bank gw impairment

8/14/2019 Bank GW Impairment

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sc losureAssess the Risk, Achieve the Return.*

ph: 763-595-09003200 Harbor LaneSuite200Plymouth, WIN 55447disclosureinsight.com

March 25, 2009

Technical Director, FASB401 Merritt 7 LETTER OF COMMENT NO.PO Box 5116Norwalk , CT 06856-5116File Reference: Proposed FSP FAS157-eTo the Technical Director:On March 17, 2009, the FASB released its Proposed Staff Position under FASB Statement No.157, Fair Value Measurements. This le t ter and the attached research report w e recen t lypub l i shed1 are respectful ly submit ted as Disclosure Ins ight ' s 2 response to a cal l for publ ic inpu t .Withou t an at tendant and s ignifican t increase in re lated disclosures, which we recommend be lowbut doubt wi l l occur, the FASB's proposal wil l surely hurt f inancial report ing, Sim ply put, t h i sproposal poses grave danger to the integrity of U.S., if not global, capital markets.Th e credible assessment of fair value is critical to price disco very fo r investo rs. Ye t, inves tors arestraining to understand and trust the financial statements of many companies, especially financialcompanies. This is part ial ly because inves tors must re ly so heav i ly on the opaque assumptionsand judg me n ts used by managemen t to as s ign fair valu e to assets3.

W e be l ieve FASB's proposed changes w il l g ive publ ic comp any managements even more lat i tudethan they al ready have to value assets as they see f i t without inves tors knowing the how's andwhy's behind their th inking. This isn ' t mere conjecture . A study w e pub l i shed o n 18-March-2009 found reasonable basis to ques t ion the in tegri ty of the balance sheets of at least 70% of 50of the largest banks t r ading in the U .S .O u r research examined the extent to which banks in our s tudy did, or did not , impair goodwil l in2008 reporting periods. To our surprise, given th e staggering loss of market value in the sector,we fo u n d bank goodwil l balances that were h ighly inflated and widely unimpaired.1 A copy of our Bank Goodwil l Impairment Study published 18-March-2009 is attached as an addendum to this letter.We retain inte l lectual proper ty r igh ts on the work bu t , in the publ ic interest, grant permission to FA SB to post it .^ Disclosure Insight , I nc . is a privately held an d independent investment research firm. Centra l to our research is a r i s k -prof i l ing process w e e m p l o y that manua l l y gather s data from publ ic company fi l ings on about 10 0 separate risk factorsover a five year period. Often we incorpora te aspects of forensic analys is into our work and f requent ly f ind ourselveschal lenging the ad e qu ac y or appropriateness of a publ ic c o m pany ' s accounting and/or disclosure pract ices.J We cannot help but note that the f inancia l services companies , one o f the pr imary forces behind an d benef ic iaries ofth e proposed changes before us , al ready produce so m e of the m o s t opaque financial s ta tements out there . Enron, a lsowell k n o w n for its opaque financial statements, repeatedly claimed compliance with mark-to-market accounting rulesin place at the lime. They w ou ld surely have a field da y with th e proposed changes lo Fair Value ru les today.


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Disclosure Insight, Inc. Comment on FASB Statement No. 157, Fair Value MeasurementsMarch 25, 2009 Page 2 of 3There are two elements that make our findings regarding goodwill impairments troubling. First,many investors ignore goodwill; that is, banks would likely have gotten a pass for largeimpairments with their year-end fi lings b u t still didn' t take them. Second, goodwill represents anon-cash intangible asset; in other words, it 's not central to how banks calculate the i r t i er onecapital ratios or included in tangible book values.Our research findings beg a critical question: If banks are not even using reasonable bases tofa ir ly v a l u e their non-cash intangible assets, as our research suggests is the case, how caninvestors have confidence they are using reasonable bases to establish suff ic ient allowances fortheir very tangible loan losses and how Level 2/Level 3 assets are valued?Gi v en what w e f o u n d , it strains c red ib i l i ty to believe th e proposed changes to FASB Statement15 7 w i l l improve th e balance sheet monkeyshines that alread y exis t . I t w i l l make them worse. Inpart, th i s is because th e proposal also amounts to a license fo r management to push-back o n theirauditors w h o might otherwise try to rein them in .If the FASB is determined to proceed with changes to Statement 157 we respectfully suggestconsideration of the following, in concert with other regulators where possible:

