The
Corporation’s most readily available source of liquidity is its investment
portfolio. Investment securities available for sale, which totaled
$7.5 billion at March 31, 2008, represent a highly accessible source of
liquidity. The Corporation’s portfolio of held-to-maturity investment
securities, which totaled $0.3 billion at March 31, 2008, provides liquidity
from maturities and amortization payments. The Corporation’s loans
held for sale provide additional liquidity. These loans represent
recently funded loans that are prepared for delivery to investors, which are
generally sold within thirty to ninety days after the loan has been
funded.
Depositors
within the Corporation’s defined markets are another source of
liquidity. Core deposits (demand, savings, money market and consumer
time deposits) averaged $23.3 billion in the first quarter of
2008. The Corporation's banking affiliates may also access the
federal funds markets or utilize collateralized borrowings such as treasury
demand notes or FHLB advances.
The
Corporation’s banking affiliates may use wholesale deposits, which include
foreign (Eurodollar) deposits. Wholesale deposits, which averaged
$8.3 billion in the first quarter of 2008, are funds in the form of deposits
generated through distribution channels other than the Corporation’s own banking
branches. These deposits allow the Corporation’s banking subsidiaries
to gather funds across a national geographic base and at pricing levels
considered attractive, where the underlying depositor may be retail or
institutional. Access to wholesale deposits also provides the
Corporation with the flexibility to not pursue single service time deposit
relationships in markets that have experienced some unprofitable pricing
levels.
The
Corporation may use certain financing arrangements to meet its balance sheet
management, funding, liquidity, and market or credit risk management
needs. The majority of these activities are basic term or revolving
securitization vehicles. These vehicles are generally funded through
term-amortizing debt structures or with short-term commercial paper designed to
be paid off based on the underlying cash flows of the assets
securitized. These facilities provide access to funding sources
substantially separate from the general credit risk of the Corporation and its
subsidiaries.
The
Corporation’s lead bank, M&I Marshall & Ilsley Bank (“M&I Bank”),
has implemented a global bank note program that permits it to issue and sell up
to a maximum of US$13.0 billion aggregate principal amount (or the equivalent
thereof in other currencies) at any one time outstanding of its senior global
bank notes with maturities of seven days or more from their respective date of
issue and subordinated global bank notes with maturities more than five years
from their respective date of issue. The notes may be fixed rate or
floating rate and the exact terms will be specified in the applicable Pricing
Supplement or the applicable Program Supplement. This program is
intended to enhance liquidity by enabling M&I Bank to sell its debt
instruments in global markets in the future without the delays that would
otherwise be incurred. At March 31, 2008, approximately $10.3 billion
of new debt could be issued under M&I Bank’s global bank note
program.
Bank
notes outstanding at March 31, 2008, amounted to $4.6 billion of which $1.9
billion is subordinated. A portion of the subordinated bank notes
qualifies as supplementary capital for regulatory capital purposes.
The
national capital markets represent a further source of liquidity to the
Corporation.
As a
result of the Separation, on November 1, 2007, old Marshall & Ilsley
Corporation (Accounting Predecessor to the Corporation) became M&I LLC and
amounts remaining under the existing shelf registration statements were
deregistered. There will be no further issuances of debt by M&I
LLC.
On
November 6, 2007, New Marshall & Ilsley Corporation filed a shelf
registration statement pursuant to which the Corporation is authorized to raise
up to $1.9 billion through sales of corporate debt and/or equity securities with
a relatively short lead time. During the first quarter of 2008, the Corporation
issued $17.5 million of medium-term MiNotes under the shelf registration
statement. The MiNotes, issued in minimum denominations of one-thousand dollars
or integral multiples of one-thousand dollars, may have maturities ranging from
nine months to 30 years and may bear interest at fixed or floating
rates.
The
Corporation has a commercial paper program. At March 31, 2008
commercial paper outstanding amounted to $0.8 billion. At March 31, 2008 all of
the commercial paper obligations of M&I LLC, which were issued
prior to the Separation, had matured and there will be no further
issuances of commercial paper by M&I LLC.
