Capital One 2012 Annual Report Download - page 234

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash Flow and Net Investment Hedges
The table below shows the net gains (losses) related to derivatives designated as cash flow hedges and net
investment hedges for 2012, 2011 and 2010:
Year Ended December 31,
(Dollars in millions) 2012 2011 2010
Gain (loss) recorded in AOCI:(1)
Cash flow hedges:
Interest rate contracts ................................................ $116 $ 32 $(42)
Foreign exchange contracts ........................................... (23) (20) (1)
Subtotal ...................................................... 93 12 (43)
Net investment hedges:
Foreign exchange contracts ............................................... 0(2) (1)
Net derivatives gain (loss) recognized in AOCI ............................... $ 93 $ 10 $(44)
Gain (loss) recorded in earnings:
Cash flow hedges:
Gain (loss) reclassified from AOCI into earnings: .........................
Interest rate contracts(2) .............................................. $ 42 $ 3 $(51)
Foreign exchange contracts(3) ......................................... (22) (21) 0
Subtotal ...................................................... 20 (18) (51)
Gain (loss) recognized in earnings due to ineffectiveness: ...................
Interest rate contracts(3) .............................................. 001
Foreign exchange contracts(3) ......................................... 000
Subtotal ...................................................... 001
Net derivatives gain (loss) recognized in earnings ............................. $ 20 $(18) $(50)
(1) Amounts represent the effective portion.
(2) Amounts reclassified are recorded in our consolidated statements of income in interest income or interest expense.
(3) Amounts reclassified are recorded in our consolidated statements of income in other non-interest income.
We expect to reclassify net after-tax gains of $73 million recorded in AOCI as of December 31, 2012, related to
derivatives designated as cash flow hedges to earnings over the next 12 months, which we expect to offset
against the cash flows associated with the hedged forecasted transactions. The maximum length of time over
which forecasted transactions were hedged was five years as of December 31, 2012. The amount we expect to
reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part
of our overall risk management strategy.
Credit Risk-Related Contingency Features
Certain of our derivative contracts include provisions requiring that our debt maintain a credit rating of
investment grade or above by each of the major credit rating agencies. In the event of a downgrade of our debt
credit rating below investment grade, some of our derivative counterparties would have the right to terminate the
derivative contract and close-out the existing positions. Other derivative contracts include provisions that would,
in the event of a downgrade of our debt credit rating below investment grade, allow our derivative counterparties
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