Bank of America 2008 Annual Report Download - page 182

in fair values of the loans and the derivative instruments used to econom-
ically hedge them without the burden of complying with the requirements
for hedge accounting under SFAS 133. The Corporation has not elected to
fair value other loans held-for-sale primarily because these loans are float-
ing rate loans that are not economically hedged using derivative instru-
ments. At December 31, 2008 and 2007, residential mortgage loans,
commercial mortgage loans, and other loans held-for-sale for which the
fair value option was elected had an aggregate fair value of $18.96 billion
and $15.77 billion and an aggregate outstanding principal balance of
$20.75 billion and $16.72 billion. Interest income on these loans is
recorded in other interest income. These changes in fair value are mostly
offset by hedging activities. An immaterial portion of these amounts was
attributable to changes in instrument-specific credit risk.
Structured Reverse Repurchase Agreements
The Corporation elected to fair value certain structured reverse
repurchase agreements which were hedged with derivatives which quali-
fied for fair value hedge accounting in accordance with SFAS 133. Elec-
tion of the fair value option allows the Corporation to reduce the burden
of complying with the requirements of hedge accounting under SFAS 133.
At December 31, 2008 and 2007, these instruments had an aggregate
fair value of $2.33 billion and $2.58 billion, and a principal balance of
$2.34 billion and $2.54 billion recorded in federal funds sold and secu-
rities purchased under agreements to resell. Interest earned on these
instruments continues to be recorded in interest income. The Corporation
did not elect to fair value other financial instruments within the same
balance sheet category because they were not economically hedged using
derivatives.
Long-term Deposits
The Corporation elected to fair value certain long-term fixed rate deposits
which are economically hedged with derivatives. At December 31, 2008
and 2007, these instruments had an aggregate fair value of $1.72 billion
and $2.00 billion and principal balance of $1.70 billion and $1.99 billion
recorded in interest-bearing deposits. Interest paid on these instruments
continues to be recorded in interest expense. Election of the fair value
option will allow the Corporation to reduce the accounting volatility that
would otherwise result from the accounting asymmetry created by
accounting for the financial instruments at historical cost and the
economic hedges at fair value. The Corporation did not elect to fair value
other financial instruments within the same balance sheet category
because they were not economically hedged using derivatives.
Asset-backed Secured Financings
During 2008, the Corporation elected to fair value certain asset-backed
secured financings that were acquired as part of the Countrywide acquis-
ition. At December 31, 2008, these secured financings had an aggregate
fair value of $816 million and principal balance of $1.6 billion recorded in
accrued expenses and other liabilities. Using the fair value option election
allows the Corporation to reduce the accounting volatility that would
otherwise result from the accounting asymmetry created by accounting for
the asset-backed secured financings at historical cost and the corre-
sponding mortgage LHFS securing these financings at fair value.
The following table provides information about where changes in the
fair value of assets or liabilities for which the fair value option has been
elected are included in the Consolidated Statement of Income.
Gains (Losses) Relating to Assets and Liabilities Accounted for Using Fair Value Option
Year Ended December 31, 2008
(Dollars in millions)
Corporate
Loans and
Loan
Commitments
Loans
Held-for-Sale
Structured
Reverse
Repurchase
Agreements
Long-
term
Deposits
Asset-
Backed
Secured
Financings Total
Trading account profits (losses)
$4 $(680) $ – $ – $ – $ (676)
Mortgage banking income – 281 – – 295 576
Other income (loss) (1,248) (215) (18) (10) – (1,491)
Total $(1,244) $(614) $(18) $(10) $295 $(1,591)
Year Ended December 31, 2007
Trading account profits (losses)
$ (6) $(348) $ – $ – $ – $ (354)
Mortgage banking income – 333 – – – 333
Other income (loss) (413) (58) 23 (26) – (474)
Total $ (419) $ (73) $ 23 $(26) $ – $ (495)
180
Bank of America 2008