1. Promulgation of practices and disclosure protocols similar to those used in accounting forpensions. This could be appended onto the existing Level 1-3 asset classification/valuation protocols already in existence. They could then be fur ther enhanced byrequiring disclosure of the following:

a. Disclosure of original book value of those assets ident i f ied as [supposedly]l a ck ing active markets .

b. An immediate l iquid i ty value of the assets if they had to be sold within 30-90days, allowing some may [supposedly] have no real market at present.

c. Present value of those assets deemed to lack active markets and the assumptionsused to arrive there such as:

i. Discount rates used to value the assetsii . Interest rate assumptions used to value the assetsi i i . Rate-of- re turn assumptions used to value the assetsiv . Cash flow forecasts regarding th e assetsv . Time horizons used and r a t i ona le for the same

vi. Basis o n which management determined there is no active market2. Alternatively, or concurrently, we would suggest classification and segregation of assets

[supposedly] lacking active markets into separate categories/pools such that users off inancial statements can easily discern:

W e qualify some of our sentences by putting th e word 'supposedly' in brackets as we question th e not ionthere truly exists no market fo r many of the assets this proposal aims to address. A buyer can be found fo rmost an y asset. T he question comes down to whether the price is acceptable to the seller. Lack of anacceptable price on its own should not be deemed as suff icient basis to jus t i fy changes to account ing ru leswhen one considers that l iquidity and counterparty risk are two of the many risks investors need to evaluatewhen deploying capital . It is our opinion, and concern, that many of the strongest supporters of changes toFASB No. 157 failed to include sufficiently prudent l iquid i ty an d counterparty risk assessments in theirinitial calculus and are now seeking rule changes such as this proposal to let them hide or otherwisepostpone recognizing the t rue cost of their failures.


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Disc losure Ins ight , Inc . C o m m en t on FASB S tatement N o. 157, Fair Value MeasurementsM a r c h 25, 2009 Page 3 of 3

a. What th e asset pools are and what qual ifies fo r inc lus ion in the same.b. For each asset pool, publ ic companies should provide quantificat ion of thoseassets lacking an active market as well as the size of the total pool to which thoseassets wo uld otherwise belong.c. The assumptions used to va lue those assets at present; that is, how doesmanagement know they lack an inac t ive market and how did they arrive at thevalues they did.d. Identification of clear "triggering" events that would cause a change to howassets in each pool ar e valued in the future.e. Ch anges since the last reporting period. This shou ld be done at least qua rterlywith clear and separate disclosures for amounts added to and amounts deletedfrom each pool during each reporting period (no net numbers) .

f. Identificat ion of reasons fo r those additions and/or deletio ns that took place eac hreport ing period. This shou ld inclu de a clearly identified process fo r"rehabil i tat ing" assets fo r which markets again become [supposedly] active.

