Basel 1 Capital. Basel 1 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 $500,000,000 of common and preferred stock dividends. In addition, during the quarter, our risk weighted assets grew by approximately $10,000,000,000 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 9, 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 have 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 1 year under the U. S. Basel III MPRs. This 9.25% is a 28 basis point improvement over our estimate of 8.97 percent at the end of the Q3 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 RW 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 end of the quarter was $128,600,000,000 while our risk weighted assets were approximately $1,400,000,000,000 dollars under Basel III. And 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 $372,000,000,000 at the end of the 4th quarter, down $8,000,000,000 from the prior quarter, driven by a reduction of our long term debt footprint of approximately $11,000,000,000 during the quarter.
During the Q4, we redeemed $5,300,000,000 of trucks and other long term debt. You may have seen last week we raised approximately $6,000,000,000 in the aggregate for 3, 5 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 2 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 $10,200,000,000 in the 3rd quarter to $10,600,000,000 in 4th and an improvement in our net interest margin of about 3 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 relating items that I just referred to, we are in line with the estimated range income $10,500,000,000 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 $10,500,000,000 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 and Business Banking. Earnings were $400,000,000 for the quarter, an increase of $143,000,000 or 11% from the 3rd quarter, driven by higher revenue more than offsetting higher non interest expense. 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 $6,000,000,000 or 1.3 percent from the 3rd 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 3 basis points during the quarter to 17 basis points. Our mobile banking customer base reached 12,000,000 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 Q4 of 2011. The U. S. Credit card loss rate is at its lowest level since 2,006, while the 30 plus day delinquency rate is historic low. On Slide 14 and before we get into legacy assets and servicing, we summarize the specific mortgage items that we announced on January 7, 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 4th quarter LAS revenue of $2,600,000,000 and in the expense category of $2,000,000,000 resulting in an aggregate net income impact of $2,900,000,000 in LAS within our Consumer Real Estate Services segment. If we turn to Slide 15 now, we break out the 2 businesses within Crest, home loans and LAS. Home loans reported an increase in net income to 281,000,000 dollars while LAS reported a net loss of $4,000,000,000 including the approximately $2,900,000,000 of items I just highlighted. As you all are aware, the Home Loans business is responsible for 1st lien and home equity originations within Crest. First mortgage retail originations of $21,500,000,000 were up 6% from the 3rd quarter driven by refinancings and up 42% compared with retail originations of approximately 15,000,000,000 dollars in the prior year ago quarter.
You can see the same type of trend in our core production income, which is up from the Q3 and almost double results from a year ago. As you know, we exited the correspondent business in late 2011, so correspondent originations are non existent versus volumes of approximately $6,500,000,000 a year ago. The MSR asset within LAS ended the quarter at $5,700,000,000 up $629,000,000 from the end of the 3rd 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 3rd quarter and 54 basis points 1 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 Q4 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 3rd quarter. The number of 1st lien loans serviced dropped 7% in the quarter, while the number of 60 plus day delinquent loans dropped 17 percent 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 7 announcement of agreements to sell MSRs totaling 360 excuse me, dollars 306,000,000,000 aggregate unpaid principal balance.
This represents $2,000,000 loans of which $232,000 are 60 plus day delinquent. The transfers 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 $200,000,000 in servicing fees per quarter associated with these loans, which is expected to decrease throughout the year as we actually transfer the servicing. However, 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 1 to 2 quarter lag between delinquent loan transfers and expense decrease, We believe we can get expenses in the Q4 of 2013 down by more than $1,000,000,000 from the $3,100,000,000 in the Q4 of 2012, excluding the impact of IFR in litigation. On Slide 17, we show outstanding claims at the end of December, but 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 $12,200,000,000 from GSE outstanding claims of 13.5 $1,000,000,000 pro form a outstanding GSE claims would have been $1,300,000,000 at the end of the year. Total outstanding claims on a pro form a basis would then be $16,100,000,000 Remember that the table reflects unpaid amounts versus the actual losses projected on the loans.
Outstanding claims in the quarter from private label counterparties increased approximately $1,700,000,000 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 Boney settlement and we continue to review our assumptions on a quarterly basis. Unresolved claims with monoline remains static as much of our activity with the monoline revolves around litigation issues. Reserves for representation warranties at the end of the quarter increased to $19,000,000,000 of which $8,500,000,000 is associated with the Boney settlement and approximately $6,000,000,000 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 $4,000,000,000 over accruals at December 31 compared to up to $6,000,000,000 over accruals at September 30.
