Bank of America 2015 Annual Report Download - page 63

Bank of America 2015 61
Table 20 presents our long-term debt by major currency at
December 31, 2015 and 2014.
Table 20 Long-term Debt by Major Currency
December 31
(Dollars in millions) 2015 2014
U.S. Dollar $ 190,381 $ 191,264
Euro 29,797 30,687
British Pound 7,080 7,881
Japanese Yen 3,099 6,058
Australian Dollar 2,534 2,135
Canadian Dollar 1,428 1,779
Swiss Franc 872 897
Other 1,573 2,438
Total long-term debt $ 236,764 $ 243,139
Total long-term debt decreased $6.4 billion, or three percent,
in 2015, primarily due to the impact of revaluation of non-U.S.
Dollar debt and changes in fair value for debt accounted for under
the fair value option. These impacts were substantially offset
through derivative hedge transactions. Excluding these two
factors, total long-term debt remained relatively unchanged in
2015. 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 Non-
trading Activities on page 95.
We may also issue unsecured debt in the form of structured
notes for client purposes. During 2015, we issued $7.2 billion of
structured notes, a majority of which was issued by Bank of America
Corporation. Structured notes 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 derivatives 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
$32.6 billion and $38.8 billion at December 31, 2015 and 2014.
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.
Contingency Planning
We maintain contingency funding plans that outline our potential
responses to liquidity stress events at various levels of severity.
These policies and plans are based on stress scenarios and
include potential funding strategies and communication and
notification procedures that we would implement in the event we
experienced stressed liquidity conditions. We periodically review
and test the contingency funding plans to validate efficacy and
assess readiness.
Our U.S. bank subsidiaries can access contingency funding
through the Federal Reserve Discount Window. Certain non-U.S.
subsidiaries have access to central bank facilities in the
jurisdictions in which they operate. While we do not rely on these
sources in our liquidity modeling, we maintain the policies,
procedures and governance processes that would enable us to
access these sources if necessary.
Credit Ratings
Our borrowing costs and ability to raise funds are impacted by our
credit ratings. In addition, credit ratings may be important to
customers or counterparties when we compete in certain markets
and when we seek to engage in certain transactions, including
OTC derivatives. Thus, it is our objective to maintain high-quality
credit ratings, and management maintains an active dialogue with
the major rating agencies.
Credit ratings and outlooks are opinions expressed by rating
agencies on our creditworthiness and that of our obligations or
securities, including long-term debt, short-term borrowings,
preferred stock and other securities, including asset
securitizations. Our credit ratings are subject to ongoing review by
the rating agencies and they consider a number of factors,
including our own financial strength, performance, prospects and
operations as well as factors not under our control. The rating
agencies could make adjustments to our ratings at any time and
they provide no assurances that they will maintain our ratings at
current levels.
Other factors that influence our credit ratings include changes
to the rating agencies’ methodologies for our industry or certain
security types; the rating agencies’ assessment of the general
operating environment for financial services companies; our
relative positions in the markets in which we compete; our various
risk exposures and risk management policies and activities;
pending litigation and other contingencies or potential tail risks;
our reputation; our liquidity position, diversity of funding sources
and funding costs; the current and expected level and volatility of
our earnings; our capital position and capital management
practices; our corporate governance; the sovereign credit ratings
of the U.S. government; current or future regulatory and legislative
initiatives; and the agencies’ views on whether the U.S.
government would provide meaningful support to the Corporation
or its subsidiaries in a crisis.
On December 8, 2015, Fitch Ratings (Fitch) completed its latest
semi-annual review of 12 large, complex securities trading and
universal banks, including Bank of America. The agency affirmed
all of our ratings and maintained the outlooks it established upon
completion of its prior review on May 19, 2015. Following that
review, Fitch revised the support rating floors for the U.S. G-SIBs
to No Floor from A, effectively removing the implied government
support uplift from those institutions’ ratings. The rating agency
also upgraded Bank of America Corporation’s stand-alone rating,
or Viability Rating, to ‘a’ from ‘a-’, while affirming its long-term and
short-term senior debt ratings at A and F1. Fitch concurrently
upgraded Bank of America, N.A.’s long-term senior debt rating to
A+ from A, and its long-term deposit rating to AA- from A+. Fitch
set the outlook on those ratings at stable. Fitch also revised the