The
market impact of the deterioration in the national residential real estate
markets which includes the sub-prime mortgage crisis has been
substantial. These events have resulted in a decline in market
confidence and a subsequent strain on liquidity. However, the
Separation provided the Corporation with over two billion dollars in cash and
significantly increased its regulatory and tangible capital
levels. Management expects that it will continue to make use of a
wide variety of funding sources, including those that have not shown the levels
of stress demonstrated in some of the national capital
markets. Notwithstanding the current national capital market impact
on the cost and availability of liquidity, management believes that it has
adequate liquidity to ensure that funds are available to the Corporation and
each of its banks to satisfy their cash flow requirements. If capital
markets deteriorate more than management currently expects, the Corporation
could experience further stress on its liquidity position and ability to
increase assets.
Short-term
borrowings represent contractual debt obligations with maturities of one year or
less and amounted to $7.0 billion at March 31, 2008. Long-term
borrowings amounted to $9.7 billion at March 31, 2008. The scheduled
maturities of long-term borrowings including estimated interest payments at
March 31, 2008 were as follows: $1.0 billion is due in less than one
year; $3.8 billion is due in one to three years; $3.7 billion is due in three to
five years; and $3.0 billion is due in more than five years. On January 2, 2008,
the Corporation completed the acquisition of First
Indiana. Stockholders of First Indiana received $32.00 in cash for
each share of First Indiana common stock outstanding, or approximately $530.2
million. There have been no other substantive changes to the Corporation’s
contractual obligations as reported in the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2007.
OFF-BALANCE
SHEET ARRANGEMENTS
In
conjunction with the first quarter 2008 acquisition of First Indiana, M&I
LLC acquired all of the common interests in one trust that issued cumulative
preferred capital securities which are supported by junior subordinated
deferrable interest debentures in the principal amount of $12.0 million and a
full guarantee assumed by M&I LLC. The Corporation does not
consolidate this trust in accordance with United States generally accepted
accounting principles.
At March
31, 2008, there have been no other substantive changes with respect to the
Corporation’s off-balance sheet activities as disclosed in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2007. The Corporation
continues to believe that based on the off-balance sheet arrangements with which
it is presently involved, such off-balance sheet arrangements neither have, nor
are reasonably likely to have, a material impact to its current or future
financial condition, results of operations, liquidity or capital.
CRITICAL
ACCOUNTING POLICIES
The
Corporation has established various accounting policies which govern the
application of accounting principles generally accepted in the United States in
the preparation of the Corporation’s consolidated financial
statements. The significant accounting policies of the Corporation
are described in the footnotes to the consolidated financial statements
contained in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2007, and updated as necessary in its Quarterly Reports on Form
10-Q. Certain accounting policies involve significant judgments and
assumptions by management that may have a material impact on the carrying value
of certain assets and liabilities. Management considers such
accounting policies to be critical accounting policies. The judgments
and assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the
circumstances. Because of the nature of judgments and assumptions
made by management, actual results could differ from these judgments and
estimates which could have a material impact on the carrying values of assets
and liabilities and the results of the operations of the
Corporation. Management continues to consider the following to be
those accounting policies that require significant judgments and
assumptions:
Allowance
for Loan and Lease Losses
The
allowance for loan and lease losses represents management’s estimate of probable
losses inherent in the Corporation’s loan and lease
portfolio. Management evaluates the allowance each quarter to
determine that it is adequate to absorb these inherent losses. This
evaluation is supported by a methodology that identifies estimated losses based
on assessments of individual problem loans and historical loss patterns of
homogeneous loan pools. In addition, environmental factors, including
economic conditions and regulatory guidance, unique to each measurement date are
also considered. This reserving methodology has the following
components:
Specific
Reserve
. The Corporation’s internal risk rating system is used
to identify loans and leases that meet the criteria as being “impaired” under
the definition in Statement of Financial Accounting Standards No. 114,
Accounting by
Creditors for Impairment of a Loan
. A loan is impaired
when, based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. For impaired loans, impairment is measured using
one of three alternatives: (1) the present value of expected future cash flows
discounted at the loan’s effective interest rate; (2) the loan’s observable
market price, if available; or (3) the fair value of the collateral for
collateral dependent loans and loans for which foreclosure is deemed to be
probable. In general, these loans have been internally identified as
credits requiring management’s attention due to underlying problems in the
borrower’s business or collateral concerns. Subject to a minimum
size, a quarterly review of these loans is performed to identify the specific
reserve necessary to be allocated to each of these loans. This
analysis considers expected future cash flows, the value of collateral and also
other factors that may impact the borrower’s ability to make payments when
due.