This decrease is the result of our settlement with Fannie Mae in 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
$578,000,000
were up slightly from record results in the 3rd quarter. The pre tax margin was 21%. This quarter, we did move 2 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 $23,000,000,000 and period end loan growth of $3,500,000,000 helped offset the impact of the continued low rate environment.
Ending loan balances were record levels and long term AUM flows of 9,100,000,000 dollars were the 2nd highest quarterly amount since the Merrill merger in the 14th consecutive positive quarter. Net income of $1,400,000,000 in Global Banking on Slide 19 is an increase of more than 10% from the 3rd quarter and reflects higher revenue and lower expenses. Average loans and leases increased $10,800,000,000 or 4% from the 3rd quarter with growth across C and I as well as commercial real estate. Average deposit balances increased $15,800,000,000 or 6% from the Q3 to $268,000,000,000 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 percent to $2,100,000,000 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 $213,000,000 from the 3rd quarter to $1,078,000,000 in revenues and our advisory business was up approximately $80,000,000 to $301,000,000 for the quarter. Corporation wide investment banking fees were up 20% from the 3rd quarter and 58% from the year ago period. Debt underwriting fees were a record for the quarter and we believe number 1 on a global basis during the quarter.
From an overall investment banking fee perspective, we maintained our number 2 global ranking banking fees during 2012 based on Diologics data. Switching to global markets on Slide 21, earnings excluding DVA were $326,000,000 excluding DVA in the UK corporate tax charge in the 3rd quarter, net income decreased compared to the 3rd quarter driven by lower sales and trading revenue reflecting a seasonally slower 4th quarter. Sales and trading revenue excluding DVA was down 23% from the 3rd quarter, but improved substantially from levels a year ago. Within our FICC area, excluding DVA, revenues of $1,800,000,000 decreased from $2,500,000,000 in the 3rd quarter, primarily as a result of lower volumes and reduced client activity, but were up $1,300,000,000 or 37% from a year ago. In equities excluding DVA results were flat with the 3rd quarter as lower volatility and continuing lack of investor appetite for equity products kept volumes suppressed.
Expenses declined from both the Q3 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 3rd quarter was mainly due to a lower negative valuation adjustment on structured liabilities under fair value option of $442,000,000 compared to a negative $1,300,000,000 in the 3rd 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 Q3 due to lower litigation costs as the Q3 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 Q3, but were down from a year ago. Excluding LAS expenses, the independent foreclosure review and litigation expenses in the quarter were 13,300,000,000 dollars versus $12,900,000,000 in the 3rd quarter and $14,700,000,000 a year ago. The $400,000,000 increase from the 3rd quarter reflects the normal seasonal trend and represented non personnel costs.
Feet at the end of the quarter was down approximately $5,000 from the 3rd quarter and $15,000 from a year ago. An important driver behind the reduction of $1,400,000,000 in expenses from 4th 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 $8,000,000,000 per year or $2,000,000,000 on a quarterly basis, which we said we would hit sometime in mid-twenty 15. In the Q4, we achieved approximately 900,000,000 dollars of the $2,000,000,000 which is 45 percent of our target. As a reminder, the Q1 every year include the annual retirement eligible stock compensation, which was $900,000,000 in the Q1 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 $2,600,000,000 consisting of the expected tax benefit of the pre tax loss, our recurring tax preference items and the $1,300,000,000 primarily related to the non U. S. Restructurings.
