Bank of America 2011 Annual Report Download - page 167

Bank of America 2011 165
(Dollars in billions)
Interest rate contracts
Swaps
Futures and forwards
Written options
Purchased options
Foreign exchange contracts
Swaps
Spot, futures and forwards
Written options
Purchased options
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
Commodity contracts
Swaps
Futures and forwards
Written options
Purchased options
Credit derivatives
Purchased credit derivatives:
Credit default swaps
Total return swaps/other
Written credit derivatives:
Credit default swaps
Total return swaps/other
Gross derivative assets/liabilities
Less: Legally enforceable master netting agreements
Less: Cash collateral applied
Total derivative assets/liabilities
Contract/
Notional (1)
$ 42,719.2
9,939.2
2,887.7
3,026.2
630.1
2,652.9
439.6
417.1
42.4
78.8
242.7
193.5
90.2
413.7
86.3
84.6
2,184.7
26.0
2,133.5
22.5
December 31, 2010
Gross Derivative Assets
Trading
Derivatives
and
Economic
Hedges
$ 1,193.9
6.0
—
88.0
26.5
41.3
—
13.0
1.7
2.9
—
21.5
8.8
4.1
—
6.6
69.8
0.9
33.3
0.5
$ 1,518.8
Qualifying
Accounting
Hedges
$ 14.9
—
—
—
3.7
—
—
—
—
—
—
—
0.2
—
—
—
—
—
—
—
$ 18.8
Total
$ 1,208.8
6.0
—
88.0
30.2
41.3
—
13.0
1.7
2.9
—
21.5
9.0
4.1
—
6.6
69.8
0.9
33.3
0.5
$ 1,537.6
(1,406.3)
(58.3)
$73.0
Gross Derivative Liabilities
Trading
Derivatives
and
Economic
Hedges
$ 1,187.9
4.7
82.8
—
28.5
44.2
13.2
—
2.0
2.1
19.4
—
9.3
2.8
6.7
—
34.0
0.2
63.2
0.5
$ 1,501.5
Qualifying
Accounting
Hedges (2)
$ 2.2
—
—
—
2.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 4.3
Total
$ 1,190.1
4.7
82.8
—
30.6
44.2
13.2
—
2.0
2.1
19.4
—
9.3
2.8
6.7
—
34.0
0.2
63.2
0.5
$ 1,505.8
(1,406.3)
(43.6)
$ 55.9
(1) Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2) Excludes $4.1 billion of long-term debt designated as a hedge of foreign currency risk.
ALM and Risk Management Derivatives
The Corporation’s ALM and risk management activities include the
use of derivatives to mitigate risk to the Corporation including
derivatives designated as qualifying accounting hedges and
economic hedges. Interest rate, commodity, credit and foreign
exchange contracts are utilized in the Corporation’s ALM and risk
management activities.
The Corporation maintains an overall interest rate risk
management strategy that incorporates the use of interest rate
contracts, which are generally non-leveraged generic interest rate
and basis swaps, options, futures and forwards, to minimize
significant fluctuations in earnings that are caused by interest rate
volatility. The Corporation’s goal is to manage interest rate
sensitivity and volatility so that movements in interest rates do
not significantly adversely affect earnings or capital. As a result
of interest rate fluctuations, hedged fixed-rate assets and liabilities
appreciate or depreciate in fair value. Gains or losses on the
derivative instruments that are linked to the hedged fixed-rate
assets and liabilities are expected to substantially offset this
unrealized appreciation or depreciation.
Interest rate and market risk can be substantial in the mortgage
business. Market risk is the risk that values of mortgage assets
or revenues will be adversely affected by changes in market
conditions such as interest rate movements. To hedge interest
rate risk in mortgage banking production income, the Corporation
utilizes forward loan sale commitments and other derivative
instruments including purchased options and certain debt
securities. The Corporation also utilizes derivatives such as
interest rate options, interest rate swaps, forward settlement
contracts and Eurodollar futures as economic hedges of the fair
value of MSRs. For additional information on MSRs, see Note 25
– Mortgage Servicing Rights.
The Corporation uses foreign currency contracts to manage
the foreign exchange risk associated with certain foreign currency-
denominated assets and liabilities, as well as the Corporation’s
investments in non-U.S. subsidiaries. Foreign exchange contracts,
which include spot and forward contracts, represent agreements
to exchange the currency of one country for the currency of another
country at an agreed-upon price on an agreed-upon settlement
date. Exposure to loss on these contracts will increase or decrease
over their respective lives as currency exchange and interest rates
fluctuate.
The Corporation enters into derivative commodity contracts
such as futures, swaps, options and forwards as well as non-
derivative commodity contracts to provide price risk management
services to customers or to manage price risk associated with its
physical and financial commodity positions. The non-derivative