Collective Loan
Impairment
. This component of the allowance for loan and lease
losses is comprised of two elements. First, the Corporation makes a
significant number of loans and leases, which due to their underlying similar
characteristics, are assessed for loss as homogeneous pools. Included
in the homogeneous pools are loans and leases from the retail sector and
commercial loans under a certain size that have been excluded from the specific
reserve allocation previously discussed. The Corporation segments the
pools by type of loan or lease and, using historical loss information, estimates
a loss reserve for each pool.
The
second element reflects management’s recognition of the uncertainty and
imprecision underlying the process of estimating losses. The internal
risk rating system is used to identify those loans within certain industry
segments that based on financial, payment or collateral performance, warrant
closer ongoing monitoring by management. The specific loans mentioned
earlier are excluded from this analysis. Based on management’s
judgment, reserve ranges are allocated to industry segments due to environmental
conditions unique to the measurement period. Consideration is given
to both internal and external environmental factors such as economic conditions
in certain geographic or industry segments of the portfolio, economic trends,
risk profile, and portfolio composition. Reserve ranges are then
allocated using estimates of loss exposure that management has identified based
on these economic trends or conditions.
The
Corporation has not materially changed any aspect of its overall approach in the
determination of the allowance for loan and lease losses. However, on
an on-going basis the Corporation continues to refine the methods used in
determining management’s best estimate of the allowance for loan and lease
losses.
The
following factors were taken into consideration in determining the adequacy of
the allowance for loan and lease losses at March 31, 2008:
The
national residential real estate markets continued to show signs of stress and
deterioration during the first quarter of 2008.
At March
31, 2008, nonperforming loans and leases amounted to $787.0 million or 1.60% of
consolidated loans and leases compared to $925.2 million or 2.00% of
consolidated loans and leases at December 31, 2007, and $351.7 million or 0.83%
of consolidated loans and leases at March 31, 2007. Consistent with recent
quarters, nonperforming real estate loans were the primary source of the
Corporation’s nonperforming loans and leases and represented 85.1% of total
nonperforming loans and leases at March 31, 2008. Nonperforming real estate
loans amounted to $670.0 million at March 31, 2008 compared to $593.5 million at
December 31, 2007, an increase of $76.5 million or 12.9%. Nonperforming loans
associated with residential-related construction and development (commercial and
residential) which the Corporation collectively refers to as construction and
development loans amounted $492.3 million at March 31, 2008 compared to $449.7
million at December 31, 2007, an increase of $42.6 million or 9.5% which is net
of the nonaccrual real estate loans that were sold during the first quarter of
2008. Nonperforming construction and development loans represented
73.5% of the Corporation’s nonperforming real estate loans and 62.5% of the
Corporation’s total nonperforming loans and leases at March 31, 2008.
Nonperforming 1-4 family residential real estate loans increased $23.5 million
or 39.3% compared to December 31, 2007 and amounted to $83.1 million at March
31, 2008.
Historically,
the Corporation’s loss experience with real estate loans has been relatively low
due to the sufficiency of the underlying real estate collateral. In a stressed
housing market such as currently exists, the value of the collateral securing
the loan has become one of the most important factors in determining the amount
of loss incurred and the appropriate amount of allowance for loan and lease
losses to record at the measurement date. Losses that are equal to the entire
recorded investment for a real estate loan are remote. However, in
many cases, declining real estate values have resulted in the determination that
the estimated value of the collateral was insufficient to cover all of the
recorded investment in the loan which has required additional charge-offs
contributing to the increase in the provision for loan and lease losses and the
elevated levels of net charge-offs the Corporation has experienced in recent
quarters.
The
Corporation estimates that the amount of cumulative charge-offs recorded on its
nonperforming loans was approximately $177.3 million or 18.4% of the unpaid
principal balance of its nonperforming loans outstanding at March 31, 2008.
These charge-offs have reduced the carrying value of these nonperforming loans
and leases to an amount that is estimated to be collectible with no further
allowance required at the measurement date.