For 2013, we estimate the effective tax rate to be somewhere around 30% including CAD800 1,000,000 or so for another expected 2% U. K. Tax rate reduction which we would expect in the Q3. We switch to overall credit quality on Slide 24. Provision was $2,200,000,000 versus $1,800,000,000 in the 3rd 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 Q3. If you recall, regulators provided new guidance to the industry in the Q3 of this year around loans discharged as part of a Chapter 7 bankruptcy, which resulted in $78,000,000 in the 3rd quarter. In addition, we incurred charge offs of $435,000,000 in the 3rd quarter in connection with the National Mortgage Settlement. We did not have impacts to net charge offs of a similar magnitude in the 4th quarter, but did have $73,000,000 related to the completion of the implementation of the regulatory guidance. Excluding these items, net charge offs were down $178,000,000 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 $1,800,000,000 $2,200,000,000 per quarter, the levels experienced between the 2nd 4th quarters of 2012. Excluding the fully insured portfolio, 30 plus day performing continued to drop. NPAs were down $1,400,000,000 from the 3rd quarter and $4,200,000,000 from a year ago. On the commercial side, reservable criticized levels showed a decline of 8% from the 3rd 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 significantly legacy 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 Bank, solid Investment Banking results and in GWIM strong deposit, AUM and loan flows. We entered 2013 all about moving the ball forward and winning in the marketplace with what we think is the best banking franchise in the world. And with that, let me go ahead and open it up for questions.
Thank you, sir. And we'll take our first question from the site of Matt O'Connor from Deutsche Bank. Your line is open.
Good morning. Good morning. Good morning.
A couple of follow ups. I guess starting on the expenses, appreciate the outlook on the legacy costs. As we think about kind of the all other expenses that you pointed to of $13,300,000,000 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 in the litigation?
Exactly. Yes, the 13.3% that you pointed in the Q4.
I think as you look at that number and if we keep LAS out of this, obviously, that the big new savings bucket that we have is new BAC. We had indicated that we are on a quarterly basis at $900,000,000 a quarter as we leave 2012. We expect that our new BAC cost savings when we get to the Q4 of 2013 will be at $1,500,000,000 per quarter. So you can expect to see on a core basis with new BAC about a $600,000,000 increase from where we leave 2012 to where we leave 2013.
Okay. So as we think about that 13.3, I guess we could take out $600,000,000 for new BHC, but 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. But as we indicated, we looked at and for this quarter relative to the Q3, there was $300,000,000 to $400,000,000 of stuff that we would characterize as seasonal.
Okay. And then just in terms of like underlying, call it, inflation or just normal investments, If we take that 13.3 4Q to 4Q, would you expect that to be down? So you have kind of minus $600,000,000 from additional BAC savings and there's always some offsets from inflation or investments. Do you think that net number will be down?
We would expect that 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. So I think on a net basis thinking about that $600,000,000 number from new BAC is a good assumption.
Okay. And then 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. And I guess I noticed that the asset level in the trading book went up, the VAR doubled quarter to quarter. I'm 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 20 12 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 have to realize that we run the FIC and overall debt underwriting business and look at that as one consolidated business And from a debt underwriting perspective at over $1,000,000,000 of revenue, we believe that was, as I indicated earlier, more than anyone else did this quarter on a global basis and so we feel very good about that.
Your point on the VAR is a fair one and we did see bar increase during the Q4 and we would expect to see the benefits of that bar flow through during the Q1 this year.
Sorry, benefits meaning higher revenue?
That's correct.
Okay. All right. Thank you.
Go next to the site of John McDonald with Sanford Bernstein. Your line is open.
Hi, Bruce. Does the goal of reducing the delinquents in LAS the 150,000 does that include planned additional planned MSR sales that you might have in mind?
It is not John because I think the one thing when we announced 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 says consumer friendly as we can do it. So there is a lot of work that goes through that. So 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. And at the same time, somebody could come and look to do something as well.
But at this point, I would consider that $150,000,000 to be more organic reduction.
Okay. And what kind of pace throughout the year would you expect for reducing that $3,100,000,000 LAS expense by your goal of the 1,000,000,000 dollars by the Q4 kind of steady throughout the year or is it lumpy?
I would assume that you should generally expect it to come out throughout the year. It's not something you're going to have to wait for the Q4 to see.
Okay. And then getting to Matt's question earlier, we just 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 Q1, it seems like you might be in the $17,000,000,000 ballpark with the stock option expense. Does that feel like the right area?
Yes. I'm hesitant, John, to give you specific numbers in the quarter. What I would say is that we gave you guidance as how much of the Q4 was seasonal that we obviously wouldn't expect in the Q1. You've got the $900,000,000 of stock compensation expense that will come through. Expect to see a little bit of benefit in the Q1 as we continue to implement new PAC.
And probably the biggest variable that you could see in the Q1 that I didn't mention is really compensation expense that varies based on actual business performance. But I think if you think and look at those different metrics, you'll get pretty close.