g. Identificat ion an d quantif icat ion of those assets that moved between pools.Fina l ly , given th e co m p l ex i t y of the issues involved, we do not th ink it reasonable to assume th eFASB's proposed changes to 157 can be i m p l em en t ed at the proposed effective date wi thou ts ignificant compromise of investor conf idence in the fil ings of those publ ic companies expectedto take advantage of the chan ge. Further s tudy and modificat ion of the proposal ar e needed. W eurge our regulators and the FASB to resist an y misgu ided cal ls fo r expediency on this matter .Respectful ly Submitted,/s/ John P. Gavin, C FAPresident and CEOWith Copies to:T he Ho norable Chris t ina Romer, C hair , President 's Cou nci l of Economic AdvisorsThe Hon orable Lawrence H. Summers, Chair , National Economic C ouncilT he Honorable Ben S. Bernake, Chairman of the Federal ReserveThe Honorable Timothy F. Geithner, Secretary of the TreasuryThe H onorable Shei la C. Bair , Chair , FDICThe Honorable Mary Schapiro, SEC ChairT he Office of the Chief Accountant for the SEC, James L . Kroeker, Act ing Ch ief Acco untan tThe Office of the Secretary for the SEC, Elizabeth M. Murphy, SecretaryThe H onorable Amy K lobuchar, Senator, MinnesotaT he Honorable Chris topher J . Dodd, Chairman, Senate Committee on Bank i ngT he Honorable Richard C . Shelby, Ranking M em ber, Senate Comm ittee on Bank i ngT he Honorable Erik Paulsen, Congressman, Third Dis t r i c t , Minneso taT he Honorab le Barney Frank , Chai rman , House Com mit tee on Financia l ServicesT he Honorable Spencer B achus , Rank ing Member , House C ommit tee on Finan cial ServicesMr. Patr ick Fin negan , Director of Finan cial Repo rt ing Group, C FA Inst i tuteMs, Alicia A. Posta, Execu tive Director, FASB Advisory GroupsMs. Barbara Roper, Director of Investor Protection, Consumer Federation of AmericaMr. William H. Donaldson, CFA, Co-Chair, Council of Institutional InvestorsMr. Arthur L evitt, Jr., Co-C hair, C ouncil of Institutional Investors


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Addendum

Bank Goodwill Impairment StudyPublished: March 18,2009

Disclosure Insight, Inc.3200 Harbor LaneSuite 200Plymouth, MN 55447

United States of Americaph:763-595-0900

disclosureinsight.com


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D isclpsuren s i g h IAssess the Risk. Achieve the Return."'

D.I. Report March 18, 2009Bank Goodwll Impairment Study Page 1 of 11

THE BANK WRITE-DOWNS THAT ARECOMING -GOODWILL IMPAIRMENTS PROVIDE A HINT

At Least 70% of Banks in Our Study Have Questionable Goodwll BalancesPJ. Profile: Using accounting for goodwill as a proxy, we conclude there is reasonable basis toquestion the integrity of the balance sheets of at least 70% of 50 of the largest banks trading in theUnited States. This suggests widespread and sizable write-downs remain to be taken.Our thesis Is simple. The credible assessment of fair value is a critical component of price discoveryfor investors. Yet, despite the staggering loss of market value in the sector, which typically compelswrite-downs, the evidence is persuasive that the goodwill balances of banks appear inflated andwide ly unimpaired. We get it. As an intangible asset, goodwll isn't critical to valuing a bank, But ifbanks are not even using reasonable expectations to fairly value their non-cash intangible assets, likegoodwill, we argue it becomes that much harder to rely on the assumptions and judgments they usedto value their very tangible Level 2 and Level 3 assets and to establish sufficient allowances for loanlosses.

1. Investors are straining to trust bank balance sheets. Across the 50 banks we analyzed,$2.74 trillion is categorized as Level 1, 2, and 3 assets. Level 2 assets equal $1.48 trillion ofthe total, or 53.9%. Level 3 assets total $259 billion, or 9.4% of the total. The methodologiesbanks use to value these sizable Level 2 and 3 asset bases are typically opaque, leavinginvestors highly vulnerable to the judgments and representations of management. These 50banks also hold $4.76 trillion in loans, net of $130.8 billion in allowances for loan losses(2.7% of net loans). Despite the "Great Recession",out of our group of 50 banks, allowancesas a percentage of loans range from a paltry 0.2% to 4.7%.

2. Goodwll gives us a reliable proxy. Like allowances for loan losses and Level 2 and 3 assets,assessment of goodwll for impairment is highly dependent on management assumptions andestimates. Goodwill and impairments are readily disclosed as are the rules governing itsimpairment. Collectively, the 50 banks we analyzed carry $273.1 billion in goodwll and$72.6 billion in intangibles on their balance sheets.

