PNC Bank 2013 Annual Report Download - page 213

The notional amount of these credit default swaps by credit
rating is presented in the following table:
Table 135: Credit Ratings of Credit Default Swaps (a)
Dollars in millions
December 31,
2013
December 31,
2012
Credit Default Swaps – Purchased
Investment grade (b) $95 $ 95
Subinvestment grade (c) 15
Total $95 $110
(a) There were no credit default swaps sold as of December 31, 2013 and December 31,
2012.
(b) Investment grade with a rating of BBB-/Baa3 or above based on published rating
agency information.
(c) Subinvestment grade with a rating below BBB-/Baa3 based on published rating
agency information.
The referenced/underlying assets for these credit default
swaps is presented in the following table:
Table 136: Referenced/Underlying Assets of Credit Default
Swaps
December 31,
2013
December 31,
2012
Corporate Debt 37% 32%
Commercial mortgage-backed securities 63% 54%
Loans 0% 14%
R
ISK P ARTICIPATION A GREEMENTS
We also periodically enter into risk participation agreements
to share some of the credit exposure with other counterparties
related to interest rate derivative contracts or to take on credit
exposure to generate revenue. We will make/receive payments
under these agreements if a customer defaults on its obligation
to perform under certain derivative swap contracts. Risk
participation agreements purchased and sold are included in
these derivative tables: Tables 132 and 133.
Further detail regarding the notional amount, fair value and
weighted average remaining maturities in years for risk
participation agreements sold is presented in the following
table:
Table 137: Risk Participation Agreements Sold
December 31, 2013 December 31, 2012
Dollars in millions
Notional
Amount
Fair
Value
Weighted-
Average
Remaining
Maturity
In Years
Notional
Amount
Fair
Value
Weighted-
Average
Remaining
Maturity
In Years
Risk Participation
Agreements Sold $2,770 $(4) 6.1 $2,053 $(6) 6.6
Based on our internal risk rating process of the underlying
third parties to the swap contracts, the percentages of the
exposure amount of risk participation agreements sold by
internal credit rating follow:
Table 138: Internal Credit Ratings of Risk Participation
Agreements Sold
December 31,
2013
December 31,
2012
Pass (a) 98% 99%
Below pass (b) 2% 1%
(a) Indicates the expected risk of default is currently low.
(b) Indicates a higher degree of risk of default.
We have sold risk participation agreements with terms ranging
from less than 1 year to 23 years. We will be required to make
payments under these agreements if a customer defaults on its
obligation to perform under certain derivative swap contracts
with third parties. Assuming all underlying swap
counterparties defaulted at December 31, 2013, the exposure
from these agreements would be $77 million based on the fair
value of the underlying swaps, compared with $143 million at
December 31, 2012.
O FFSETTING ,C OUNTERPARTY C REDIT R ISK , AND
C ONTINGENT F EATURES
We, generally, utilize a net presentation on the Consolidated
Balance Sheet for those derivative financial instruments
entered into with counterparties under legally enforceable
master netting agreements. The master netting agreements
reduce credit risk by permitting the closeout netting of various
types of derivative instruments with the same counterparty
upon the occurrence of an event of default. The master netting
agreement also may require the exchange of cash or
marketable securities to collateralize either party’s net
position. In certain cases, minimum thresholds must be
exceeded before any collateral is exchanged. Collateral is
typically exchanged daily based on the net fair value of the
positions with the counterparty as of the preceding day. Any
cash collateral exchanged with counterparties under these
master netting agreements is also netted against the applicable
derivative fair values on the Consolidated Balance Sheet.
However, the fair value of any securities held or pledged is
not included in the net presentation on the balance sheet. In
order for an arrangement to be eligible for netting under
GAAP (ASC 210-20), we must obtain the requisite assurance
that the offsetting rights included in the master netting
agreement would be legally enforceable in the event of
bankruptcy, insolvency, or a similar proceeding of such third
party. Enforceability is evidenced by obtaining a legal opinion
that supports, with sufficient confidence, the enforceability of
the master netting agreement in bankruptcy.
The PNC Financial Services Group, Inc. – Form 10-K 195