Bank of America 2011 Annual Report Download - page 199

Bank of America 2011 197
CDO vehicle or the liquidity exposure is more than insignificant
compared to total assets of the CDO vehicle. Liquidity exposure
included in the table is reported net of previously recorded losses.
Customer Vehicles
Customer vehicles include credit-linked and equity-linked note
vehicles, repackaging vehicles and asset acquisition vehicles,
which are typically created on behalf of customers who wish to
obtain market or credit exposure to a specific company or financial
instrument.
The table below summarizes select information related to
customer vehicles in which the Corporation held a variable interest
at December 31, 2011 and 2010.
Customer Vehicle VIEs
(Dollars in millions)
Maximum loss exposure
On-balance sheet assets
Trading account assets
Derivative assets
Loans held-for-sale
All other assets
Total
On-balance sheet liabilities
Derivative liabilities
Commercial paper and other short-term borrowings
Long-term debt
All other liabilities
Total
Total assets of VIEs
December 31
2011
Consolidated
$ 3,264
$ 3,302
—
907
1,452
$ 5,661
$4
—
3,912
1
$ 3,917
$ 5,661
Unconsolidated
$ 2,116
$ 211
905
—
—
$ 1,116
$42
—
—
448
$ 490
$ 5,302
Total
$ 5,380
$ 3,513
905
907
1,452
$ 6,777
$46
—
3,912
449
$ 4,407
$ 10,963
2010
Consolidated
$ 4,449
$ 3,458
1
959
1,429
$ 5,847
$1
—
3,457
—
$ 3,458
$ 5,847
Unconsolidated
$ 2,735
$ 876
722
—
—
$ 1,598
$23
—
—
140
$ 163
$ 6,090
Total
$ 7,184
$ 4,334
723
959
1,429
$ 7,445
$24
—
3,457
140
$ 3,621
$ 11,937
Credit-linked and equity-linked note vehicles issue notes which
pay a return that is linked to the credit or equity risk of a specified
company or debt instrument. The vehicles purchase high-grade
assets as collateral and enter into CDSs or equity derivatives to
synthetically create the credit or equity risk to pay the specified
return on the notes. The Corporation is typically the counterparty
for some or all of the credit and equity derivatives and, to a lesser
extent, it may invest in securities issued by the vehicles. The
Corporation may also enter into interest rate or foreign currency
derivatives with the vehicles. The Corporation also had
approximately $824 million of other liquidity commitments,
including written put options and collateral value guarantees, with
unconsolidated credit-linked and equity-linked note vehicles at
December 31, 2011.
Repackaging vehicles issue notes that are designed to
incorporate risk characteristics desired by customers. The vehicles
hold debt instruments such as corporate bonds, convertible bonds
or ABS with the desired credit risk profile. The Corporation enters
into derivatives with the vehicles to change the interest rate or
foreign currency profile of the debt instruments. If a vehicle holds
convertible bonds and the Corporation retains the conversion
option, the Corporation is deemed to have a controlling financial
interest and consolidates the vehicle.
Asset acquisition vehicles acquire financial instruments,
typically loans, at the direction of a single customer and obtain
funding through the issuance of structured liabilities to the
Corporation. At the time the vehicle acquires an asset, the
Corporation enters into total return swaps with the customer such
that the economic returns of the asset are passed through to the
customer. The Corporation is exposed to counterparty credit risk
if the asset declines in value and the customer defaults on its
obligation to the Corporation under the total return swaps. The
Corporation’s risk may be mitigated by collateral or other
arrangements. The Corporation consolidates these vehicles
because it has the power to manage the assets in the vehicles
and owns all of the structured liabilities issued by the vehicles.
The Corporation’s maximum exposure to loss from customer
vehicles includes the notional amount of the credit or equity
derivatives to which the Corporation is a counterparty, net of losses
previously recorded, and the Corporation’s investment, if any, in
securities issued by the vehicles. It has not been reduced to reflect
the benefit of offsetting swaps with the customers or collateral
arrangements.
Other Variable Interest Entities
Other consolidated VIEs primarily include investment vehicles,
leveraged lease trusts and, at December 31, 2010, a collective
investment fund and asset acquisition conduits. Other
unconsolidated VIEs primarily include investment vehicles and real
estate vehicles.