Okay. And then with the Fannie settlement this quarter, how should we think about the rep and warrant provisioning going forward here? Do you need to add on a quarterly basis to the rep and warrant provision?
Yes. 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 $300,000,000 per quarter in 2012. And with the Fannie settlements, as well as obviously the fact that Freddie was settled at Countrywide, you'd expect that number to be $150,000,000 or so going forward.
Okay. And 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 a less than $100,000,000 to the negative.
Okay. And your guidance of the kind of $10,500,000,000 is the run rate you think for the next couple of quarters and that's excluding any of that, right?
Excluding any of that and realize that we've got a couple of less days in the Q1 of this year.
We'll go next to the site 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 a steady I mean you can maintain that 3 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?
Well, 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 institutional business that I mentioned as well as in GWIM, there was very strong loan growth during the Q4. 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. And then I have to ask one mortgage question. I asked the same question in the Q3, but I think Brian, you've been out in a lot of interviews talking about how much you like mortgage banking. But you're still really just going to be focused on retail, am I correct? And on retail you'll be focusing just on your own customers or we'll 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 1 and 2 households. There's plenty of market share to go. Our penetration of the product to the in our preferred segment and our wealth management segment is still relatively low. So there's tremendous growth. But as you think about shaping the mortgage business, we're kind of this quarter kind of moves us starts moving and now as we close these servicing sales to where we end up with maybe $5,000,000 service loans going forward producing $20,000,000,000 and growing a quarter direct to retail.
And that's kind of what we want with the market share that steadily grows and that's kind of the equilibrium and the team has to go. So next challenge ahead is obviously Paul replacing the heart volumes over the next year. This year we had to replace the correspondent volumes. Next year we have to replace the heart volumes and the team is working diligently on that. But it is really focused on the core customers.
And if you think about the cost of servicing mortgages and stuff, we need to really focus on people that we are very comfortable with the credit and keep the delinquencies down and stay away from the straight products and just chasing volume.
Okay. Hey guys, thank you very much.
Thank you.
We'll go next to the site of Glenn Schorr from Nomura. Your line is open.
Good 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. And I'm just curious what do you see on the credit side that drives that model enhancement? And 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 at and let's just first spend a minute on Basel is I think you know that the majority of regular way loans in Basel 1 are 100% risk weighted. So that as you look at our $10,000,000,000 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 and 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 $23,000,000,000 less through consumer real estate exposures. And the way that Basel III works is that as opposed to these general risk weighted buckets, they look at loan to value, delinquency in other type metrics. So during the quarter, the $23,000,000,000 benefit we saw, we saw declines in the loan to value within our residential mortgage book. The percentage of loans that were 90 plus changes in the underwriting standards that we've talked about before that we implemented in the Q4 of 'eight and the Q1 of 'nine.
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. So we benefit there as well. And then the 3rd bucket within consumer real estate are our other retail exposures, which generally represent the runoff portfolio that we've about that decreased during the quarter as well. So those 3 different buckets within the consumer exposure are what drove the $23,000,000,000 decline there. If you move to the $64,000,000,000 number that we referenced largely in market risk, really go through a couple of different areas where we had benefits.
The first is we did have a pretty significant decline on a net basis of CBA, stress bar as well as our CRM risk weighted assets during the quarter. Over and above that, and you know that some of the securitization products cover very or have very high risk weighted asset content. We were able to fairly significantly decrease some of those securitization exposures. And during the quarter, the industry also got some guidance from a regulatory perspective on risk weighted assets with certain securitization products that was favorable. So that helped.
And then 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. So those were really the big items in the $64,000,000,000 bucket. And then with respect to the $23,000,000,000 bucket, I want to spend just a moment on that because the 23 dollars reduction is not a function of going in and changing models. The $23,000,000,000 is that each year when you update your models for actual loss experience, it drives changes in risk weighted assets and given the strength and improvement across the credit portfolios in 2012, we benefited from that when the models were updated. As 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 in 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. But keep in mind, from a numerator or 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, but I just want to confirm. This happens on an annual basis, in other words, whether the balances come down on paydown, 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?
Well, there's not a permission aspect to it. It's required that we update these on an annual basis. So that's correct, Glenn.