The
Corporation’s primary lending areas are Wisconsin, Arizona, Minnesota, Missouri,
Florida and Indiana. The vast majority of the assets acquired on
April 1, 2006 from Gold Banc Corporation, Inc. are in relatively new markets for
the Corporation. Included in these new markets is the Kansas City
metropolitan area and Tampa, Sarasota and Bradenton, Florida. In addition, with
the acquisitions of United Heritage Bankshares of Florida, Inc. and First
Indiana, the Orlando, Florida market and the Indianapolis and central Indiana
market are new markets for the Corporation. Each of these regions and markets
has cultural and environmental factors that are unique to it. Nonperforming
loans associated with the banking acquisitions amounted to $160.9 million or
approximately 20.4% of total nonperforming loans and leases at March 31,
2008. Construction and development real estate loans that are
primarily concentrated in the west coast of Florida and Arizona, have been the
primary contributor to the increase in nonperforming loans and leases and net
charge-offs in recent quarters.
At March
31, 2008, allowances for loan and lease losses continue to be carried for
exposures to construction and development loans secured by vacant land,
manufacturing, healthcare, production agriculture (including dairy and cropping
operations), truck transportation, accommodation, general contracting and motor
vehicle and parts dealers. The majority of the commercial charge-offs incurred
in recent periods were in these industry segments. While most loans
in these categories are still performing, the Corporation continues to believe
these sectors present a higher than normal risk due to their financial and
external characteristics.
Net
charge-offs amounted to $131.1 million or 1.08% of average loans and leases in
the first quarter of 2008 compared to $191.6 million or 1.67% of average loans
and leases in the fourth quarter of 2007 and $14.7 million or 0.14% of average
loans and leases in the first quarter of 2007. Net charge-offs of real estate
loans amounted to $121.5 million or 92.7% of total net charge-offs in the first
quarter of 2008. For the three months ended March 31, 2008,
approximately $104.8 million of the real estate loan net charge-offs were
construction and development loans. Included in the current quarter’s net
charge-offs were the losses related to the loans that were sold
during the first quarter of 2008.
Based on
the above loss estimates, management determined its best estimate of the
required allowance for loans and leases. Management’s evaluation of
the factors described above resulted in an allowance for loan and lease losses
of $543.5 million or 1.10% of loans and leases outstanding at March 31,
2008. The allowance for loan and lease losses was $496.2 million or
1.07% of loans and leases outstanding at December 31, 2007 and $423.1 million or
1.00% of loans and leases outstanding at March 31, 2007. Consistent
with the credit quality trends noted above, the provision for loan and lease
losses amounted to $146.3 million for the three months ended March 31,
2008. By comparison, the provision for loan and lease losses amounted
to $235.1 million for the three months ended December 31, 2007 and $17.1 million
for the three months ended March 31, 2007. The resulting provisions
for loan and lease losses are the amounts required to establish the allowance
for loan and lease losses at the required level after considering charge-offs
and recoveries. Management recognizes there are significant estimates
in the process and the ultimate losses could be significantly different from
those currently estimated.
Financial
Asset Sales and Securitizations
The
Corporation has historically used certain financing arrangements to meet its
balance sheet management, funding, liquidity, and market or credit risk
management needs. The majority of these activities were basic term or
revolving securitization vehicles. These vehicles were generally
funded through term-amortizing debt structures or with short term commercial
paper designed to be paid off based on the underlying cash flows of the assets
securitized. These financing entities were contractually limited to a
narrow range of activities that facilitate the transfer of or access to various
types of assets or financial instruments. In certain situations, the
Corporation provided liquidity and/or loss protection agreements.
The
Corporation had historically sold automobile loans to an unconsolidated
multi-seller special purpose entity commercial paper conduit in securitization
transactions in which servicing responsibilities and subordinated interests were
retained. Beginning in the second-half of 2007, the Corporation discontinued
sales of automobile loans to an unconsolidated multi-seller special purpose
entity commercial paper conduit and currently does not intend to make any such
sales in the future.
From time
to time, the Corporation had also purchased and immediately sold certain debt
securities classified as available for sale that were highly rated to an
unconsolidated bankruptcy remote qualifying special purpose entity (“QSPE”)
whose activities were limited to issuing highly rated asset-backed commercial
paper with maturities up to 180 days that was used to finance the purchase of
the debt securities. On October 31, 2007, the Corporation acquired
for cash the highly rated debt securities that served as collateral for the
QSPE’s commercial paper outstanding in accordance with the liquidity purchase
agreements. The commercial paper was retired as it matured and the
QSPE was subsequently liquidated.
