Freddie Mac 2010 Annual Report Download - page 237

Gains and Losses on Derivatives
Table 12.2 presents the gains and losses on derivatives reported in our consolidated statements of operations.
Table 12.2 — Gains and Losses on Derivatives
(1)
2010 2009 2008 2010 2009 2008 2010 2009 2008
Year Ended December 31, Year Ended December 31, Year Ended December 31,
Derivatives in Cash Flow
Hedging Relationships
(3)
Amount of Gain or (Loss) Recognized
in AOCI on Derivative
(Effective Portion)
Amount of Gain or (Loss) Reclassified
from AOCI into Earnings
(Effective Portion)
Amount of Gain or (Loss)
Recognized in Other Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
(2)
(in millions)
Pay-fixed interest rate swaps
(4)
...... $ — $ — $ (564) $ — $ — $ (92) $— $— $(16)
Forward sale commitments ......... — — 17 — — — — — —
Closed cash flow hedges
(5)
......... — — — (1,010) (1,165) (1,283) — — —
Total ....................... $ — $ — $ (547) $(1,010) $(1,165) $(1,375) $— $— $(16)
2010 2009 2008
Year Ended December 31,
Derivatives not designated as hedging
instruments under the accounting standards
for derivatives and hedging
(7)
Derivative Gains (Losses)
(6)
(in millions)
Interest-rate swaps:
Receive-fixed
Foreign-currency denominated.... $ (119) $ 64 $ 489
U.S. dollar denominated ........ 9,825 (13,337) 29,732
Total receive-fixed swaps .... 9,706 (13,273) 30,221
Pay-fixed ................... (17,450) 27,078 (58,295)
Basis (floating to floating) ........ 65 (194) 109
Total interest-rate swaps .... (7,679) 13,611 (27,965)
Option-based:
Call swaptions
Purchased . .............. 6,548 (10,566) 17,242
Written . . . .............. (199) 248 14
Put swaptions
Purchased . .............. (1,621) 323 (1,095)
Written . . . .............. 82 (321) 156
Other option-based derivatives
(8)
.... 33 (370) 763
Total option-based ........ 4,843 (10,686) 17,080
Futures . . . ................... (210) (300) (2,074)
Foreign-currency swaps
(9)
.......... (468) 138 (584)
Commitments
(10)
................ (85) (708) (112)
Credit derivatives . .............. 5 (4) 27
Swap guarantee derivatives ......... 3 (20) (4)
Other
(11)
..................... — 12 (27)
Subtotal .................. (3,591) 2,043 (13,659)
Accrual of periodic settlements:
Receive-fixed interest rate swaps
(12)
. . 6,381 5,817 1,928
Pay-fixed interest rate swaps . . .... (10,909) (9,964) (3,482)
Foreign-currency swaps. ......... 19 89 319
Other . . ................... 15 115 (60)
Total accrual of periodic
settlements . .............. (4,494) (3,943) (1,295)
Total . . . .............. $ (8,085) $ (1,900) $(14,954)
(1) For all derivatives in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in net interest income on our consolidated statements of
operations. For derivatives not in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in derivative gains (losses) on our
consolidated statements of operations.
(2) Gain or (loss) arises when the fair value change of a derivative does not exactly offset the fair value change of the hedged item attributable to the hedged risk, and is a
component of other income in our consolidated statements of operations. No amounts have been excluded from the assessment of effectiveness.
(3) Derivatives that meet specific criteria may be accounted for as cash flow hedges. Changes in the fair value of the effective portion of open qualifying cash flow hedges are
recorded in AOCI. Net deferred gains and losses on closed cash flow hedges (i.e., where the derivative is either terminated or redesignated) are also included in AOCI until
the related forecasted transaction affects earnings or is determined to be probable of not occurring.
(4) In 2008, we ceased designating derivative positions as cash flow hedges associated with forecasted issuances of debt in conjunction with our entry into conservatorship on
September 6, 2008. As a result of our discontinuance of this hedge accounting strategy, we transferred the previous deferred amount of $(472) million related to the fair
value changes of these hedges from open cash flow hedges to closed cash flow hedges within AOCI on September 6, 2008.
(5) Amounts reported in AOCI related to changes in the fair value of commitments to purchase securities that are designated as cash flow hedges are recognized as basis
adjustments to the related assets which are amortized in earnings as interest income. Amounts linked to interest payments on long-term debt are recorded in other debt
interest expense and amounts not linked to interest payments on long-term debt are recorded in expense related to derivatives.
(6) Gains (losses) are reported as derivative gains (losses) on our consolidated statements of operations.
(7) See “Use of Derivatives” for additional information about the purpose of entering into derivatives not designated as hedging instruments and our overall risk management
strategies.
(8) Primarily includes purchased interest rate caps and floors.
(9) Foreign-currency swaps are defined as swaps in which the net settlement is based on one leg calculated in a foreign-currency and the other leg calculated in U.S. dollars.
(10) Commitments include: (a) our commitments to purchase and sell investments in securities; and (b) our commitments to purchase and extinguish or issue debt securities of our
consolidated trusts.
(11) Related to the bankruptcy of Lehman Brothers Holdings, Inc., or Lehman.
(12) Includes imputed interest on zero-coupon swaps.
234 Freddie Mac