3. It appears banks are not adequately impairing their goodwll. While market value isn'tnecessarily the sole trigger for a bank to impair its goodwll, it is a powerful one. Fully 72% (36of 50) of the banks we analyzed trade below book with 58% (29 of 50) trading below tangiblebook. Based on the rules governing goodwll, we expected to find widespread goodwillimpairments by banks. That didn't happen. Rather, our analysis shows that 70% (35 of 50}of the banks we analyzed did not impair goodwll in 2008. Despite a pop in the easy creditbubble, a period during which many acquisitions that generated the goodwill were made, only$21.5 biilion (less than 10%) in total goodwill was written down by 15 of the banks in ourstudy.

4. Bank of America - The poster child for goodwll desperately in need of impairment. Ouranalysis of Bank of America's acquisitions of FleetBoston, M B NA, and LaSal le illustrate wellwh y banks need to impair their goodwill more - far more - than they've done to date.Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth, MN 55447763.595.0900 clients(S)disclosureinsiaht.com www.disc lQsureinsight.com2009 All rights reserved. Additional legal notices apply.


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D.I. ReportBank Goo dwil l Impairment Study March 18, 2009Page 2 of 11

Banks wth the Most Questionable Treatment of Goodwll and/or Intangibles15 Banks Trading Below Tangible Book Value Per ShareThat Did Not Impair AnyGoodwill in 2008

(millions of S,other than pershare)

huntington Bancshares Inc.Webster Financial Corp.SunTrust Banks Inc.Bank of Amer ica Corp.Cathay General BancorpComerica Inc.First Cit izens Bancshares Inc.First Horizon National Corp.Whitney Holding Corp.Astoria Financial Corp.PNC Financial Services GroupSusquehanna Bancshares Inc.JPMorgan Chase & Co.BB&T Corp.City Nat ional Corp.

Goodwill Intangibles(G) (1)

$3,055.0529.9

7,043.581,934.0

319.6150.0102.6192.4435.7185.0

8,868-01,017.6

48,027.05,483.0

459.4

$356.734.0

1,035.48,535.0

29.20.03.8

45.122.90.0

2,820-054.0

14,984.0542.0

40.6

Equity< E >

$7,227.11,874.1

22,388.1177,052.0

1,292.95,100.01,443.43,279.51,525.51,181.8

25,422.01,945.9

166,884.016,037.0

2,044.0

(G+l)/E47.2%30.1%36.1%51.1%27 0%

2.9%7.4%7.2%

30.1%15.7%46.0%55.1%37.8%37.6%24.5%

T BV/Share

$10.4223.1540.3617.2617.5827.69

152.6714.8215.7310.4031.0010.1526.3517.9030.30

StockPrice

$1.744.44

12.156.27

10.6118.51

105.0010.5211 19

8.6928.51

9.4825.1417.5330.12

Price/TB V0.170.190.300.360.600.670.690.710.710.840.920.930.950.980.99

Banks Trading Above Tangible Book Value per Share,But Below Book Value per Share,That Did Not Impair Any Goodwill in2008(millions of $, other than pershare)

Assoc iated Banc-Corp.Wells Fargo & Co.M&T Bank Corp.New York Community BancorpState Street Corp.

Goodwill(G)

$929.222,627.0

3,192.02,436.44,527.0

Intangibles{" )

$801.714,740.0

183.087.8

1,851.0

Equity(E)

$2,876.599,084.0

6,784.04,219.2

12,774.0


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D.I. ReportBank Goodwill Impairment Study

March 18, 2009Page 3 of 11

Summary Data: Of he 50 banks weanalyzed ...

72%are trading below book value (36 of the 50)58% are trading below tangible book va lue (29 of the 50)30% impa i red their goodwil l (15 of the 50)70%have NQ! impaired their goodwil l (35 of the 50)

Of the 35 banks that have NOT impaired (Note: two had no goodwill) ...60% are t rad ing be low book va lue (21 of the 35)46% are trading below tangible book va lue (16 of the 35)

Ofthose 15banks that have impaired ...100% are trading below book value (Al l 15)87% are trading below tangible book va lue (13 of the 15)

1. Investors are straining to trust bank balance sheets. Across the 50 banks we analyzed, $2.74trillion is categorized as Level 1, 2, and 3 assets. Level 2 assets equal $1.48 trillion of the total,or 53.9%. Level 3 assets total $2 59 bill ion, or 9.4% of the total. Th e methodologies banks use tovalue these sizable Level 2 and 3 asset bases ar e typically opaque, leaving investors highlyvulnerable to the judgments an d representat ions of management . These 50 banks also hold$4.76 tri l l ion in loans, net of $130.8 billion in allowances fo r loan losses (2.7% of net loans).Despite the "Great Recession", out of our group of 50 banks, al lowances as a percentage of loansrange from a p altry 0.2% to 4.7%.

