Charles Schwab 2011 Annual Report Download - page 68

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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
- 40 -
Fair Value as of December 31, 2011
United
Denmark France Germany Netherlands Sweden Switzerland Kingdom Total
Cash equivalents:
Time deposits $ - $ 850 $ 389 $ - $ - $ - $ 200 $ 1,439
Commercial paper - 350 20 - - - 200 570
Cash segregated and on deposit for
regulatory purposes:
Trust deposits - - 400 - - - - 400
Securities available for sale:
Certificates of deposit - 300 150 300 499 550 700 2,499
Corporate debt securities 214 74 - 187 97 - 550 1,122
Securities held to maturity:
Corporate debt securities - - - - 117 100 - 217
Total fair value $ 214 $ 1,574 $ 959 $ 487 $ 713 $ 650 $ 1,650 $ 6,247
Total amortized cost $ 212 $ 1,575 $ 959 $ 492 $ 716 $ 650 $ 1,650 $ 6,254
Maturities:
Overnight $ - $ 1,200 $ 789 $ - $ - $ - $ 200 $ 2,189
1 day – < 6 months - 174 20 200 200 150 700 1,444
6 months – < 1 year - 100 - - 117 274 650 1,141
1 year – 2 years 214 100 150 187 299 126 100 1,176
> 2 years - - - 100 97 100 - 297
Total fair value $ 214 $ 1,574 $ 959 $ 487 $ 713 $ 650 $ 1,650 $ 6,247
In addition to the direct holdings of European companies listed above, the Company also has indirect exposure to Europe
through its investments in Schwab sponsored money market funds (collectively, the Funds) resulting from clearing activities.
At December 31, 2011, the Company had $332 million in investments in these Funds. Certain of the Funds’ positions include
certificates of deposits, time deposits, commercial paper and corporate debt securities issued by counterparties in Europe.
Management mitigates exposure to European holdings by employing a separate team of credit analysts that evaluate each
issuer, counterparty, and country. Management monitors its exposure to European issuers by 1) performing risk assessments
of the foreign countries, which include evaluating the size of the country and economy, currency trends, political landscape
and the countries’ regulatory environment and developments, 2) performing ad hoc stress tests that evaluate the impact of
sovereign governments’ debt write-downs on the issuers and counterparties to our investments, 3) reviewing publicly
available stress tests that are published by various regulators in the European market, 4) establishing credit and maturity
limits by issuer, and 5) monitoring aggregate exposures by country.
Market Risk
Market risk is the potential for changes in revenue or the value of financial instruments held by the Company as a result of
fluctuations in interest rates, equity prices or market conditions. For discussion of the Company’s market risk, see “Item 7A –
Quantitative and Qualitative Disclosures About Market Risk.”
Fiduciary Risk
Fiduciary risk is the potential for financial or reputational loss through breach of fiduciary duties to a client. Fiduciary
activities include, but are not limited to, individual and institutional trust, investment management, custody, and cash and
securities processing. The Company attempts to manage this risk by establishing procedures to ensure that obligations to
clients are discharged faithfully and in compliance with applicable legal and regulatory requirements. Business units have the