SunTrust 2011 Annual Report Download - page 174
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Please find page 174 of the 2011 SunTrust annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements (Continued)
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The majority of the Company’s derivatives contain contingencies that relate to the creditworthiness of the Bank. These
contingencies, which are contained in industry standard master trading agreements, may be considered events of default. Should
the Bank be in default under any of these provisions, the Bank’s counterparties would be permitted under such master agreements
to close-out net at amounts that would approximate the then-fair values of the derivatives and the offsetting of the amounts would
produce a single sum due by one party to the other. The counterparties would have the right to apply any collateral posted by the
Bank against any net amount owed by the Bank. Additionally, certain of the Company’s derivative liability positions, totaling $1.2
billion and $1.1 billion in fair value at December 31, 2011 and 2010, respectively, contain provisions conditioned on downgrades
of the Bank’s credit rating. These provisions, if triggered, would either give rise to an ATE that permits the counterparties to close-
out net and apply collateral or, where a CSA is present, require the Bank to post additional collateral. Collateral posting requirements
generally result from differences in the fair value of the net derivative liability compared to specified collateral thresholds at
different ratings levels of the Bank, both of which are negotiated provisions within each CSA. At December 31, 2011, the Bank
carried senior long-term debt ratings of A3/BBB+ from three of the major ratings agencies. At the current rating level, ATEs have
been triggered for approximately $9 million in fair value liabilities as of December 31, 2011. For illustrative purposes, if the Bank
were downgraded to Baa3/BBB-, ATEs would be triggered in derivative liability contracts that had a total fair value of $5 million
at December 31, 2011, against which the Bank had posted collateral of $3 million; ATEs do not exist at lower ratings levels. At
December 31, 2011, $1.2 billion in fair value of derivative liabilities were subject to CSAs, against which the Bank has posted
$1.2 billion in collateral, primarily in the form of cash. If requested by the counterparty pursuant to the terms of the CSA, the Bank
would be required to post estimated additional collateral against these contracts at December 31, 2011 of $16 million if the Bank
were downgraded to Baa3/BBB-, and any further downgrades to Ba1/BB+ or below would require the posting of an additional
$10 million. Such collateral posting amounts may be more or less than the Bank’s estimates based on the specified terms of each
CSA as to the timing of a collateral calculation and whether the Bank and its counterparties differ on their estimates of the fair
values of the derivatives or collateral.
Notional and Fair Value of Derivative Positions
The following tables present the Company’s derivative positions at December 31, 2011 and 2010. The notional amounts in the
tables are presented on a gross basis and have been classified within Asset Derivatives or Liability Derivatives based on the
estimated fair value of the individual contract at December 31, 2011 and 2010. Gross positive and gross negative fair value amounts
associated with respective notional amounts are presented without consideration of any netting agreements. For contracts
constituting a combination of options that contain a written option and a purchased option (such as a collar), the notional amount
of each option is presented separately, with the purchased notional amount generally being presented as an Asset Derivative and
the written notional amount being presented as a Liability Derivative. The fair value of a combination of options is generally
presented as a single value with the purchased notional amount if the combined fair value is positive, and with the written notional
amount, if the combined fair value is negative.