Behind BofA's Countrywide cleanup (pg. 2)

Specific products are included in the settlement with the state attorneys general, and payment-option ARMs [adjustable-rate mortgages] are one of those products. They have a negative-amortization feature. We've learned from the behavior of the consumer that when that negative-amortization feature kicks in and they're underwater on their equity, they might have the capacity to pay, but they stop paying because they lose hope. So we believe that to be able to get those who have the capacity to pay in a position where they are paying, a principal reduction in those products is appropriate.

We're looking forward to having an impact on up to 400,000 homeowners. We've done 200,000 loan modifications to date to enable customers to stay in their homes. Our incentive is that there's a cost to taking a mortgage through foreclosure. If we can reallocate that cost to a modification of the interest rate, or in some cases of the principal, we are better off, the customer is better off, and the U.S. economy is better off, because that's one more house that hasn't gone on the market.

How did the bank stay out of trouble during the mortgage boom when so many others got burned?

The difference is that Bank of America had a commitment to not do subprime lending or exotic loan products.

When did you decide that?

In 2001 we made the decision to exit subprime. We revisited that and each time declined to participate, and in the mortgage space that's absolutely what contributed to our performance today.

What is your priority for managing in a recession?

Profitable growth in market share. Even though the market is smaller, we still want to be No. 1, and we want to be getting our fair share of the business where the risk-reward tradeoff is right.

Credit card debt is at the highest levels ever, and many people are worried about credit cards being the next cause of trouble in the financial system. Is that worry justified?

Bank of America has a very large position in credit card debt. Losses are high at this point, but we believe they are manageable. If unemployment continues to go up, which it probably will, our losses will go up. But we think it's more than manageable for us.

So not comparable to the mortgage crisis and the effect it had rolling through the economy?

I don't believe that's the case, certainly not for Bank of America.

What will be the future shape of the industry? What does it mean that Goldman Sachs and Morgan Stanley are going to be commercial banks, same as you are?

We think we have a little bit of a headstart on them, with the franchise and the brand that we've established across our businesses. They're formidable competitors, but we're not too worried about that.

In the context of the future, let me talk about the mortgage business. It's a place that's ripe for reinvention. We have all the component parts of the value chain. Do we have the answers? No. Do we have the vision for what we want Bank of America to be in the consumer's mind? Absolutely - to be reliable, strong, stable, with products that match customers' needs, and to be in a position to lend to as many households as makes sense from a risk-reward perspective.

You've said that the Countrywide brand will be discontinued and replaced by Bank of America. After your acquisition of Merrill Lynch closes at the end of the year, will the Merrill brand survive?

Yes. It's a powerful brand and one we think can coexist very well with the Bank of America brand.

Over the past year Merrill has taken many billions of dollars of write-downs on bad securities. Are you confident all the bad news is out there?

The economy is changing, and we haven't closed the acquisition, but through the due diligence that we've done, we feel confident with the price that we're paying and what we're getting.

Before your current position you were chief technology and operations officer. Where is the bank aiming its consumer technology?

What works best for us is converting the capabilities of Bank of America to online banking; 65% of the bill payments that U.S. consumers make online are made through Bank of America. Our customers are asking for more financially related applications for the personal device or for their home PC, so that's where we're investing our dollars right now.

You're in an industry that has been very male-dominated for a long time, and you have been with one company for 31 years, which is a story one doesn't hear much anymore. What were the most important factors in what you've achieved?

Raw determination. Desire to make a difference in an industry where I believe there is a capability to influence many people's lives by making their dreams come true - their dream of home-ownership, of financing a child's education where the child might be the first to go to college.

In financing, I saw an opportunity to impact all those dreams. It was a match for my analytical skills. I'm a very analytical, process-oriented thinker. I started out underwriting commercial loans and ended up in retail banking managing large teams of people, and evolved to getting tremendous satisfaction from growing and developing people. And it remains a business where all that is possible.  

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