Wells Fargo 2013 Annual Report Download - page 212

Note 16: Derivatives (continued)
Fair Value Hedges
We use interest rate swaps to convert certain of our fixed-rate
long-term debt to floating rates to hedge our exposure to interest
rate risk. We also enter into cross-currency swaps, cross-
currency interest rate swaps and forward contracts to hedge our
exposure to foreign currency risk and interest rate risk
associated with the issuance of non-U.S. dollar denominated
long-term debt. In addition, we use interest rate swaps, cross-
currency swaps, cross-currency interest rate swaps and forward
contracts to hedge against changes in fair value of certain
investments in available-for-sale debt securities due to changes
in interest rates, foreign currency rates, or both. We also use
interest rate swaps to hedge against changes in fair value for
certain mortgages held for sale. The entire derivative gain or loss
is included in the assessment of hedge effectiveness for all fair
value hedge relationships, except for those involving foreign-
currency denominated available-for-sale securities and long-
term debt hedged with foreign currency forward derivatives for
which the time value component of the derivative gain or loss
related to the changes in the difference between the spot and
forward price is excluded from the assessment of hedge
effectiveness.
We use statistical regression analysis to assess hedge
effectiveness, both at inception of the hedging relationship and
on an ongoing basis. The regression analysis involves regressing
the periodic change in fair value of the hedging instrument
against the periodic changes in fair value of the asset or liability
being hedged due to changes in the hedged risk(s). The
assessment includes an evaluation of the quantitative measures
of the regression results used to validate the conclusion of high
effectiveness.
The following table shows the net gains (losses) recognized in
the income statement related to derivatives in fair value hedging
relationships.
-
-
$
$
$
$
$
$
Interest rate
contracts hedging:
Foreign exchange
contracts hedging:
(in millions)
Available-
for-sale
securities
Mortgages
held
for sale
Long-
term
debt
Available-
for-sale
securities
Long-
term
debt
Total net
gains
(losses)
on fair
value
hedges
Year ended December 31, 2013
Net interest income (expense) recognized on derivatives (584) (11) 1,632 (8) 280 1,309
Gains (losses) recorded in noninterest income
Recognized on derivatives 1,889 47 (3,767) (49) (847) (2,727)
Recognized on hedged item (1,874) (57) 3,521 49 722 2,361
Net recognized on fair value hedges (ineffective portion) (1) 15 (10) (246) (125) (366)
Year ended December 31, 2012
Net interest income (expense) recognized on derivatives (457) (4) 1,685 (5) 248 1,467
Gains (losses) recorded in noninterest income
Recognized on derivatives (22) (15) (179) 39 567 390
Recognized on hedged item 17 6 233 (3) (610) (357)
Net recognized on fair value hedges (ineffective portion) (1) (5) (9) 54 36 (43) 33
Year ended December 31, 2011
Net interest income (expense) recognized on derivatives (451) 1,659 (11) 376 1,573
Gains (losses) recorded in noninterest income
Recognized on derivatives (1,298) (21) 2,796 168 512 2,157
Recognized on hedged item 1,232 17 (2,616) (186) (445) (1,998)
Net recognized on fair value hedges (ineffective portion) (1) (66) (4) 180 (18) 67 159
(1) Included $(5) million, $(9) million and $53 million, respectively, for years ended December 31, 2013, 2012, and 2011 of the time value component recognized as net
interest income (expense) on forward derivatives hedging foreign currency available-for-sale securities and long-term debt that were excluded from the assessment of hedge
effectiveness.
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