As a
result of these decisions and transactions and the relatively immaterial amount
of the carrying value of the remaining retained interests, management no longer
considers financial asset sales and securitizations a significant or critical
accounting policy.
Income
Taxes
Income
taxes are accounted for using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on tax assets and liabilities of a change in tax rates is recognized in
the income statement in the period that includes the enactment
date.
The
determination of current and deferred income taxes is based on complex analyses
of many factors, including interpretation of Federal and state income tax laws,
the difference between tax and financial reporting basis of assets and
liabilities (temporary differences), estimates of amounts currently due or owed,
such as the timing of reversals of temporary differences and current accounting
standards. The Federal and state taxing authorities who make
assessments based on their determination of tax laws periodically review the
Corporation’s interpretation of Federal and state income tax
laws. Tax liabilities could differ significantly from the estimates
and interpretations used in determining the current and deferred income tax
liabilities based on the completion of taxing authority
examinations.
The
Corporation accounts for the uncertainty in income taxes recognized in financial
statements in accordance with the recognition threshold and measurement process
for a tax position taken or expected to be taken in a tax return in accordance
with Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN
48”),
Accounting for
Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109
.
FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosures. FIN
48 was adopted by the Corporation on January 1,
2007.
As a
result of the Internal Revenue Service’s (“IRS”) decision not to appeal a
November 2007 US Tax Court ruling related to how the TEFRA (interest expense)
disallowance should be calculated within a consolidated group and the position
the IRS has taken in another related case, the Corporation recognized an
additional income tax benefit related to years 1996-2007 of approximately $20.0
million for its similar issue during the first quarter of 2008.
The
Corporation anticipates it is reasonably possible within 12 months of March 31,
2008, that unrecognized tax benefits up to approximately $20 million could be
realized. The realization would principally result from settlement
with taxing authorities over one issue. That issue relates to the tax
benefits associated with a 2002 stock issuance.
New
Accounting Pronouncements
A
discussion of new accounting pronouncements that are applicable to the
Corporation and have been or will be adopted by the Corporation is included in
Note 3 in Notes to Financial Statements contained in Item 1 herein.
FORWARD-LOOKING
STATEMENTS
Items 2
and 3 of this Form 10-Q, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Quantitative and Qualitative
Disclosures about Market Risk,” respectively, contain forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
include, without limitation, statements regarding expected financial and
operating activities and results which are preceded by words such as “expects”,
“anticipates” or “believes”. Such statements are subject to important
factors that could cause the Corporation’s actual results to differ materially
from those anticipated by the forward-looking statements. These
factors include those referenced in Item 1A. Risk Factors, in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2007 and this
Quarterly Report on Form 10-Q and as may be described from time to time in the
Corporation’s subsequent SEC filings, and such factors are incorporated herein
by reference.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
following updated information should be read in conjunction with the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2007. Updated information regarding the Corporation’s use of
derivative financial instruments is contained in Note 14 – Derivative Financial
Instruments and Hedging Activities in Notes to Financial Statements contained in
Item 1 herein.
Market
risk arises from exposure to changes in interest rates, exchange rates,
commodity prices, and other relevant market rate or price risk. The
Corporation faces market risk through trading and non-trading
activities. While market risk that arises from trading activities in
the form of foreign exchange and interest rate risk is immaterial to the
Corporation, market risk from other than trading activities in the form of
interest rate risk is measured and managed through a number of
methods.
Interest
Rate Risk
The
Corporation uses financial modeling techniques to identify potential changes in
income and market value under a variety of possible interest rate
scenarios. Financial institutions, by their nature, bear interest
rate and liquidity risk as a necessary part of the business of managing
financial assets and liabilities. The Corporation has designed
strategies to limit these risks within prudent parameters and identify
appropriate risk/reward tradeoffs in the financial structure of the balance
sheet.
