Bank of America 2013 Annual Report Download - page 72

70 Bank of America 2013
We fund a substantial portion of our lending activities through
our deposits, which were $1.12 trillion and $1.11 trillion at
December 31, 2013 and 2012. Deposits are primarily generated
by our CBB, GWIM and Global Banking segments. These deposits
are diversified by clients, product type and geography, and the
majority of our U.S. deposits are insured by the FDIC. We consider
a substantial portion of our deposits to be a stable, low-cost and
consistent source of funding. We believe this deposit funding is
generally less sensitive to interest rate changes, market volatility
or changes in our credit ratings than wholesale funding sources.
Our lending activities may also be financed through secured
borrowings, including credit card securitizations and
securitizations with GSEs, the FHA and private-label investors, as
well as FHLB loans.
Our trading activities in other regulated entities are primarily
funded on a secured basis through securities lending and
repurchase agreements and these amounts will vary based on
customer activity and market conditions. We believe funding these
activities in the secured financing markets is more cost-efficient
and less sensitive to changes in our credit ratings than unsecured
financing. Repurchase agreements are generally short-term and
often overnight. Disruptions in secured financing markets for
financial institutions have occurred in prior market cycles which
resulted in adverse changes in terms or significant reductions in
the availability of such financing. We manage the liquidity risks
arising from secured funding by sourcing funding globally from a
diverse group of counterparties, providing a range of securities
collateral and pursuing longer durations, when appropriate. For
more information on secured financing agreements, see Note 10
– Federal Funds Sold or Purchased, Securities Financing
Agreements and Short-term Borrowings to the Consolidated
Financial Statements.
We issue the majority of our long-term unsecured debt at the
parent company. During 2013, we issued $31.4 billion of long-
term unsecured debt, including structured liabilities of $8.4 billion.
We may also issue long-term unsecured debt through BANA in a
variety of maturities and currencies to achieve cost-efficient
funding and to maintain an appropriate maturity profile. During
2013, we issued $2.5 billion of unsecured long-term debt through
BANA. While the cost and availability of unsecured funding may be
negatively impacted by general market conditions or by matters
specific to the financial services industry or the Corporation, we
seek to mitigate refinancing risk by actively managing the amount
of our borrowings that we anticipate will mature within any month
or quarter.
In 2013, we redeemed $9.0 billion of certain senior notes
maturing in 2014 through tender offers. In January 2014, we
issued $1.25 billion of 2.6% notes due January 2019, $400 million
of floating-rate notes due January 2019, $2.5 billion of 4.125%
notes due January 2024 and $2.0 billion of 5.0% notes due
January 2044. The Corporation converted substantially all of this
newly issued fixed-rate debt to floating-rate exposure with
derivative transactions.
Table 22 presents our long-term debt by major currency at
December 31, 2013 and 2012.
Table 22 Long-term Debt by Major Currency
December 31
(Dollars in millions) 2013 2012
U.S. Dollar $ 176,294 $ 180,329
Euro 46,029 58,985
British Pound 9,772 11,126
Japanese Yen 9,115 12,749
Canadian Dollar 2,402 3,560
Australian Dollar 1,870 2,760
Swiss Franc 1,274 1,917
Other 2,918 4,159
Total long-term debt $ 249,674 $ 275,585
Total long-term debt decreased $25.9 billion, or nine percent,
in 2013, primarily driven by maturities outpacing new issuances.
This reflects our ongoing initiative to reduce our debt balances
over time and we anticipate that debt levels will continue to decline
through 2014, although at a slower pace than 2013. We may, from
time to time, purchase outstanding debt instruments in various
transactions, depending on prevailing market conditions, liquidity
and other factors. In addition, our other regulated entities may
make markets in our debt instruments to provide liquidity for
investors. For more information on long-term debt funding, see
Note 11 – Long-term Debt to the Consolidated Financial
Statements.
We use derivative transactions to manage the duration, interest
rate and currency risks of our borrowings, considering the
characteristics of the assets they are funding. For further details
on our ALM activities, see Interest Rate Risk Management for
Nontrading Activities on page 109.
We also diversify our unsecured funding sources by issuing
various types of debt instruments including structured liabilities,
which are debt obligations that pay investors returns linked to other
debt or equity securities, indices, currencies or commodities. We
typically hedge the returns we are obligated to pay on these
liabilities with derivative positions and/or investments in the
underlying instruments, so that from a funding perspective, the
cost is similar to our other unsecured long-term debt. We could
be required to settle certain structured liability obligations for cash
or other securities prior to maturity under certain circumstances,
which we consider for liquidity planning purposes. We believe,
however, that a portion of such borrowings will remain outstanding
beyond the earliest put or redemption date. We had outstanding
structured liabilities with a carrying value of $48.4 billion and
$51.7 billion at December 31, 2013 and 2012.
Substantially all of our senior and subordinated debt
obligations contain no provisions that could trigger a requirement
for an early repayment, require additional collateral support, result
in changes to terms, accelerate maturity or create additional
financial obligations upon an adverse change in our credit ratings,
financial ratios, earnings, cash flows or stock price.