CtW Investment Group Demands Bank of America (NYSE: BAC) Clawback Merrill Bonuses...

CtW Investment Group Demands Bank of America (NYSE: BAC) Clawback Merrill
Bonuses of $1 Million or More

WASHINGTON, April 7 /PRNewswire/ -- In a letter to the Bank of America Board
of Directors, the CtW Investment Group demanded that the company claw back all
2008 Merrill Lynch bonuses equal to or over $1 million. These bonus awards,
part of a total package of $3.6 billion in bonuses paid to Merrill employees
in December 2008, have drawn the ire of shareholders, state officials, and
Congressional committees.

Earlier this week, the Domestic Policy Subcommittee of the House Oversight
Committee asked the SEC to investigate Bank of America's failure to disclose
an agreement with Merrill Lynch permitting Merrill to pay up to $5.8 billion
in bonuses for 2008. CtW Investment Group notes that these bonus awards were
issued despite over $27.6 billion in 2008 losses, belying Merrill's claim that
their bonus program paid for performance. Delaware corporate law provides for
the recapture of such unjust enrichments. The full letter is available below.

The CtW Investment Group works with pension funds sponsored by unions
affiliated with Change to Win, a coalition of unions representing six million
members. These funds are substantial long term BAC shareholders. The CtW
Investment Group is recommending that shareholders vote against the reelection
of Ken Lewis, O. Temple Sloan, and Thomas Ryan at Bank of America's annual
meeting on April 29, 2009.

Full text of letter below:

April 7, 2009

Board of Directors
Bank of America
100 North Tryon Street
Bank Of America Corporate Center 23rd Floor
Charlotte, NC 28255

Dear members of the Board:

We write to demand that the Board immediately take all necessary steps to
recoup, at minimum, all bonuses of $1 million or more awarded by Merrill Lynch
in December of 2008. Despite the enormous losses Merrill experienced during
2008, 696 employees received bonuses of $1 million or more, including $858
million paid to the top 149 recipients alone, according to the New York
Attorney General.

During our April 2, 2009 meeting with Lead Director Temple Sloan, we asked
whether the Board intended to recover the $3.6 billion in premature and
undeserved bonus payments that Merrill awarded for 2008. Mr. Sloan informed
us that the Board, following only a brief discussion, had concluded that it
has no legal basis to recover the Merrill bonuses.

To the contrary, we believe these bonus payments, which came at the expense of
Bank of America and its shareholders, constitute "unjust enrichment" under
Delaware Law. The Delaware Supreme Court has defined unjust enrichment as
"the unjust retention of a benefit to the loss of another, or the retention of
money or property of another against the fundamental principles of justice or
equity and good conscience." Schock v. Nash, 732 A.2d.217,232 (Del. 1999).

It appears that the 2008 bonuses violated the firm's pay-for-performance plan.
Merrill Lynch suffered an annual loss of $27.6 billion in 2008. Given this
loss, there can be no reasonable basis for awarding "pay-for-performance"
bonuses, let alone bonuses totaling 3.6 billion. Indeed, given that the 2008
loss resulted primarily from write-downs on CDOs and other mortgage backed and
derivative investments made by Merrill Lynch, it seems that prior year bonuses
were based on indicators of performance that did not accurately reflect the
generation of true economic value for shareholders.

The CtW Investment Group works with pension funds sponsored by unions
affiliated with Change to Win, a coalition of unions representing six million
members. These funds are substantial long term BAC shareholders. We outline
our analysis below.

Merrill Lynch's Unjustified Bonuses
In December 2008 Merrill Lynch awarded and issued $3.6 billion in bonuses to
employees under its Variable Incentive Compensation Program (VICP). According
to Merrill's past filings with the SEC, participants in the VICP number over
20,000, including the CEO. Merrill further states that "In general, VICP
awards are granted annually at the sole discretion of management based upon
individual performance, company financial results, and other criteria." In no
filing does Merrill explain any more concretely how bonuses under the VICP are
determined, or what specific "company financial results" are used in
determining such bonuses. However, because the CEO's cash and equity bonuses
are determined by the VICP, the descriptions of bonus determinations for the
CEO contained in Merrill's proxy statements provide insight into how firm
performance is measured for the purposes of the VICP.

