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2006 Annual Report

 

Global Wealth and Investment Management

2006
(Dollars in millions) Total Private
Bank
Columbia
Management
Premier
Banking and
Investments
ALM/Other
Net interest income (1)
$
3,881
$
1,000
$
(37)
$
2,000
$
918
Noninterest income  
Investment and brokerage services 3,449 1,014 1,532 752 151
All other income 449 84 43 126 196
Total noninterest income 3,898 1,098 1,575 878 347
Total revenue (1) 7,779 2,098 1,538 2,878 1,265
Provision for credit losses (40) (52) 13 (1)
Noninterest expense 4,005 1,273 1,007 1,361 364
Income before income taxes (1) 3,814 877 531 1,504 902
Income tax expense 1,411 324 196 556 335
Net income
$
2,403
$
553
$
335
$
948
$
567
   
Shareholder value added
$
1,340
$
302
$
196
$
574
$
268
Net interest yield (1) 3.29
%
3.20
%
n/m 2.93
%
n/m
Return on average equity 23.20 22.46 20.66
%
26.89 n/m
Efficiency ratio (1) 51.48 60.69 65.49 47.29 n/m
Period end—total assets (2)
$
137,739
$
34,047
$
3,082
$
105,460
n/m
2005
(Dollars in millions) Total Private
Bank
Columbia
Management
Premier
Banking and
Investments
ALM/Other
Net interest income (1)
$
3,820
$
1,008
$
6
$
1,732
$
1,074
Noninterest income  
Investment and brokerage services 3,140 1,014 1,321 670 135
All other income 356 65 32 148 111
Total noninterest income 3,496 1,079 1,353 818 246
Total revenue (1) 7,316 2,087 1,359 2,550 1,320
Provision for credit losses (7) (23) 18 (2)
Noninterest expense 3,710 1,237 902 1,266 305
Income before income taxes (1) 3,613 873 457 1,266 1,017
Income tax expense 1,297 314 165 456 362
Net income
$
2,316
$
559
$
292
$
810
$
655
   
Shareholder value added
$
1,263
$
337
$
142
$
461
$
323
Net interest yield (1) 3.19
%
3.37
%
n/m 2.53
%
n/m
Return on average equity 22.52 25.28 16.95
%
24.52 n/m
Efficiency ratio (1) 50.72 59.27 66.37 49.65 n/m
Period end—total assets (2)
$
129,232
$
31,736
$
2,686
$
102,090
n/m
Footnote (1) Fully taxable-equivalent basis
Footnote (2) Total Assets include asset allocations to match liabilities (i.e., deposits).
n/m = not meaningful

Balance Sheet
December 31
Average Balance
(Dollars in millions) 2006 2005 2006 2005
Total loans and leases
$
66,034
$
58,380
$
61,497
$
54,102
Total earning assets (1) 129,589 121,269 117,916 119,607
Total assets (1) 137,739 129,232 125,663 127,394
Total deposits 125,622 115,454 115,071 117,338
Allocated equity 11,007 12,813 10,358 10,284
Footnote (1) Total earning assets and Total Assets include asset allocations to match liabilities (i.e., deposits).

Global Wealth and Investment Management provides a wide offering of customized banking and investment services tailored to meet the changing wealth management goals of our individual and institutional customer base. Our clients have access to a range of services offered through three primary businesses: The Private Bank, Columbia Management (Columbia), and Premier Banking and Investments (PB&I). In addition, ALM/Other includes the impact of Banc of America Specialist, the results of ALM activities and the impact of migrating qualifying affluent customers from Global Consumer and Small Business Banking to our PB&I customer service model.

Net Income increased $87 million, or four percent, due to higher Total Revenue partially offset by higher Noninterest Expense.

Net Interest Income increased $61 million, or two percent, due to increases in deposit spreads and higher Average Loans and Leases, largely offset by a decline in ALM activities and loan spread compression. Global Wealth and Investment Management also benefited from the migration of deposits from Global Consumer and Small Business Banking.

Noninterest Income increased $402 million, or 11 percent, due to increases in Investment and Brokerage Services driven by higher levels of assets under management. Noninterest Income also benefited from nonrecurring items in 2006.

Provision for Credit Losses decreased $33 million due to a credit loss recovery in 2006.

Noninterest expense increased $295 million, or eight percent, primarily due to increases in Personnel expense driven by the addition of sales associates and revenue generating expenses.

Client Assets

Client Assets consist of Assets under management, Client brokerage assets, and Assets in Custody. Assets under management generate fees based on a percentage of their market value. They consist largely of mutual funds and separate accounts, which are comprised of taxable and nontaxable money market products, equities, and taxable and nontaxable fixed income securities. Client brokerage assets represent a source of commission revenue and fees for the Corporation. Assets in custody represent trust assets administered for customers. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments.

Client Assets
December 31
(Dollars in millions) 2006 2005
Assets under management
$
542,977
$
482,394
Client brokerage assets (1) 203,799 176,822
Assets in custody 100,982 94,184
Less: Client brokerage assets and Assets in custody included in Assets under management (57,446) (44,931)
Total net client assets
$
790,312
$
708,469
Footnote (1) Client brokerage assets include non-discretionary brokerage and fee-based assets. Previously, the Corporation reported Client brokerage assets excluding fee-based assets. The 2005 amounts have been reclassified to reflect this adjustment.