The
financial models identify the specific cash flows, repricing timing and embedded
option characteristics of the assets and liabilities held by the
Corporation. The net change in net interest income in different
market rate environments is the amount of earnings at risk. The net
change in the present value of the asset and liability cash flows in different
market rate environments is the amount of market value at
risk. Policies are in place to assure that neither earnings nor
market value at risk exceed appropriate limits. The use of a limited
array of derivative financial instruments has allowed the Corporation to achieve
the desired balance sheet repricing structure while simultaneously meeting the
desired objectives of both its borrowing and depositing customers.
The
models used include measures of the expected repricing characteristics of
administered rate (NOW, savings and money market accounts) and non-rate related
products (demand deposit accounts, other assets and other
liabilities). These measures recognize the relative insensitivity of
these accounts to changes in market interest rates, as demonstrated through
current and historical experiences. In addition to contractual
payment information for most other assets and liabilities, the models also
include estimates of expected prepayment characteristics for those items that
are likely to materially change their cash flows in different rate environments,
including residential mortgage products, certain commercial and commercial real
estate loans and certain mortgage-related securities. Estimates for
these sensitivities are based on industry assessments and are substantially
driven by the differential between the contractual coupon of the item and
current market rates for similar products.
This
information is incorporated into a model that allows the projection of future
income levels in several different interest rate
environments. Earnings at risk are calculated by modeling income in
an environment where rates remain constant, and comparing this result to income
in a different rate environment, and then dividing this difference by the
Corporation’s budgeted operating income before taxes for the calendar
year. Since future interest rate moves are difficult to predict, the
following table presents two potential scenarios — a gradual increase of 100bp
across the entire yield curve over the course of the year (+25bp per quarter),
and a gradual decrease of 100bp across the entire yield curve over the course of
the year (-25bp per quarter) for the balance sheet as of March 31,
2008:
Hypothetical Change in Interest
Rates
|
|
Impact
to 2008
Pretax Income
|
|
100
basis point gradual rise in
rates
|
|
|
0.1
|
%
|
100
basis point gradual decline in rates
|
|
|
(1.4
|
%)
|
These
results are based solely on the modeled parallel changes in market rates, and do
not reflect the earnings sensitivity that may arise from other factors such as
changes in the shape of the yield curve and changes in spread between key market
rates. These results also do not include any management action to
mitigate potential income variances within the simulation
process. Such action could potentially include, but would not be
limited to, adjustments to the repricing characteristics of any on- or
off-balance sheet item with regard to short-term rate projections and current
market value assessments.
Actual
results will differ from simulated results due to the timing, magnitude, and
frequency of interest rate changes as well as changes in market conditions and
management strategies.
Equity
Risk
In
addition to interest rate risk, the Corporation incurs market risk in the form
of equity risk. The Corporation invests directly and indirectly
through investment funds, in private medium-sized companies to help establish
new businesses or recapitalize existing ones. These investments
expose the Corporation to the change in equity values for the companies of the
portfolio companies. However, fair values are difficult to determine
until an actual sale or liquidation transaction actually occurs. At
March 31, 2008, the carrying value of total active capital markets investments
amounted to approximately $54.4 million.
At March
31, 2008, M&I Wealth Management administered $105.4 billion in assets and
directly managed $25.8 billion in assets. Exposure exists to changes
in equity values due to the fact that fee income is partially based on equity
balances. Quantification of this exposure is difficult due to the
number of other variables affecting fee income. Interest rate changes
can also have an effect on fee income for the above-stated
reasons.
ITEM
4. CONTROLS
AND PROCEDURES
Marshall
& Ilsley Corporation maintains a set of disclosure controls and procedures
that are designed to ensure that information required to be disclosed by it in
the reports filed by it under the Securities Exchange Act of 1934, as amended,
are recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and to ensure that information required
to be disclosed by the Corporation in such reports is accumulated and
communicated to the Corporation’s Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Corporation carried out an evaluation, under the
supervision and with the participation of its management, including its
President and Chief Executive Officer and its Senior Vice President and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange
Act. Based on that evaluation, the President and Chief Executive
Officer and the Senior Vice President and Chief Financial Officer conclude that
the Corporation’s disclosure controls and procedures are effective as of the end
of the period covered by this report for the purposes for which they are
designed.
There
have been no changes in the Corporation’s internal control over financial
reporting identified in connection with the evaluation discussed above that
occurred during the Corporation’s last fiscal quarter that have materially
affected, or are reasonably likely to materially affect the Corporation’s
internal control over financial reporting.