XML 29 R12.htm IDEA: XBRL DOCUMENT v3.7.0.1
Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

4. Derivative Financial Instruments

Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2016 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 2016 Form 10-K for a full discussion.

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2017 and December 31, 2016, and their impact on other comprehensive income and earnings for the three months ended March 31, 2017 and 2016.

Impact of Derivatives on Consolidated Balance Sheet

 

            Cash Flow     Fair Value     Trading     Total  

(Dollars in millions)

    Hedged Risk
Exposure		      Mar. 31,
2017		     Dec. 31,
2016		     Mar. 31,
2017		     Dec. 31,
2016		     Mar. 31,
2017		     Dec. 31,
2016		     Mar. 31,
2017		     Dec. 31,
2016		  

Fair Values(1)

                    

Derivative Assets:

                    

Interest rate swaps

      Interest rate      $ 70     $ 78     $ 391     $ 465     $ 10     $ 22     $ 471     $ 565  

Cross-currency interest rate swaps

     
 Foreign currency
and interest rate
 		      —         —         —         —         —         —         —         —    

Other(2)

      Interest rate        —         —         —         —         —         —         —         —    
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total derivative assets(3)

         70       78       391       465       10       22       471       565  

Derivative Liabilities:

                    

Interest rate swaps

      Interest rate        (56 )      (76 )      (72 )      (62 )      (66 )      (70 )      (194 )      (208 ) 

Floor Income Contracts

      Interest rate        —         —         —         —         (164 )      (184 )      (164 )      (184 ) 

Cross-currency interest rate swaps

     
 Foreign currency
and interest rate
 		      —         —         (1,125 )      (1,243 )      (41 )      (53 )      (1,166 )      (1,296 ) 

Other(2)

      Interest rate        —         —         —         —         (16 )      (13 )      (16 )      (13 ) 
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total derivative liabilities(3)

         (56 )      (76 )      (1,197 )      (1,305 )      (287 )      (320 )      (1,540 )      (1,701 ) 
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net total derivatives

       $ 14     $ 2     $ (806 )    $ (840 )    $ (277 )    $ (298 )    $ (1,069 )    $ (1,136 ) 
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)  Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.
(2)  “Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.
(3)  The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:

 

     Other Assets      Other Liabilities  

(Dollar in millions)

    March 31,
2017		      December 31,
2016		      March 31,
2017		      December 31,
2016		  

Gross position

    $ 471      $ 565      $ (1,540 )     $ (1,701 ) 

Impact of master netting agreements

      (48 )       (31 )       48        31  
  

 

 

     

 

 

     

 

 

     

 

 

  

Derivative values with impact of master netting agreements (as carried on balance sheet)

      423        534        (1,492 )       (1,670 ) 

Cash collateral (held) pledged

      (317 )       (345 )       282        319  
  

 

 

     

 

 

     

 

 

     

 

 

  

Net position

    $ 106      $ 189      $ (1,210 )     $ (1,351 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

The above fair values include adjustments when necessary for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. There were no adjustments to the overall net asset positions at March 31, 2017 and December 31, 2016. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at March 31, 2017 and December 31, 2016 by $28 million and $31 million, respectively.

 

     Cash Flow      Fair Value      Trading      Total  

(Dollars in billions)

    Mar. 31,
2017		      Dec. 31,
2016		      Mar. 31,
2017		      Dec. 31,
2016		      Mar. 31,
2017		      Dec. 31,
2016		      Mar. 31,
2017		      Dec. 31,
2016		  

Notional Values:

                        

Interest rate swaps

    $ 15.6      $ 15.2      $ 12.3      $ 11.8      $ 30.3      $ 23.8      $ 58.2      $ 50.8  

Floor Income Contracts

      —          —          —          —          21.4        18.5        21.4        18.5  

Cross-currency interest rate swaps

      —          —          7.6        8.5        .3        .3        7.9        8.8  

Other(1)

      —          —          —          —          2.3        2.6        2.3        2.6  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total derivatives

    $ 15.6      $ 15.2      $ 19.9      $ 20.3      $ 54.3      $ 45.2      $ 89.8      $ 80.7  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)  “Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.

Impact of Derivatives on Consolidated Statements of Income

 

     Three Months Ended March 31,  
     Unrealized Gain
(Loss) on
Derivatives(1)(2)		     Realized Gain
(Loss) on
Derivatives(3)		     Unrealized Gain
(Loss) on
Hedged Item(1)		     Total Gain (Loss)  

(Dollars in millions)

    2017     2016     2017     2016     2017     2016     2017     2016  

Fair Value Hedges:

                 

Interest rate swaps

    $ (84 )    $ 244     $ 54     $ 71     $ 61     $ (280 )    $ 31     $ 35  

Cross-currency interest rate swaps

      118       374       (29 )      (16 )      (162 )      (306 )      (73 )      52  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fair value derivatives

      34       618       25       55       (101 )      (586 )      (42 )      87  

Cash Flow Hedges:

                 

Interest rate swaps

      —         —         (16 )      —         —         —         (16 )      —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total cash flow derivatives

      —         —         (16 )      —         —         —         (16 )      —    

Trading:

                 

Interest rate swaps

      (7 )      53       20       10       —         —         13       63  

Floor Income Contracts

      53       27       (20 )      (138 )      —         —         33       (111 ) 

Cross-currency interest rate swaps

      12       20       (1 )      (1 )      —         —         11       19  

Other

      (4 )      (2 )      (2 )      —         —         —         (6 )      (2 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total trading derivatives

      54       98       (3 )      (129 )      —         —         51       (31 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

      88       716       6       (74 )      (101 )      (586 )      (7 )      56  

Less: realized gains (losses) recorded in interest expense

      —         —         9       55       —         —         9       55  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gains (losses) on derivative and hedging activities, net

    $ 88     $ 716     $ (3 )    $ (129 )    $ (101 )    $ (586 )    $ (16 )    $ 1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)  Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
(2)  Represents ineffectiveness related to cash flow hedges.
(3)  For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”

 

Collateral

Collateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following table:

 

(Dollars in millions)

    March 31,
2017		      December 31,
2016		  

Collateral held:

      

Cash (obligation to return cash collateral is recorded in short-term borrowings)

    $ 317      $ 345  

Securities at fair value — corporate derivatives (not recorded in financial statements)(1)

      97        193  

Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)(2)

      237        230  
  

 

 

     

 

 

  

Total collateral held

    $ 651      $ 768  
  

 

 

     

 

 

  

Derivative asset at fair value including accrued interest

    $ 526      $ 689  
  

 

 

     

 

 

  

Collateral pledged to others:

      

Cash (right to receive return of cash collateral is recorded in investments)

    $ 282      $ 319  
  

 

 

     

 

 

  

Total collateral pledged

    $ 282      $ 319  
  

 

 

     

 

 

  

Derivative liability at fair value including accrued interest and premium receivable

    $ 1,510      $ 1,670  
  

 

 

     

 

 

  

 

(1)  The Company has the ability to sell or re-pledge securities it holds as collateral.
(2)  The trusts do not have the ability to sell or re-pledge securities they hold as collateral.

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $355 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.