Bank of America 2013 Annual Report Download - page 172

170 Bank of America 2013
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation
to reduce certain risk exposures. These derivatives are not
qualifying accounting hedges because either they did not qualify
for or were not designated as accounting hedges. The table below
presents gains (losses) on these derivatives for 2013, 2012 and
2011. These gains (losses) are largely offset by the income or
expense that is recorded on the hedged item.
Other Risk Management Derivatives
Gains (Losses)
(Dollars in millions) 2013 2012 2011
Price risk on mortgage banking production income (1, 2) $968 $ 3,022 $ 2,852
Market-related risk on mortgage banking servicing income (1) (1,108)2,000 3,612
Credit risk on loans (3) (47) (95) 30
Interest rate and foreign currency risk on ALM activities (4) 2,501 424 (48)
Price risk on restricted stock awards (5) 865 1,008 (610)
Other (19) 58 281
Total $ 3,160 $ 6,417 $ 6,117
(1) Net gains on these derivatives are recorded in mortgage banking income.
(2) Includes net gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $927 million, $3.0 billion
and $3.8 billion for 2013, 2012 and 2011, respectively.
(3) Net gains (losses) on these derivatives are recorded in other income (loss).
(4) The balance is primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Results from these items are recorded in other income (loss). The
offsetting mark-to-market, while not included in the table above, is also recorded in other income (loss).
(5) Gains (losses) on these derivatives are recorded in personnel expense.
Sales and Trading Revenue
The Corporation enters into trading derivatives to facilitate client
transactions and to manage risk exposures arising from trading
account assets and liabilities. It is the Corporation’s policy to
include these derivative instruments in its trading activities which
include derivatives and non-derivative cash instruments. The
resulting risk from these derivatives is managed on a portfolio
basis as part of the Corporation’s Global Markets business
segment. The related sales and trading revenue generated within
Global Markets is recorded in various income statement line items
including trading account profits and net interest income as well
as other revenue categories. However, the majority of income
related to derivative instruments is recorded in trading account
profits.
Sales and trading revenue includes changes in the fair value
and realized gains and losses on the sales of trading and other
assets, net interest income, and fees primarily from commissions
on equity securities. Revenue is generated by the difference in the
client price for an instrument and the price at which the trading
desk can execute the trade in the dealer market. For equity
securities, commissions related to purchases and sales are
recorded in the “Other” column in the Sales and Trading Revenue
table. Changes in the fair value of these securities are included
in trading account profits. For debt securities, revenue, with the
exception of interest associated with the debt securities, is
typically included in trading account profits. Unlike commissions
for equity securities, the initial revenue related to broker/dealer
services for debt securities is typically included in the pricing of
the instrument rather than being charged through separate fee
arrangements. Therefore, this revenue is recorded in trading
account profits as part of the initial mark to fair value. For
derivatives, all revenue is included in trading account profits. In
transactions where the Corporation acts as agent, which include
exchange-traded futures and options, fees are recorded in other
income (loss).
Gains (losses) on certain instruments, primarily loans, that the
Global Markets business segment shares with Global Banking are
not considered trading instruments and are excluded from sales
and trading revenue in their entirety.