The 10 Largest Banks by Loans(millions of S)

Bank of America Corp.Wells Fargo & Co.JPMorgan Chase & Co.Cit igroup Inc.US BancorpPNC Financial Services Group Inc.SunTrust Banks Inc.Capital One Financial Corp.BB&T Corp.Regions Financial Corp.

Loans (L) Allowances (A)

$908,375.0843,817.0721,734.0664,600.0181,715.0171,572.0124,647.4

96,493.895,671.095,592.5

$23,071.021,013.023,164,029,616.0

3,514.03,917.02,351.04,524.01,574.01,826.1

A/L

2.54%2.49%3.21%4.46%1 .93%2.28%1 .89%4.69%1.65%1.91%

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth, MN 55447763.595.0900 clients di scl osu re i n sjg ht, com www.dtsclosureinsiQht.com2009 Ail rights reserved. Additional legal notices apply.


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D.I. ReportBank Goodwill Impairment Study March 18, 2009Page 4 of 11Th e classification of assets into Level 1, Level 2, and Level 3 is reported by the banks in theirfilings. This is because FASB Statement 157 requires public companies to allocate assets basedon the ability and reliability of fair market values.

The 10 Largest Banks byTotal Asset Sizewith TheirRespective Level 1, 2, and 3 Exposures

(millions of $}

JPMorgan Chase & Co.Citigroup Inc.Bank of America Corp.Wells Fargo & Co.PNC Financial Services Group Inc.US BancorpBank of New York Mellon Corp.SunTrust Banks Inc.State Street Corp.Capita! One Financial Corp."Level 1 , 2, and 3 assets as reported

Total Assets

$2,175,052.01,938,470.01,817,943.01,309,639.0

291,081.0265,912.0237,512.0189,138.0173,631.0165,913.0

Level 1*

$263,135.097,661.026,992.0

5,699.0268.0474.0

2,139.01,195.0

10,124.0299.0

Level 2*

$242,298.0137,777.8402, 452.0166,007.0

24,357.037,760.033,066.0

171,030.835,285.028,840.0

Level 3*

$51,623.064,407.351,450.046.963.0

6,990.04,737.0

724 .0214.9

9,156.04,000.3

by banks are netted against liabilities.

For the uninitiated, here iswhat the different asset levels mean;Level 1 - Mark-to-Market Assets. Level 1 assets are he easiest to value and include listedstocks, bonds, funds, or any assets that have a frequent "mark to market" mechanism forpr icing. Valuation is simply based on market price.Level 2 - Mark-to-Model Assets. These assets lack regular markets, but their fair value canbe readily determined using other data or related market prices. These are frequentlyreferred to as "mark to model" assets. An example of a Level 2 asset would be an interestrate swap. The asset value would be based on underlying interest rates, market-determinedrisk premiums, similar instruments in active markets, and/or conditions observable in themarket.Level 3 - Mark-to-Model Assets on Steroids. Valuation for Level 3 assets can be particularlychallenging as they are typically highly illiquid with fa i r value relying heavily on estimates thatcan include use of option pricing models, discounted cash flow models, and similartechniques. This category of asset continues to receive the most scrutiny as many Level 3assets consist of mortgage-backed securities, which hav e incurred massive defaults and lossin value. Accusations have been made that the firms owning Level 3 assets were/are notadjusting them sufficiently though market conditions would have warranted as much.

This Section Intentionally Left Blank

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth, MN 55447763.595.0900 [email protected] www.di5closureinsiqht.com2009 All rights reserved. Addit ional legal notices apply.


