Bank of Montreal 2012 Annual Report Download - page 146

Notes
Contingent Features
Certain over-the-counter derivative instruments contain provisions that
link how much collateral we are required to post or payment
requirements to our credit ratings (as determined by the major credit
rating agencies). If our credit ratings were to be downgraded, certain
counterparties to the derivative instruments could demand immediate
and ongoing collateralization overnight on derivative liability positions
or request immediate payment. The aggregate fair value of all
derivative instruments with collateral posting requirements that are in a
liability position on October 31, 2012 is $6.8 billion, for which we have
posted collateral of $6.8 billion. If our credit rating had been
downgraded to A- on October 31, 2012 (per Standard & Poor’s Ratings
Services), we would have been required to post collateral or meet
payment demands of an additional $1.1 billion.
Fair Value
Fair value represents point-in-time estimates that may change in
subsequent reporting periods due to market conditions or other factors.
Discussion of the fair value measurement of derivatives is included in
Note 29.
Fair values of our derivative instruments are as follows:
(Canadian $ in millions) 2012 2011
November 1,
2010
Gross
assets
Gross
liabilities Net
Gross
assets
Gross
liabilities Net
Gross
assets
Gross
liabilities Net
Trading
Interest Rate Contracts
Swaps 36,040 (35,207) 833 34,848 (33,417) 1,431 31,317 (29,835) 1,482
Forward rate agreements 98 (104) (6) 117 (116) 1 87 (80) 7
Futures 1 (3) (2) 4 (12) (8) 5 (14) (9)
Purchased options 1,180 – 1,180 1,317 – 1,317 1,398 – 1,398
Written options – (1,208) (1,208) – (1,630) (1,630) – (1,667) (1,667)
Foreign Exchange Contracts
Cross-currency swaps 1,159 (1,406) (247) 1,381 (1,897) (516) 1,271 (2,300) (1,029)
Cross-currency interest rate swaps 4,408 (4,193) 215 5,139 (4,606) 533 4,595 (4,116) 479
Forward foreign exchange contracts 1,713 (1,768) (55) 2,706 (3,165) (459) 2,527 (2,950) (423)
Purchased options 140 – 140 190 – 190 218 – 218
Written options – (109) (109) – (164) (164) – (171) (171)
Commodity Contracts
Swaps 804 (1,180) (376) 1,041 (1,173) (132) 1,462 (1,584) (122)
Purchased options 428 – 428 570 – 570 1,127 – 1,127
Written options – (561) (561) – (667) (667) – (1,004) (1,004)
Equity Contracts 367 (2,268) (1,901) 4,336 (2,398) 1,938 1,653 (2,233) (580)
Credit Default Swaps
Purchased 237 – 237 715 – 715 711 – 711
Written – (156) (156) – (880) (880) – (933) (933)
Total fair value – trading derivatives 46,575 (48,163) (1,588) 52,364 (50,125) 2,239 46,371 (46,887) (516)
Average fair value (1) 49,911 (50,212) (301) 44,140 (43,382) 758 44,034 (43,328) 706
Hedging
Interest Rate Contracts
Cash flow hedges – swaps 134 (146) (12) 554 (164) 390 324 (256) 68
Fair value hedges – swaps 737 (396) 341 1,158 (570) 588 877 (489) 388
Total swaps 871 (542) 329 1,712 (734) 978 1,201 (745) 456
Foreign Exchange Contracts
Cash flow hedges – forward foreign exchange contracts 625 (31) 594 1,037 (75) 962 1,514 – 1,514
Total foreign exchange contracts 625 (31) 594 1,037 (75) 962 1,514 – 1,514
Total fair value – hedging derivatives (2) 1,496 (573) 923 2,749 (809) 1,940 2,715 (745) 1,970
Average fair value (1) 2,287 (768) 1,519 2,721 (677) 2,044 2,377 (644) 1,733
Total fair value – trading and hedging derivatives 48,071 (48,736) (665) 55,113 (50,934) 4,179 49,086 (47,632) 1,454
Less: impact of master netting agreements (35,087) 35,087 – (35,856) 35,856 – (31,537) 31,537 –
Total 12,984 (13,649) (665) 19,257 (15,078) 4,179 17,549 (16,095) 1,454
(1) Average fair value amounts are calculated using a five-quarter rolling average.
(2) The fair values of hedging derivatives wholly or partially offset the changes in fair values of
the related on-balance sheet financial instruments or future cash flows.
Assets are shown net of liabilities to customers where we have a legally enforceable right to offset
amounts and we intend to settle contracts on a net basis.
Derivative instruments recorded in our Consolidated Balance Sheet are as follows:
(Canadian $ in millions) Assets Liabilities
2012 2011
November 1,
2010 2012 2011
November 1,
2010
Fair value of trading derivatives 46,575 52,364 46,371 48,163 50,125 46,887
Fair value of hedging derivatives 1,496 2,749 2,715 573 809 745
Total 48,071 55,113 49,086 48,736 50,934 47,632
BMO Financial Group 195th Annual Report 2012 143