Bank of America 2011 Annual Report Download - page 169

Bank of America 2011 167
Cash Flow Hedges
The table below summarizes certain information related to the
Corporation’s derivatives designated as cash flow hedges and net
investment hedges for 2011, 2010 and 2009. During the next 12
months, net losses in accumulated OCI of approximately $1.5
billion ($1.0 billion after-tax) on derivative instruments that qualify
as cash flow hedges are expected to be reclassified into earnings.
These net losses reclassified into earnings are expected to
primarily reduce net interest income related to the respective
hedged items. Amounts related to commodity price risk
reclassified from accumulated OCI are recorded in trading account
profits with the underlying hedged item. Amounts related to price
risk on restricted stock awards reclassified from accumulated OCI
are recorded in personnel expense. Amounts related to price risk
on equity investments included in AFS securities reclassified from
accumulated OCI are recorded in equity investment income with
the underlying hedged item.
Amounts related to foreign exchange risk recognized in
accumulated OCI on derivatives exclude gains (losses) of $82
million, $192 million and $(387) million related to long-term debt
designated as a net investment hedge for 2011, 2010 and 2009.
Cash Flow Hedges
(Dollars in millions, amounts pre-tax)
Derivatives designated as cash flow hedges
Interest rate risk on variable rate portfolios (2)
Commodity price risk on forecasted purchases and sales
Price risk on restricted stock awards
Total
Net investment hedges
Foreign exchange risk
Derivatives designated as cash flow hedges
Interest rate risk on variable rate portfolios
Commodity price risk on forecasted purchases and sales
Price risk on restricted stock awards
Price risk on equity investments included in available-for-sale securities
Total
Net investment hedges
Foreign exchange risk
Derivatives designated as cash flow hedges
Interest rate risk on variable rate portfolios
Commodity price risk on forecasted purchases and sales
Price risk on equity investments included in available-for-sale securities
Total
Net investment hedges
Foreign exchange risk
2011
Gains (losses)
Recognized in
Accumulated OCI
on Derivatives
$(2,079)
(3)
(408)
$(2,490)
$ 1,055
2010
$ (1,876)
32
(97)
186
$ (1,755)
$ (482)
2009
$ 502
72
(332)
$ 242
$ (2,997)
Gains (losses)
in Income
Reclassified from
Accumulated OCI
$(1,392)
6
(231)
$(1,617)
$384
$ (410)
25
(33)
(226)
$ (644)
$—
$ (1,293)
70
—
$ (1,223)
$—
Hedge
Ineffectiveness and
Amounts Excluded
from Effectiveness
Testing (1)
$(8)
(3)
—
$ (11)
$ (572)
$ (30)
11
—
—
$ (19)
$ (315)
$71
(2)
—
$69
$ (142)
(1) Amounts related to derivatives designated as cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excluded from effectiveness
testing.
(2) Losses reclassified from accumulated OCI to the Consolidated Statement of Income include $38 million, $0 and $44 million in 2011, 2010 and 2009 related to the discontinuance of certain cash
flow hedges because it was no longer probable that the original forecasted transaction would occur.
The Corporation entered into equity total return swaps to hedge
a portion of RSUs granted to certain employees as part of their
compensation in prior periods. Certain awards contain clawback
provisions which permit the Corporation to cancel all or a portion
of the award under specified circumstances, and certain awards
may be settled in cash. These RSUs are accrued as liabilities over
the vesting period and adjusted to fair value based on changes in
the share price of the Corporation’s common stock. From time to
time, the Corporation may enter into equity derivatives to minimize
the change in the expense to the Corporation driven by fluctuations
in the share price of the Corporation’s common stock during the
vesting period of any RSUs that may be granted, if any, subject to
similar or other terms and conditions. Certain of these derivatives
are designated as cash flow hedges of unrecognized unvested
awards with the changes in fair value of the hedge recorded in
accumulated OCI and reclassified into earnings in the same period
as the RSUs affect earnings. The remaining derivatives are
accounted for as economic hedges and changes in fair value are
recorded in personnel expense. For more information on RSUs and
related hedges, see Note 20 – Stock-based Compensation Plans.