Bank of America 2014 Annual Report Download - page 92

90 Bank of America 2014
The credit risk amounts discussed above and presented in
Table 54 take into consideration the effects of legally enforceable
master netting agreements, while amounts disclosed in Note 2 –
Derivatives to the Consolidated Financial Statements are shown
on a gross basis. Credit risk reflects the potential benefit from
offsetting exposure to non-credit derivative products with the same
counterparties that may be netted upon the occurrence of certain
events, thereby reducing our overall exposure.
Table 54 Credit Derivatives
December 31
2014 2013
(Dollars in millions)
Contract/
Notional Credit Risk
Contract/
Notional Credit Risk
Purchased credit derivatives:
Credit default swaps $ 1,094,796 $ 3,833 $ 1,305,090 $ 6,042
Total return swaps/other 44,333 510 38,094 402
Total purchased credit derivatives $ 1,139,129 $ 4,343 $ 1,343,184 $ 6,444
Written credit derivatives:
Credit default swaps $ 1,073,101 n/a $ 1,265,380 n/a
Total return swaps/other 61,031 n/a 63,407 n/a
Total written credit derivatives $ 1,134,132 n/a $ 1,328,787 n/a
n/a = not applicable
Counterparty Credit Risk Valuation Adjustments
We record counterparty credit risk valuation adjustments on
certain derivative assets, including our credit default protection
purchased, in order to properly reflect the credit risk of the
counterparty, as presented in Table 55. We calculate CVA based
on a modeled expected exposure that incorporates current market
risk factors including changes in market spreads and non-credit
related market factors that affect the value of a derivative. The
exposure also takes into consideration credit mitigants such as
legally enforceable master netting agreements and collateral. For
additional information, see Note 2 – Derivatives to the Consolidated
Financial Statements.
Table 55 Credit Valuation Gains and Losses
Gains (Losses) 2014 2013
(Dollars in millions) Gross Hedge Net Gross Hedge Net
Credit valuation $ (22) $ 213 $ 191 $ 738 $ (834) $ (96)
Non-U.S. Portfolio
Our non-U.S. credit and trading portfolios are subject to country
risk. We define country risk as the risk of loss from unfavorable
economic and political conditions, currency fluctuations, social
instability and changes in government policies. A risk management
framework is in place to measure, monitor and manage non-
U.S. risk and exposures. Management oversight of country risk,
including cross-border risk, is the responsibility of a subcommittee
of the MRC. In addition to the direct risk of doing business in a
country, we also are exposed to indirect country risks (e.g., related
to the collateral received on secured financing transactions or
related to client clearing activities). These indirect exposures are
managed in the normal course of business through credit, market
and operational risk governance, rather than through country risk
governance.
Table 56 presents our total non-U.S. exposure by region at
December 31, 2014 and 2013. Non-U.S. exposure is presented
on an internal risk management basis and includes sovereign and
non-sovereign credit exposure, securities and other investments
issued by or domiciled in countries other than the U.S. The risk
assignments by country can be adjusted for external guarantees
and certain collateral types. Exposures that are subject to external
guarantees are reported under the country of the guarantor.
Exposures with tangible collateral are reflected in the country
where the collateral is held. For securities received, other than
cross-border resale agreements, outstandings are assigned to the
domicile of the issuer of the securities.
Table 56 Total Non-U.S. Exposure by Region
December 31
2014 2013
(Dollars in millions) Amount
Percent of
Total Amount
Percent of
Total
Europe $ 129,573 49% $ 133,303 53%
Asia Pacific 78,792 30 69,266 27
Latin America 23,403 9 21,723 9
Middle East and Africa 10,801 4 8,691 3
Other (1) 22,701 8 20,866 8
Total $ 265,270 100% $ 253,849 100%
(1) Other includes Canada exposure of $20.4 billion and $19.8 billion at December 31, 2014 and
2013.
Our total non-U.S. exposure was $265.3 billion at
December 31, 2014, an increase of $11.4 billion from
December 31, 2013. The increase in non-U.S. exposure was driven
by growth in Asia Pacific and Latin America exposures, partially
offset by a reduction in Europe. Our non-U.S. exposure remained
concentrated in Europe which accounted for $129.6 billion, or 49
percent of total non-U.S. exposure. The European exposure was
mostly in Western Europe and was distributed across a variety of
industries.