Assets under management increased $60.6 billion, or 13 percent, and was driven by net inflows in both money market and equity products as well as market appreciation. Client brokerage assets increased by $27.0 billion, or 15 percent, reflecting growth in full service assets from higher broker productivity, as well as growth in self directed assets which benefited from new pricing strategies including $0 Online Equity Trades which were offered beginning in the fourth quarter of 2006. Assets in Custody increased $6.7 billion, or seven percent, due to market appreciation partially offset by net outflows.

The Private Bank

The Private Bank provides integrated wealth management solutions to high net-worth individuals, middle-market institutions and charitable organizations with investable assets greater than $3 million. The Private Bank provides investment, trust and banking services as well as specialty asset management services (oil and gas, real estate, farm and ranch, timberland, private businesses and tax advisory). The Private Bank also provides integrated wealth management solutions to ultra high-net-worth individuals and families with investable assets greater than $50 million through its Family Wealth Advisors unit. Family Wealth Advisors provides a higher level of contact, tailored service and wealth management solutions addressing the complex needs of their clients.

Net Income decreased $6 million, or one percent, primarily due to increased Noninterest Expense and a decrease in Net Interest Income, partially offset by higher Noninterest Income and a credit loss recovery. The decrease in Net Interest Income of $8 million, or one percent, was primarily attributable to lower average deposit balances as client money flowed to equities, partially offset by wider deposit spreads. The increase in Noninterest Income of $19 million, or two percent, was a result of nonrecurring items. The Provision for Credit Losses decreased $29 million as a result of a credit loss recovery in 2006. The increase in Noninterest Expense of $36 million, or three percent, was driven by higher personnel and other operating costs.

In November 2006, the Corporation announced a definitive agreement to acquire U.S. Trust for $3.3 billion in cash. U.S. Trust is one of the largest and most respected U.S. firms which focuses exclusively on managing wealth for high net-worth and ultra high net-worth individuals and families. The acquisition will significantly increase the size and capabilities of the Corporation's wealth business and position it as one of the largest financial services companies managing private wealth in the U.S. The transaction is expected to close in the third quarter of 2007.

Columbia Management

Columbia is an asset management business serving the needs of both institutional clients and individual customers. Columbia provides asset management services, including mutual funds, liquidity strategies and separate accounts. Columbia mutual fund offerings provide a broad array of investment strategies and products including equities, fixed income (taxable and non-taxable) and money market (taxable and non-taxable) funds. Columbia distributes its products and services directly to institutional clients, and distributes to individuals through The Private Bank, Family Wealth Advisors, Premier Banking and Investments, and nonproprietary channels including other brokerage firms.

Net Income increased $43 million, or 15 percent, primarily as a result of an increase in Investment and Brokerage Services of $211 million, or 16 percent, in 2006. This increase is due to higher assets under management driven by net inflows in money market and equity funds, and market appreciation. Noninterest Expense increased $105 million, or 12 percent, primarily due to higher Personnel costs including revenue-based compensation and other operating costs.

Premier Banking and Investments

Premier Banking and Investments includes Banc of America Investments, our full-service retail brokerage business and our Premier Banking channel. PB&I brings personalized banking and investment expertise through priority service with client-dedicated teams. PB&I provides a high-touch client experience through a network of approximately 4,400 client advisors to our affluent customers with a personal wealth profile that includes investable assets plus a mortgage that exceeds $500,000 or at least $100,000 of investable assets.

Net Income increased $138 million, or 17 percent, primarily due to an increase in Net Interest Income. The increase in Net Interest Income of $268 million, or 15 percent, was primarily driven by higher deposit spreads partially offset by lower average deposit balances. Deposit spreads increased 40 bps to 2.34 percent. Net Interest Income also benefited from higher Average Loans and Leases, mainly residential mortgages and home equity.

Noninterest Income increased $60 million, or seven percent, primarily driven by higher Investment and Brokerage Services. Noninterest Expense increased $95 million, or eight percent, primarily due to increases in Personnel expense driven by the PB&I expansion of Client Managers and Financial Advisors and higher performance-based compensation.

ALM/Other

We migrate qualifying affluent customers, and their related deposit balances and associated Net Interest Income from the Global Consumer and Small Business Banking segment to our PB&I customer service model. In order to provide a view of organic growth in PB&I, we allocate the original migrated deposit balances, including attrition, as well as the corresponding Net Interest Income at original spreads from PB&I to ALM/Other.

Net Income decreased $88 million, or 13 percent, primarily due to a decrease in Net Interest Income partially offset by an increase in Noninterest Income. Net Interest Income decreased $156 million driven by a significant reduction from ALM activities, partially offset by higher Net Interest Income on deposits due to migration of certain banking relationships from Global Consumer and Small Business Banking. During 2006 and 2005, $10.7 billion and $16.9 billion of average deposit balances were migrated from the Global Consumer and Small Business Banking segment to Global Wealth and Investment Management. The total cumulative average impact of migrated balances was $48.5 billion in 2006 compared to $39.3 billion for 2005. Noninterest Income increased $101 million primarily reflecting nonrecurring items in 2006.