Bank of America 2009 Annual Report Download - page 87

The notional amounts presented in Table 37 represent the total con-
tract/notional amount of credit derivatives outstanding and include both
purchased and written credit derivatives. The credit risk amounts are
measured as the net replacement cost in the event the counterparties
with contracts in a gain position to us fail to perform under the terms of
those contracts. The addition of Merrill Lynch drove the increase in coun-
terparty credit risk for purchased credit derivatives and the increase in the
contract/notional amount. For information on the performance risk of our
written credit derivatives, see Note 4 – Derivatives to the Consolidated
Financial Statements.
The credit risk amounts discussed above and noted in the table below
take into consideration the effects of legally enforceable master netting
agreements while amounts disclosed in Note 4 – 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 the Corporation’s
overall exposure.
Table 37 Credit Derivatives
December 31
2009 2008
(Dollars in millions) Contract/Notional Credit Risk Contract/Notional Credit Risk
Credit derivatives
Purchased credit derivatives:
Credit default swaps $2,800,539 $25,964 $1,025,850 $11,772
Total return swaps/other 21,685 1,740 6,601 1,678
Total purchased credit derivatives 2,822,224 27,704 1,032,451 13,450
Written credit derivatives:
Credit default swaps 2,788,760 –1,000,034 –
Total return swaps/other 33,109 –6,203 –
Total written credit derivatives 2,821,869 –1,006,237 –
Total credit derivatives $5,644,093 $27,704 $2,038,688 $13,450
Counterparty Credit Risk Valuation Adjustments
We record a counterparty credit risk valuation adjustment on certain
derivatives assets, including our credit default protection purchased, in
order to properly reflect the credit quality of the counterparty. These
adjustments are necessary as the market quotes on derivatives do not
fully reflect the credit risk of the counterparties to the derivative assets.
We consider collateral and legally enforceable master netting agreements
that mitigate our credit exposure to each counterparty in determining the
counterparty credit risk valuation adjustment. All or a portion of these
counterparty credit risk valuation adjustments are reversed or otherwise
adjusted in future periods due to changes in the value of the derivative
contract, collateral and creditworthiness of the counterparty.
During 2009, credit valuation gains (losses) were recognized in trad-
ing account profits (losses) related to counterparty credit risk on
derivative assets. For additional information on gains or losses related to
the counterparty credit risk on derivative assets, refer to Note 4 –
Derivatives to the Consolidated Financial Statements.For information on
our monoline counterparty credit risk, see the discussion beginning on
pages 49 and 82, and for information on our CDO-related counterparty
credit risk, see the Global Markets discussion beginning on page 47.
Bank of America 2009 85