Okay. I really appreciate it.
Hey, Glenn, the balances move every quarter. I think it's the models the factors that change on risk.
Yes. That's super helpful. I appreciate all of that. Inside the average balance sheet, the securities yield went up 11 basis points in the quarter and most banks are trending lower as things run off. This is part of your depending the NIM, so 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 the you had some of the FAS 91 amortization expense that flows through it and hits the yield on the securities And 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 site 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 that we completed our results. We're in a better position this year and last year and we'll let you know once we get through the test. I think it's the Fed is doing its work and but 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 the recurring earnings levels. We've been consistent on that and we'll let you know once we get there. But Bruce and the team have done a great job on submitting it and we'll see
what happens.
Well, I mean you're already above the capital ratios that you need to
be at at least according
to FSB guidelines. Now that you're according to FSB guidelines, now that you're generating 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 or till you get more litigation resolved? Or any thoughts in terms of the excess above and beyond where you have indicated you sort of intend to run the company?
We have been if you
look at what we did in 2012, we took capital and redeemed preferred instruments and subordinated debt and other things and continue to do that during the year, getting approvals to do so as we went along. So all the we've been clear that all the capital we have now that we're above the levels we'll be in a position when we get the approvals to return to the shareholders. And you know the viewpoints of the relative preferences of the CCAR process in terms of dividends versus stock buybacks and things like that. So we would be no different anybody else. But it's clear it's either on the balance sheet, tangible book 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 is there and it all get returned as part of the business proposition. If we retain any to grow that's actually a good problem. But so far we have still have optimization left in the balance sheet as Bruce described that will allow us to continue to return capital. So our intention is to return it. The question is we've got to get through the processes and then we'll do it.
Okay. Thanks. And then I guess my second question is just fairly technical. But when I look at your what you've outlined in terms of reserve recapture, it looks like about $900,000,000 in terms of loan loss reserve, dollars 2,200,000,000 provision, dollars 3,100,000,000 of charge offs. But it looks like the loan loss reserve itself dropped by about $2,000,000,000 from the 3rd Can you reconcile that for me?
Yes. The reason it dropped by that amount is that and you saw it in the 3rd as well as the 4th 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. But and then 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. So quick one following up actually on 1 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. So 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 it a is that the wrong way to think about it?
I'll make a couple of observations on that. The first is that at 9.25% today, regardless of required SIFI buffers, we have more on the Basel III basis than anyone else. The second thing I would say is, given the position that we're in, in 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. So 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.
But I would say generally, if we look at the what we saw in the Q3, what we saw today that we're generally in the range of where do you expect us to run. And 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.
Yes. Okay. That's fair. And 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. It seems 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.
So is it more about getting an opportunity to further eliminate and push down these legacy costs? Or 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 or maybe give some color around that thought process?
So if you go back and look what we did in the beginning of 2011 when we split, we split our portfolio into 2 thought processes, our mortgage servicing portfolio. We split a chunk into what we call the home loans at that point and a chunk what we called LAS. And it was about round numbers $11,000,000 $12,000,000 of loans at that time, half went to LIS and half went to home loans. And the criteria which we looked at that was customers products and loans and stuff that would that were going to be a go forward business, we think of in the home loans business. And the other half was products that were never going to be done again and 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 etcetera.
So since that time, we have and if you go back and look, we showed that exact break. Since that time, we've been busy trying to work the $6,000,000 non core loan book portfolio down and we've gotten it down around $2,500,000 ish now. And with the sale of $2,000,000 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 better term. And that is what we're up to.
We had gotten it to level from a capital level and all that stuff we are comfortable with. And so once we get this out, these are products and products that we just aren't going to continue with and we've been focusing on rebuilding the business into the core business as I spoke about earlier. So 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 the part a significant part of the $2,500,000 how much we can the question is we're bringing that into 2013,000,000 in the early 14,000,000 as we finish up, which then accelerates our reposition of our company away from products and services, which we didn't plan to continue 2 years ago.
Okay. Cool. Thanks for that. And then last one, the $1,000,000,000 decline in mortgage cost, the legacy cost you guys provided from the 3.1 to the 2.1 by 4Q. Just kind of curious about the starting point there.
