Freddie Mac 2011 Annual Report Download - page 269

Derivative Assets and Liabilities at Fair Value
The table below presents the location and fair value of derivatives reported in our consolidated balance sheets.
Table 11.1 — Derivative Assets and Liabilities at Fair Value
Notional or
Contractual
Amount Assets
(1)
Liabilities
(1)
Notional or
Contractual
Amount Assets
(1)
Liabilities
(1)
Derivatives at Fair Value Derivatives at Fair Value
At December 31, 2011 At December 31, 2010
(in millions)
Total derivative portfolio
Derivatives not designated as hedging instruments under the
accounting guidance for derivatives and hedging
(2)
Interest-rate swaps:
Receive-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $211,808 $ 12,998 $ (108) $ 324,590 $ 6,952 $ (3,267)
Pay-fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,335 19 (34,507) 394,294 3,012 (24,210)
Basis (floating to floating) . . . . . . . . . . . . . . . . . . . . . . . . 2,750 5 (7) 2,375 6 (2)
Total interest-rate swaps . . . . . . . . . . . . . . . . . . . . . . . . 503,893 13,022 (34,622) 721,259 9,970 (27,479)
Option-based:
Call swaptions
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,275 12,975 — 114,110 8,391 —
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,525 — (2,932) 11,775 — (244)
Put Swaptions
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,375 638 — 59,975 1,404 —
Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 — (2) 6,000 — (8)
Other option-based derivatives
(3)
. . . . . . . . . . . . . . . . . . . . 38,549 2,256 (2) 47,234 1,460 (10)
Total option-based . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,224 15,869 (2,936) 239,094 11,255 (262)
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,281 5 — 212,383 3 (170)
Foreign-currency swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,722 106 (9) 2,021 172 —
Commitments
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,318 38 (94) 14,292 103 (123)
Credit derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,190 1 (5) 12,833 12 (5)
Swap guarantee derivatives . . . . . . . . . . . . . . . . . . . . . . . . . 3,621 — (37) 3,614 — (36)
Total derivatives not designated as hedging instruments . . . 788,249 29,041 (37,703) 1,205,496 21,515 (28,075)
Netting adjustments
(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,923) 37,268 (21,372) 26,866
Total derivative portfolio, net . . . . . . . . . . . . . . . . . . . . . . $788,249 $ 118 $ (435) $1,205,496 $ 143 $ (1,209)
(1) The value of derivatives on our consolidated balance sheets is reported as derivative assets, net and derivative liabilities, net.
(2) 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.
(3) Primarily includes purchased interest-rate caps and floors.
(4) Commitments include: (a) our commitments to purchase and sell investments in securities; (b) our commitments to purchase mortgage loans; and
(c) our commitments to purchase and extinguish or issue debt securities of our consolidated trusts.
(5) Represents counterparty netting, cash collateral netting, net trade/settle receivable or payable, and net derivative interest receivable or payable. The
net cash collateral posted and net trade/settle receivable were $9.4 billion and $1 million, respectively, at December 31, 2011. The net cash collateral
posted and net trade/settle receivable were $6.3 billion and $1 million, respectively, at December 31, 2010. The net interest receivable (payable) of
derivative assets and derivative liabilities was approximately $(1.1) billion and $(0.8) billion at December 31, 2011 and 2010, respectively, which
was mainly related to interest-rate swaps that we have entered into.
The carrying value of our derivatives on our consolidated balance sheets is equal to their fair value, including net
derivative interest receivable or payable and net trade/settle receivable or payable and is net of cash collateral held or
posted, where allowable by a master netting agreement. Derivatives in a net asset position are reported as derivative
assets, net. Similarly, derivatives in a net liability position are reported as derivative liabilities, net. Cash collateral we
obtained from counterparties to derivative contracts that has been offset against derivative assets at December 31, 2011
and 2010 was $3.2 billion and $2.2 billion, respectively. Cash collateral we posted to counterparties to derivative contracts
that has been offset against derivative liabilities at December 31, 2011 and 2010 was $12.6 billion and $8.5 billion,
respectively. We are subject to collateral posting thresholds based on the credit rating of our long-term senior unsecured
debt securities from S&P or Moody’s. The lowering or withdrawal of our credit rating by S&P or Moody’s may increase
our obligation to post collateral, depending on the amount of the counterparty’s exposure to Freddie Mac with respect to
the derivative transactions. As a result of S&P’s downgrade of Freddie Mac’s credit rating of our long-term senior
unsecured debt from AAA to AA+ on August 8, 2011, we posted additional collateral to certain derivative counterparties
in accordance with the terms of the derivative agreements.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a
liability position on December 31, 2011, was $12.7 billion for which we posted collateral of $12.6 billion in the normal
course of business. If the credit-risk-related contingent features underlying these agreements had been triggered on
December 31, 2011, we would have been required to post an additional $0.1 billion of collateral to our counterparties.
264 Freddie Mac