Bank of America 2009 Annual Report Download - page 51

At December 31, 2009, we held purchased insurance on our sub-
prime and non-subprime super senior CDO exposure with a notional value
of $5.2 billion and $1.0 billion from monolines and other financial guaran-
tors. Monolines provided $3.8 billion of the purchased insurance in the
form of CDS, total return swaps or financial guarantees. In addition, we
held collateral in the form of cash and marketable securities of
$1.1 billion related to our non-monoline purchased insurance. In the case
of default, we look to the underlying securities and then to recovery on
purchased insurance. The table below provides notional, receivable,
counterparty credit valuation adjustment and gains (write-downs) on
insurance purchased from monolines.
Credit Default Swaps with Monoline Financial Guarantors
December 31, 2009
(Dollars in millions)
Super
Senior CDOs
Other
Guaranteed
Positions Total
Notional $ 3,757 $38,834 $42,591
Mark-to-market or guarantor receivable $ 2,833 $ 8,256 $11,089
Credit valuation adjustment (1,873) (4,132) (6,005)
Total $ 960 $ 4,124 $ 5,084
Credit valuation adjustment % 66% 50% 54%
(Write-downs) gains during 2009 $ (961) $ 98 $ (863)
Monoline wrap protection on our super senior CDOs had a notional
value of $3.8 billion at December 31, 2009, with a receivable of $2.8 bil-
lion and a counterparty credit valuation adjustment of $1.9 billion, or 66
percent. During 2009, we recorded $961 million of counterparty credit
risk-related write-downs on these positions. At December 31, 2008, the
monoline wrap on our super senior CDOs had a notional value of $2.8
billion, with a receivable of $1.5 billion and a counterparty credit valuation
adjustment of $1.1 billion, or 72 percent.
In addition to the monoline financial guarantor exposure related to
super senior CDOs, we had $38.8 billion of notional exposure to mono-
lines that predominantly hedge corporate collateralized loan obligation
and CDO exposure as well as CMBS, RMBS and other ABS cash and
synthetic exposures that were acquired from Merrill Lynch. At
December 31, 2008, the monoline wrap on our other guaranteed posi-
tions was $5.9 billion of notional exposure. Mark-to-market monoline
derivative credit exposure was $8.3 billion at December 31, 2009 com-
pared to $694 million at December 31, 2008. This increase was driven
by the addition of Merrill Lynch exposures as well as credit deterioration
related to underlying counterparties, partially offset by positive valuation
adjustments on legacy assets and terminated monoline contracts.
At December 31, 2009, the counterparty credit valuation adjustment
related to non-super senior CDO monoline derivative exposure was $4.1
billion which reduced our net mark-to-market exposure to $4.1 billion. We
do not hold collateral against these derivative exposures. Also, during
2009 we recognized gains of $113 million for counterparty credit risk
related to these positions.
With the Merrill Lynch acquisition, we acquired a loan with a carrying
value of $4.4 billion as of December 31, 2009 that is collateralized by U.S.
super senior ABS CDOs. Merrill Lynch originally provided financing to the
borrower for an amount equal to approximately 75 percent of the fair value
of the collateral. The loan has full recourse to the borrower and all sched-
uled payments on the loan have been received. Events of default under the
loan are customary events of default, including failure to pay interest when
due and failure to pay principal at maturity. Collateral for the loan is
excluded from our CDO exposure discussions and the applicable tables.
Bank of America 2009 49