The 3.1 I thought that included $300,000,000 of compensatory fees from this Fannie deal. So why is that the starting point rather than like $2,700,000,000 Is there something in that $300,000,000 that is recurring? Or what's the deal there?
Yes. The number was slightly less than 300, rounded to that number. But in any one quarter in that business, you have some pluses and some minuses that are flowing through. So you're right that the $1,000,000,000 though is starting from a $3,100,000,000
base. Let's be clear here. We are still working through we signed the sales transaction January 7 working through the buyers, the timing of the movement of the assets and finalizing that, then how fast you can move. There's transition issues that you got deal with in terms of people who are in the middle of the modification process and stuff. So but 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. So versus 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 actually takes the cost and the sales closing, the continued progress on the remaining piece that we have left. But think about in a single quarter 9,000 change in headcount and think about we're going as fast as we can.
Yes. No, I will. 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.
So just was kind of curious whether or not there was something in there to 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.
Hey, good morning. Couple of other questions on mortgage. One is around the Fannie settlement. So now you'll be originating through Fannie as you used to 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 percent per quarter as best I have. And remember, we're only competing in the direct to consumer part of the market. So I think it's moved from 4.2 to 4.4 to 4.6 type of numbers. And so we expect it to keep driving our market share up. Now again, we got the harp volumes which is in the $21,000,000,000 this quarter, dollars 7,000,000,000 to $8,000,000,000 type of number, think of that, that we got to replace.
And so that's the team's challenge. And 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. So you put all that together, our market share continues to grow every quarter. The last 3 or 4 will continue to drive it.
Where it will settle in on, I'm not exactly sure, but as I talked about earlier, Betsy, if you think about us having about a 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 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. So I was just wondering if with higher throughput you might be able to do more there?
But look the issues in liquidity in the market for the kind of loans going through. The issue was when we it isn't they happen to correspond to each other, but it really had nothing to do with each other. The issue is we stopped the correspondent business.
Right. So if
you thought about our market share, one of the strongest in the high teens, 2 thirds of it or more were correspondence 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 has grown every quarter. So we're selling to Freddie and we'll work it out with Fannie over time. But the point I'm really saying is it's not the secondary market liquidity that caused our markets to drop, it was getting out of the correspondent business. And if you just look in this quarter, remember that there was $6,500,000,000 last year Q4 versus this quarter this year Q4 that was in the correspondent.
That was a carryover from when we quit it in the Q3 at the same time we announced that we're going to stop with paying.
Right. Okay. And then lastly on the home loans, should we expect 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, if the volumes there, we'll continue to invest in the servicing fulfillment teams. We've moved to Tony Miele has done a great job and Ron Stirsnager in that business work with LAS has now taken over sort of the good side of production along with a fellow named Steve Bolen. Deanath in Asia 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 and 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 and so we've seen it.
So we are investing both on the front end and on the service and fulfillment, the middle office so to speak. And we've moved I think 4,000 people increase this year so far in fulfillment and we'll move some we'll continue to move them because ultimately this is the retail production side is a good business right now.
And we'll go next to the site of Nancy Bush with NAB Research LLC. Your line is open.
Good morning, guys.
Good morning, Nancy.
Good morning. First question, on the credit card business, Brian, could you just give us some color about what's going on right there? I mean, your numbers are not robust and I'm wondering you have lost share there. What's being invested into that business?
So if we think about it starting in 2,009, Nancy, we started to reposition that business because it gotten too far into the broader credit. And after the crisis, as you remember, we charged off $60,000,000,000 $70,000,000,000 of charge offs in that business. So we started repositioning it. We've got it about now where we want it. In other words, we have a DEFINITY group of businesses that's very core and we like a lot and we have the core business.
So this quarter, I think we did 840,000 new cards about 350,000 or more or less for the franchise, another 100 some 1000 I think on online. So we're producing what we need to do. Balances grew point to point. You got to be careful the Q4, you get a little kick around Christmas obviously. But 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 percent market share which is fine.
So 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. So what we've done is position your credit quality well. It's a much more of a payment business now, 19% plus pay rate, which basically up from 14 a few probably 6, 8 quarters ago. And so it's a higher quality business. It's drilled the core customer base, the 123 card and the bank the rewards cards we have that drill off the core platform are working well in our retail segments.