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D.I. Repor t March 18, 2009Bank Goodwi l l ImpairmentStudy Page 5 of 11Goodwll gives us a reliable proxy. Like allowances for loan losses and Level 2 and 3 assets,assessment of goodwll for impairment is highly dependent on management assumptions andestimates. Goodwill and impairments are readily disclosed as are the rules governing itsimpairment. Collectively, the 50 banks we analyzed carry $273.1 billion in goodwill and $72.6billion in intangibles on their balance sheets.Goodwi l l can only be created through an exchange of shareholder value in the form of cash orstock. It's an investment. It comes wth a cost. Like many investments, things don't always workthe way you hoped and write-downs are needed.In June 2001, the FASB issued its Statement 142, covering Goodwill and Other Intangible Assets.This forever eliminated the requirement for amortizing existing and newy acquired goodwll. Fewinvestors have paid attention to another of its requirements; that is, that goodwll must be testedfor impairment annually and written down when impaired. In strong markets this didn't mattermuch. Now it does.Th e issuance of FASB Statement 142 represented the first major change in 30 years regardingthe accounting treatment of goodwll. Itcalled for two major changes to goodwill accounting: Amortization of all goodwll ceased. Goodwill is nowcarried as an asset without reduction to

earnings for amortization of the same. Companies are required, at least once per year , to assess the goodwill they carry on theirba lan ce sheet as to whether it is impaired. Goodwill found to be impaired is required to berecognized as a loss against the amount of goodwll carried on the balancesheet.Guide l ines for how to test for impairment were provided. The impairment test consists of a two-step process: Step One: Goodwill is allocated across reporting units of a company. So in the first step, the

fair value of a reporting unit is compared with its carrying amount, including goodwill. If thefair value of a reporting unit is deemed to exceed its carrying amount (book value), there is nogoodwll impairment and the test iscomplete. If the fair value for the unit is less than its bookvalue , however, the company must proceed to the second step.

Step Two: The second step of the impairment test is more detailed and aims to replicate thevaluation/allocation process a company performed at acquisition. A comparison of theimplied fair value of a reporting unit's goodwill is made against the carrying amount of thatgoodwill. If the carrying amount exceeds the implied fair value, the company must take animpairment charge equal to the difference.

W h e n available, the standard suggested traditional quoted market comparables are deemed asbest evidence of fair value. Otherwise, valuation techniques such as discounted cash flows orsimilar analytics are deemed acceptable.

3. It appears banks are not adequately impairing their goodwll. While market value isn't necessarilythe sole trigger for a bank to impair its goodwll, it is a powerful one. Fully 72% (36 of 50} of thebanks we analyzed trade below book with 58% (29 of 50) trading below tangible book. Based onthe rules governing goodwll, we expected to find widespread goodwill impairments by banks.That didn't happen. Rather, our analysis shows that 70% (35 of 50) of the banks we analyzeddidnot impair goodwill in 2008. Despite a pop in the easy credit bubble, a period during which manyacquisitions that generated the goodwll were made, only $21.5 billion (less than 10%) in totalgoodwill was written down by 15 of the banks in our study.

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth,MN 55447763.595.0900 [email protected] www.disclosureinsight.com2009 All rights reserved. Additional legal notices apply.


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D.I. Repor tBank Good wi l l Impai rment Study March 18, 2009Page 6 of 11 Of the 50 banks we analyzed ...

72 % are trading below book value (36 of the 50)58% are trading below tangible book va lue (29 of the 50)30% impaired their goodwill (15 of the 50)70 % have NOT impaired their goodwill (35 of the 50)

Of the 35 banks that have NOT impaired ...60% are trading below book value (21 of the 35)46% are t rading below tangible book value (16 of the 35)

Ofthose 15 banks that have impaired ...100% are t rading below book value (Al l 15)87 % are trading below tangible book valu e (13 of the 15)

This last data point struck us as most curious ; that 100% of the banks that impai red their goodwil lt rade below book value and only two are t rading above tangible book value. Th e market appearsto suggest that the goodwil l impairments these banks took were not sufficient or their otherassets are worth less.The 15 Banks from Our 50 Bank SampleThat Did Impair Goodwill in 2008

(millions of $)

Synovus Financial Corp.Marshall & llsley Corp.South Financial Group Inc.Colonial BancGroup Inc.Regions Financial Corp.KeyCorp.Fifth Third Bancorp.Citigroup Inc.Citizens Republic Bancorp Inc.Zions Bancorp.Wilmington Trust Corp.Fulton Financial Corp.Capital One Financial Corp.Popular Inc.East West Bancorp Inc.

