Capital One 2011 Annual Report Download - page 226

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
valuation adjustments. We recorded a net cumulative credit risk valuation adjustment related to our derivative positions
of $23 million and $20 million as of December 31, 2011 and 2010, respectively. See “Derivative Counterparty Credit
Risk” below for additional information.
(2) Customer accommodation derivatives include those entered into with our commercial banking customers and those
entered into with other counterparties to offset the market risk.
In June 2011, we entered into a purchase and sale agreement with ING Groep N.V., ING Bank N.V., ING Direct
N.V., and ING Direct Bancorp (collectively, the “ING Sellers”) under which we would acquire substantially all
of the ING Sellers’ ING Direct business in the United States (“ING Direct”). We took several actions during the
year to manage the anticipated impact of the ING Direct acquisition on our market risk exposure and regulatory
capital requirements. From the date we entered into the agreement to acquire ING Direct to early August 2011,
interest rates declined substantially, which resulted in an increase in the estimated fair value of the ING Direct
net assets and liabilities. In order to capture some of the anticipated benefits to regulatory capital on the closing
date attributable to this decline in interest rates, in early August 2011, we entered into various interest-rate swap
transactions with a total notional principal amount of approximately $23.8 billion. We subsequently rebalanced
the hedge in October 2011 adding an additional $1 billion in notional principal for a total combined notional
principal amount of approximately $24.8 billion. These combined swap transactions were intended to mitigate
the effect of a rise in interest rates on the fair values of a significant portion of the ING Direct assets and
liabilities during the period from when we entered into the swap transactions to the anticipated closing date of the
ING Direct acquisition in early 2012. Although the interest-rate swaps represented economic hedges, they were
not designated for hedge accounting under U.S. GAAP. Therefore, we recorded changes in the fair value of these
interest-swaps in earnings. In 2011, we recorded a mark-to-market loss of $277 million related to these interest-
rate swaps, which was attributable to the decline in interest rates. In conjunction with the acquisition of ING
Direct on February 17, 2012, we terminated the $24.8 billion in interest-rate swaps related to the acquisition. We
continued to record changes in the fair value of these interest-rate swaps in earnings until the swaps were
terminated in February 2012.
206