Bank of America 2015 Annual Report Download - page 86

84 Bank of America 2015
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. 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 51 presents our total non-U.S. exposure by region at
December 31, 2015 and 2014. 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 51 Total Non-U.S. Exposure by Region
December 31
2015 2014
(Dollars in millions) Amount
Percent of
Total Amount
Percent of
Total
Europe $ 140,836 52% $ 129,573 49%
Asia Pacific 75,446 28 78,792 30
Latin America 25,478 9 23,403 9
Middle East and Africa 11,516 4 10,801 4
Other (1) 18,035 7 22,701 8
Total $ 271,311 100% $ 265,270 100%
(1) Other includes Canada exposure of $16.6 billion and $20.4 billion at December 31, 2015 and
2014.
Our total non-U.S. exposure was $271.3 billion at
December 31, 2015, an increase of $6.0 billion from
December 31, 2014. The increase in non-U.S. exposure was driven
by growth in Europe, Latin America, and Middle East and Africa
exposures, partially offset by a reduction in Asia Pacific and Other.
Our non-U.S. exposure remained concentrated in Europe which
accounted for $140.8 billion, or 52 percent of total non-U.S.
exposure. The European exposure was mostly in Western Europe
and was distributed across a variety of industries.
Table 52 presents our 20 largest non-U.S. country exposures.
These exposures accounted for 86 percent and 88 percent of our
total non-U.S. exposure at December 31, 2015 and 2014. Net
country exposure for these 20 countries increased $6.1 billion in
2015 primarily driven by increases in the United Kingdom, Belgium
and Australia, partially offset by reductions in Canada, Japan,
China, France and Hong Kong. On a product basis, the increase
was driven by higher funded loans and loan equivalents in the
United Kingdom, Germany, Australia and India and higher unfunded
commitments in Belgium and the United Kingdom. These
increases were partially offset by reductions in securities in the
United Kingdom, Canada, India and France.
Funded loans and loan equivalents include loans, leases, and
other extensions of credit and funds, including letters of credit and
due from placements, which have not been reduced by collateral,
hedges or credit default protection. Funded loans and loan
equivalents are reported net of charge-offs but prior to any
allowance for loan and lease losses. Unfunded commitments are
the undrawn portion of legally binding commitments related to
loans and loan equivalents.
Net counterparty exposure includes the fair value of derivatives,
including the counterparty risk associated with CDS, and secured
financing transactions. Derivatives exposures are presented net
of collateral, which is predominantly cash, pledged under legally
enforceable master netting agreements. Secured financing
transaction exposures are presented net of eligible cash or
securities pledged as collateral.
Securities and other investments are carried at fair value and
long securities exposures are netted against short exposures with
the same underlying issuer to, but not below, zero (i.e., negative
issuer exposures are reported as zero). Other investments include
our GPI portfolio and strategic investments.
Net country exposure represents country exposure less hedges
and credit default protection purchased, net of credit default
protection sold. We hedge certain of our country exposures with
credit default protection primarily in the form of single-name, as
well as indexed and tranched CDS. The exposures associated with
these hedges represent the amount that would be realized upon
the isolated default of an individual issuer in the relevant country
assuming a zero recovery rate for that individual issuer, and are
calculated based on the CDS notional amount adjusted for any
fair value receivable or payable. Changes in the assumption of an
isolated default can produce different results in a particular
tranche.