Goodwill Impairment$479.6

1,535.1426.0575.0

6,000.0469.0965.0

9,568.0178.1353.8

66.990.0

810.812.50.9

Goodwill$39.5605,1224.2432.1

5,548,01,138.02,624.0

27,132.0597.2

1,651.4356.0534.4

11,964.06 0 5 8337.4

Impairment Chargeas a % of GW Priorto Impairment92.4%71.7%65.5%57.1%52.0%29.2%26.9%26.1%23.0%17.6%15.8%14.4%

6.3%2.0%0.3%

Regions Financial, Marshall & Illsley, Colonial BancGroup, Synovus, and South Financial Group getcredit for having impaired more than 50% of their or iginal goodwil l balances. By contrast, CapitalOne, Popular, and East West Bancorp impaired tiny amoun ts of their original goodwill balances.

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, P lymouth, MN 55447763.595.0900 [email protected] www.disclosureinsight.com2009 Al l rights reserved. Additional legal notices apply.


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D.I. R epo rtBank Goodwill Impairme nt Study March 18, 2009Page 7 of 11

The 10 Banks C arrying the Most Goodwill and Intangibles(In absolute terms)

(millionof $)

Bank of America Corp.JPMorgan Chase & Co.Cit igroup Inc.Wells Fargo & Co.Bank of New York Mellon Corp .Capital One Financial Corp.P NC Financial Services Group Inc.US BancorpSunTrust Banks Inc.Regions Financial Corp.

Goodwill(G)$81,934.0

48,027 027,132.022.627.015,898.011,964.0

8,868.08,571.07,043.55,548.0

Intangibles(I)

$8, 535.014,984.014,159.014,740.0

5,856.01,383.02,820.02,834,01,035.4

638.0

G+l$90,469.0

63,011.041,291.037,367.021,754.013,347.011,688.011,405.08,078.96,186.0

Equity(E)

$177,100.0166,900,0141,600.099,100.025,264.026,612.025,422.026,300.022,388.116,813.0

(G+l)/E

51.1%37.8%29.2%37.7%86.1%50.2%46.0%43 4%36.1%36.8%

ImpairedGoodwillNoNo

Ye sNoNo

Ye sNoNoNo

Ye s

The 10 Banks Carrying the Most Goodwill and Intangibles(As a % of total equity)

(million of $)

Bank of New York Mellon CorpAssociated Banc-CorpNewYork Community Bancorp IncSusquehanna Bancshares IncBank of America CorpCapital One Financial CorpState Street CorpM&T Bank CorpHuntington Bancshares IncPNC Financial Services Group Inc

Goodwill(G)

$15,898.0929.2

2,436.41,017.6

81,934.011,964.0

4,527.03,192.03,055.08,868,0

Intangibles(1)

$5,856.0801.7

87.854.0

8,535.01,383.01,851.0

183.0356.7

2,820.0

G+l

$21754.01730.82524.21071.6

90469.013347.0

6378,03375,03411.7

11688.0

Equity(E)

$25,264.02,876.54,219.21,945.9

177.052.026,612.012,774.0

6,784.07,227.1

25,422.0

(G+l)/

86.1%60.2%59.8%55.1%51.1%50.2%49.9%49.7%47.2%46.0%

ImpairedGoodwll

NoNoNoNoNo

Ye sNoNoNoNo

4. Bank of America - Theposter child for goodwll desperately in need of impairment Our analysisof Bank of America's acquisitions of FleetBoston, MBNA, an d LaSalle illustrate well wh y banksneed to impair their goodwil l more - far more - than they've done to date.