Merrill's current executive pay plan was adopted for the 1993 fiscal year and
approved by shareholders at the 1994 annual meeting. This plan specifies that
the maximum cash bonus payable to the CEO will equal the previous years cash
bonus plus (or minus) the simple average of the percent change in net income
and return on equity (net income divided by shareholders equity). This plan
also stipulates that no cash bonus may be paid unless the company achieves
positive net income and return on equity. In 1997 this plan was amended to
exclude "extraordinary items" from the definition of net income used in
calculating the maximum allowable bonus, and in 2001 the plan was further
amended to limit the bonus awardable to any named executive officer to 1% of
pre-tax earnings. In its proxy filings since 2005, Merrill has stated that the
board's preference is to pay out the majority of the bonus in equity rather
than cash.

These descriptions of CEO pay suggest that the VICP will award bonuses
available to participating employees other than the named executive officers
will be below this cap, that the growth of the bonus in a given year (or at
least its cash component) will be proportional to the average growth in net
income and return on equity, and that no (cash) bonus will be paid if the
company does not report positive net income and return on equity. While we do
not have direct measures of VICP awards for years other than 2008, we do have
Merrill's total spending on compensation and benefits. Since the company and
the board have repeatedly stated in SEC filings that VICP bonus awards are
intended to constitute a sizeable majority of participating employees' income,
the reported total compensation reported should give a rough outline of VICP
awards.

It appears, however, that at least for the past two years, Merrill's
compensation and benefits expenses have substantially exceeded the amounts
called for by the performance formula described in the 1994 proxy statement
(the only such formula described in any shareholder approved executive pay
program). As Table 1 indicates, while compensation expenses did fall in 2007
and 2008, their rate of decline was two orders of magnitude below that of the
average decline in net income and return on equity. Obviously, at some point
Merrill Lynch chose to disregard the provision contained in its 1994 executive
pay plan prohibiting cash bonus awards in years when either net income or
return on equity were negative.

[Table 1 Available at www.ctwinvestmentgroup.com]

Moreover, from 2004 to 2006, the most important source of Merrill's increased
profitability, and hence the increase in bonus awards over these years, was
sharp increase in revenue from "Trading and Principal Transactions," which
grew from $2.1 billion in 2004 to $7.4 billion in 2006. Indeed, of Merrill's
two primary business segments, Global Markets and Investment Banking and
Global Wealth Management, the former was responsible for more than twice the
profits of the latter during 2005 and 2006, but was also responsible for
effectively all losses in later years. As we can see from the shareholders
equity column in Table 1, those losses cumulatively stripped away all
increases in the firm's net worth from 2003 to 2006. Merrill's total equity
(including U.S. Treasury preferred stock) at the time of the Bank of America
merger was at the same level as in 2000, while its common equity had fallen to
its lowest level since 1998.

The obvious explanation for this huge deterioration in what had been Merrill's
most profitable business segment, and for the elimination of a decade's worth
of accumulated value, is that Merrill's earnings over the 2004-2006 period
reflected gains from the issuance and ownership of securities whose value
hinged on continually rising residential real estate prices. For instance,
Merrill went from 15th place in CDO issuance in 2002, with $2.2 billion in
deals, to 1st place in 2004 with $19 billion. In 2005, its CDO volume grew to
$35 billion, and in 2006 Merrill issued $53.7 billion in CDOs .

The timing and source of Merrill's sharp losses in 2007 and 2008 show that
Merrill's gains during the previous three years were dependent on
unsustainable increases in residential real estate prices. Such prices peaked
in the middle of 2006, and have been falling sharply since then. As the fall
in home prices drove home owners into negative equity, and hence to default on
mortgage payments, various mortgage backed securities declined sharply in
value, particularly beginning in the fall of 2007. Merrill has reported sharp
losses in each quarter since then, stemming primarily from write downs on
mortgage and other asset backed securities and derivatives of those
securities.

Summary
Bank of America must take all necessary steps to recoup the unjustified
bonuses awarded to Merrill Lynch employees late last year. These awards were
issued despite Merrill's severe losses in violation of the spirit and letter
of Merrill's established pay-for-performance policies. As the
successor-in-interest, Bank of America has a duty to ensure that ostensibly
performance-based bonus awards at Merrill Lynch are recouped if they were paid
on the basis of ephemeral or unsustainable asset valuations.

Sincerely,

William Patterson

SOURCE CtW Investment Group

Richard Clayton, Research Director of CtW Investment Group, +1-202-255-6433