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Bank of America is 2nd Major U.S. Financial Institution to Face Derivatives Proxy Vote By Shareholders

April 26th, 2010

bank-of-americaThe verdict at BofA’s Wednesday Annual Meeting comes on the heels of a huge 30 percent support at Citigroup on the same Resolution. Of the four derivatives disclosure resolutions being filed, that with BofA may be the most telling, considering how the mishandling of Credit Default Swaps (a type of derivative) tripped up BofA’s Merrill Lynch.

With a much higher-than-expected 30 percent of Citigroup shares voted on April 20th in favor of more disclosure of derivatives practices, the focus now shifts to Bank of America (BofA), where shareholders will vote Wednesday (April 28th) on the same resolution sponsored by faith-based institutional investors belonging to the 300-member Interfaith Center on Corporate Responsibility (ICCR). The BofA vote will take place as Congress debates the fate of financial regulatory reform, including increased derivatives disclosure.

The resolution gives shareholders an opportunity, as they did at Citigroup, to express their concerns about the lack of transparency in the derivatives market that contributed significantly to the financial crisis. The higher-than-expected vote from Citigroup shareholders resulted even though the United States government, which controls 27 percent of Citigroup as a result of the bank bailouts, failed to fully support the resolution.

With the Citigroup vote concluded and the Bank of America shareholder balloting taking place Wednesday, subsequent shareholder votes on the derivatives disclosure resolution are set for Goldman Sachs (May 7), and JP Morgan Chase (May 18). Taken together, the resolution targets are four of the five U.S. financial institutions accounting for a reported 96 percent of all derivatives trading in the U.S. The resolutions mark the first time that the banks will face a vote by shareholders on a call to explain their policy on how collateral is secured for the derivatives they use and what their policy is about using their customers’ funds for other speculative activities. (JP Morgan Chase faced a derivatives-related measure with a different focus in 2004.)

Looking forward to the Wednesday annual meeting proxy vote at Bank of America, resolution filer and ICCR Board Member Rev. Seamus Finn, director, Justice, Peace & Integrity of Creation, Missionary Oblates of Mary Immaculate said: “We believe that we have considerable momentum working in our favor now that 30 percent of Citigroup shares were cast in favor of the resolution now pending at Bank of America. These votes send a strong message to Wall Street that the ‘old ways’ on derivatives and all of the attendant market-crashing risk they involve is no longer acceptable. In fact, the Bank of America annual meeting may be the most telling among the four votes on this resolution, given the role that irresponsible handling of collateralized debt obligations (CDOs) played in bringing down Merrill Lynch to the point that it was sold at fire-sale prices to Bank of America.”

Also available for comment will be:

  • On site at the Bank of America annual meeting — Edward Gerardo, director, Community and Social Investments, Bon Secours Health System, Inc.; and
  • Available by phone — Sr. Barbara Aires, coordinator, Corporate Responsibility, Sisters of Charity of St. Elizabeth, NJ.

ABOUT THE DERIVATIVES RESOLUTION

The ICCR proxy resolution notes that “the recent financial crisis has resulted in the destruction of trillions of dollars of wealth and untold suffering and hardship across the world” and that “taxpayers in the United States have been forced to extend hundreds of billions of dollars in assistance and guarantees to financial institutions and corporations over the past 18 months.”

The resolution also points out that the “very high degrees of leverage in derivatives transactions contributed to the timing and severity of the financial crisis” and that “concerns have arisen about the practice of rehypothecation: the ability of derivatives dealers to redeploy cash collateral that gets posted by one of its trading partners” and that “the financial system was brought to the brink of collapse by the absence of a system and structure to monitor counterparty risk … (while) numerous experts and the U.S. Treasury Department have called for the appropriate capitalization and collateralization of derivative transactions.”

The resolution asks “that the Board of Directors report to shareholders (at reasonable cost and omitting proprietary information) by December 1, 2010, the firm’s policy concerning the use of initial and variance margin (collateral) on all over the counter derivatives trades and its procedures to ensure that the collateral is maintained in segregated accounts and is not rehypothecated.”

Filers of the resolution at the Bank of America are: Missionary Oblates of Mary Immaculate, Rev. Seamus Finn; Sisters of St. Francis of Philadelphia, Sr. Nora Nash; Sisters of Charity of St. Elizabeth, NJ, Sr. Barbara Aires; Sisters of St. Dominic of Caldwell, NJ, Sr. Patricia Daly, OP; Maryknoll Sisters, Cathy Rowan ; Maryknoll Fathers and Brothers, Rev. Joseph P. LaMar, M.M.; Benedictine Sisters of Mount St. Scholastica, Rose Marie Stallbaumer, OSB; and Monasterio Pan de Vida, Rose Marie Stallbaumer, OSB.

The full text of the Citigroup resolution is available online at http://www.onlineethicalinvestor.org/eidb/wc.dll?eidbproc~reso~8849

ABOUT ICCR

For nearly 40 years the Interfaith Center on Corporate Responsibility (ICCR) has been a leader of the corporate social responsibility movement. ICCR’s membership is an association of 300 faith-based institutional investors, including national denominations, religious communities, pension funds, foundations, hospital corporations, economic development funds, asset management companies, colleges, and unions. Each year ICCR-member religious institutional investors sponsor over 200 shareholder resolutions on major social and environmental issues. For more information, visit http://www.iccr.org

CONTACT: Patrick Mitchell, (703) 276-3266 or pmitchell@hastingsgroup.com

A streaming audio replay of the post-vote Citigroup news event held on April 20, 2010 by ICCR members is available on the Web at http://www.iccr.org/news/press_releases/2010/pr_derivatives042010.php

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