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth, MN 55447763.595.0900 c l ients@disclosureinsic iht.cpm www.dlsc losureinsight.com2009 All r ights reserved. Addi t ional legal noticQS apply .


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D.!. Report March 18, 2009Bank Goodwil l ImpairmentStudy Page 8 of 11BA G paid a total of $102.8 billion for these three acquisitions. Using market comparables, one ofthe methods prescribed under FASB 142, we derived a current value for these acquisitions of$37.4 billion. BAGcurrently carries $64.7 billion in goodwill on its book for these threeacquisitions, or twce our estimated value for what these acquisitions are now worth. Assuch, itstrains credibility that Bank of Amer ica did not impair any goodwll,

FleetBostonAcquired by BAG on l-Apr-04for a total price o f $47.3 billion (basical ly an al l stock deal).

Bank of America booked $33.2 billion ingoodwll for the acquisition. From l-Apr-04 to present, three comparables we picked for FleetBoston (USB, STI, andWFC) have seen an average of dropof 52.4% intheir market caps. Applying the 52.4% average drop to the FleetBoston purchase price implies a currentva lue for that acquisition of $22.5 billion, This is substantially less than the $33.2 billion of goodwll that BAGacquired withFleetBoston.

MBNA Acqu i red by BAG on l-Jan-06 for a total price of $34.6 billion ($28.9 billion in stock, $5.2

billion cash) . Bank of Arner ica_bopked $20.4 billion ingoodwill for the acquisition. From l-Jan-06 to present, two comparables we picked for M BNA (COF and AXP) have

seen an average dropof 75.5% in their market caps. Applying the 75.5% average drop to the MBNA purchase price implies a currentyalue forthat acquisitionjgf $8.5 billion. This issubstantially less than the $20.4 billion of goodwill that BAG acquired with M B NA,

LaSalle Acquired by BAG on l-Oct-07 for a total price of $21.0 billion (all cash). Bank of Amer ica_booKed $11.1 billion ingoodwill for the acquisition.

From l-Oct-07 to present, three comparables we picked fo r LaSal le (KEY, FITB, and PNC)have seen an average drop of 69,4% in their market caps. Applying the 69.4% average drop to the LaSalle purchase price implies a current value forthat acquisition of S6.4 billion. This issubstantially less than the $11.1 billion of goodwll that BAG acquired with LaSalle.

We did not conduct the same analysis above for either the Countrywde or Merrill Lynchacquisitions. These acquisitions account for $9.4 billion of BAC's goodwll. In the end, wedecided that the only appropriate comparables for Countrywde and Merrill were companies thatare no longer in business.

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth,MN 55447763.595.0900 [email protected] www.dlsc losureinsiQht.com2009 All r ights reserved. Additional legal notices apply.


13/15

D.I. Repo rt March 18, 2009Bank Goodwil l ImpairmentStudy Page 9 of 11

DISCLOSURESDisc losure Insight, Inc. is a publ isher o f resea rch and analysis for publ ic companies. This report isfor informational purposesonly. It is based on sources Disclosure Insight, Inc. believes to reliableand accurate when published. However, such information is presented "as is" without w ar r an t y ofany kind. Disclosure Insight, Inc. has not independently ver if ied information and assumptionsunderlying this report. Information contained herein is not guaranteed as to accuracy ortimeliness, and does not purport to be a complete statement of all material facts related to anycompany, industry, or security. Opinions and estimates reflect the author's judgment and aresubject to change without notice. Disclosure Insight, Inc. doe not undertake to update orsupplement this report or any of the information contained therein. Actual results could varysignificantly from those described in the report. Nothing in this report shall be deemed arecommendation or solicitation to buy or sell the subject securities or provide investment advice.Visit wwwjsclosureinsight.com to read additional and important disclosures applicable to ourw or k . Orcall 763-595-0900 to learn more.

Disclosure Insight, Inc.3200 Harbor Lane, Suite 200, Plymouth,MN 55447763.595.0900 [email protected] www.disclQsurelnsioht.com2009 Al l rights reserved. Addit ional legal notices apply.


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