And then obviously in the wealth management segments, we have a great array of products. So we're 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 $3,000,000,000 $3,500,000,000 down from $15,000,000 at the top. So I think they should start to see some growth, but it will take a it's going to bump around where it is right now for a few quarters.
But 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 margins 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?
Yes. I mean, I think generally, we're in that 40% area from a compensation perspective. And obviously, given the performance and where we are, we need to be competitive with where the peers are. But 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 a 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 Q3 to Q4?
I want to get back to you with that exact number. Mike, think I have a gut, but I want to make sure I'm right. So why don't we get back to you with that number?
Okay. Do you just know generally, I mean, because your margin was up, that's good and the securities yield is up 11 basis points. But do you think it was would have been down if not for that?
I want to think Mike it was somewhere between 9 and 11 basis points. I just don't have the exact number.
Okay. That's fine. And then going to the mortgage putbacks and the so 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 $300,000,000 to $150,000,000 per quarter.
So I sense you're feeling better. I'm trying to reconcile that with what's taking place with the MBIA versus countrywide court moves. And correct my thinking if anything is wrong here, but I think it's an issue of Bank of America successor liability or is Bank of America responsible for Countrywide. And as of January 9 10, the oral arguments were completed. So I understand it's in the hands of Judge Branston, the New York State Supreme Court.
And the motion says that Bank of America is responsible for Countrywide. And if so, I guess that could put the $8,500,000,000 private label settlement at risk. So my question is, could that $8,500,000,000 settlement be at risk? Do I understand what's happening in the court correctly? And what happens if the $8,500,000,000 private label settlement does not go through?
Yes. I think a couple of things on that, Mike. First, I think from our perspective, the $8,500,000,000 Gibson Brun settlement is going through the court process, would likely get wrapped up sometime in the Q2 or early in Q3. And that's completely independent from what's going on at MBIA. With respect to MBIA in the broader monoline, 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 monoclines are accrued for at this point is within the litigation line item as opposed to within our provision for reps and warranties.
And 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 virtual 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.
So we're really just talking private label at this point?
You've got the as I referenced, you've got the several monoline lines that we're working through on a litigation perspective and then you're right, you've got the private label piece. And 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.
So what is the significance of the decision by Judge Branston in the New York State Supreme Court? There was a Wall Street Journal article on January 11, some other chatter saying that if this motion goes against you and you're deemed responsible for the legal liabilities of Countrywide, then that could be a negative event for you. Do you agree with that?
Mike, I mean we could I think if you think about litigation goes back and forth and the judge has a lot of decisions to make a lot of cases and will play it out here. But we're comfortable with our legal positions across the board.
Okay. But for that we should 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. I don't I'm just trying to how do we get our arms around that risk? That's really my question. And so 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?
Or just is there no answer?
I think what you what I would suggest you do and I'm not going to quote somebody else's financial statements, but I think you can go look on MDI's financial statements and see how much that they believe that were owed or that they're owed from us that's disclosed in their financial statements. So, you can look at that. And then, the core area is, I think you have to keep in mind that there is 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.
And we'll take a final question. This one from the site of Guy Mazzowski 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. And 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. And I was wondering how you guys are thinking about that and how you might implement it over time?
Yes. 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. So 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. And because of the way through the series of trend mergers that happened, our debt footprint on an absolute basis as well as on a relative basis is higher than our peers. So 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.
So 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 the new BAC and you told us where you are along the path of getting to those goals. And 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 the new BAC $8,000,000,000 and of the LAS $10,000,000,000
dollars On the LAS, I don't think you'd see it. And the new BAC is net of the cost of achieving the results which is largely technology implementation costs. And if you look at our technology development costs over the last few years, we've gone from about $2,000,000,000 and change to 3.6 $1,000,000,000 per year. And the investments we're making in the VAC are investments in the franchise. In other words, to get the efficiencies we are embedded in there as a rework of our entire trading platform systems and things like that.
But we are investing to get the savings, but investing to also strengthen franchise at the same time. So it's all netted in there.
Okay. So you would encourage analysts to continue to bring those entire amounts to the bottom line by 2015?
Yes. That's good.
Okay. That's great. Thank you.
And this concludes our Q and A. I'll go back to our presenters for any closing remarks.
Thank you for your time and attention. Look forward to next quarter.
And this will conclude today's program. Have a great day. You may disconnect at this time.